Wynne Avenue Property Pty Ltd v MJHQ Pty Ltd

NCAT Appeal Panel|2019-01-29

Background

The appellant, Wynne Avenue Property Pty Ltd was the lessor to the respondent, MJHQ Pty Ltd of retail premises being shop 52 situated within a shopping centre complex. It is uncontroversial for the purpose of these proceedings that there existed at all relevant times a license agreement between the parties which was a retail lease for the purpose of and subject to the provisions of the Retail Leases Act 1994 ("the Act").
The licence agreement contained a "demolition clause" in the following terms; 33 If at any time during the term of the licence, the Licensor wants to demolish, substantially repair, renovate or reconstruct the Centre or part of it containing the premises, the Licensor must give the Licensee thirty (30) days notice to terminate the licence agreement and vacate the premises
On 25 August 2017 the appellant issued a notice of termination of the tenancy pursuant to the provisions of section 35 of the Act expiring on 25 February 2018. In summary, the appellant said that it wished to demolish part of the shop occupied by the respondent so as to amalgamate it with two adjoining shops and create a larger rental area. The respondent filed an Application in this Tribunal on 1 December 2017 seeking, in effect, a declaration that the termination notice was invalid and other consequential relief. In a Decision published on 23 October 2018 a Senior Member upheld the respondent's application and declared that the termination notice was invalid. The appellant seeks leave to appeal and to appeal from that decision.
We add for completeness that the appellant had previously unsuccessfully attempted to terminate the respondent's tenancy. It gave one month's notice of termination on 30 June 2017 asserting that the lease was a tenancy at will. Proceedings were commenced in this Tribunal. On 9 August 2017 those proceedings were resolved on a consent basis. The notice of termination was withdrawn, and a declaration was made that the lease was a retail lease governed by the Act and that its termination date was 5 March 2020. Notwithstanding this agreement, the appellant issued the further termination notice and served it on the respondent on 25 August 2017, 16 days later.

The termination notice

The validity of this notice is at the heart of these proceedings. It is therefore appropriate that we now describe it in sufficient detail.
The notice states that the appellant "terminates the Lease pursuant to clause 33 of the Lease and section 35 of the Retail Leases Act…. as (the appellant) proposes to renovate and reconstruct that part of the Burwood Plaza Shopping Centre….. in which the Premises are located." The notice required vacant possession by 25 February 2018 said to be a period of 6 months from the date of the notice.
There then followed a lengthy section entitled "Details of Proposed Renovation and Reconstruction." This referred, in summary form to; 1. an intention by the appellant "to demolish, renovate and substantially reconstruct the Western end of the Centre ….by demolishing and removing three existing premises being shops 48, 52 and 53 (including the Premises) in the western wing of the Centre to create one large premises of approximately 2000 sqm." (described as "the works"). 2. the works being part of the strategy to strengthen the Western end of the Centre "which has experienced declining trading conditions due to substantial vacancies and large void areas in that part of the Centre" 3. the fact that the appellant had entered into a contract with a named builder, Upright Builders Pty Ltd and had appointed a named person as a private certifier authority 4. the fact that the appellant had entered into "a binding heads of agreement with a major tenant for an amalgamated tenancy consisting of shops 48, 52 and 53." 5. the works to be carried out included demolition of certain walls, removal and readjustment of shop fronts and the creation of a new glass façade, construction of back of house and storage areas, installation of new services, reconfiguration of the loading dock, upgrading lifts and travellator access, removal of a mezzanine floor in part of the area, erecting full height perimeter walls, replanning columns, installation of new ceilings and new flooring, upgrading mechanical, fire and electrical works, construction of a new outdoor seating area and installation of new signage. 6. the fact that these works could not be carried out practicably without vacant possession 7. the fact that the works were due to commence on 26 February 2018 and that vacant possession was required the day before
The notice annexed a refurbishment programme said to have been prepared by Colliers in August 2017, a letter of acceptance from Upright Builders dated 3 April 2017 and architectural drawings of the proposed upgrades to the general area.
The notice advised the respondent that it had a statutory right to terminate the lease earlier than the termination date.

The statutory basis for the termination notice and relevant principles

It is convenient at this stage to set out the provisions of section 35 of the Act, which are fundamental to the resolution of these appeal proceedings and that we refer to the manner in which the section is to be applied as determined by relevant authorities. The section is in the following terms; 35 Demolition (1) If a retail shop lease provides for termination of the lease on the grounds of proposed demolition of the building or any part of the building of which the retail shop forms part, the lease is taken to include provision to the following effect: (a) The lease cannot be terminated on that ground unless and until the lessor has provided the lessee with details of the proposed demolition sufficient to indicate a genuine proposal for demolition within a reasonably practicable time after the lease is to be terminated. (a1) The lease cannot be terminated by the lessor on that ground unless the proposed demolition cannot be carried out practicably without vacant possession of the shop. (b) The lease cannot be terminated by the lessor on that ground without at least 6 months written notice of termination. (c) If notice of termination on that ground is given to the lessee, the lessee may terminate the lease by giving the lessor not less than 7 days written notice of termination at any time within 6 months before the termination date notified by the lessor. (2) If the lease is for a term of 12 months or less, the period of 6 months in subsection (1) (b) and (c) is shortened in each case to 3 months. (3) If a retail shop lease is terminated on such a ground and the proposed demolition is not carried out within a reasonably practicable time after the termination date notified by the lessor, the lessor is liable to pay the lessee reasonable compensation for damage suffered by the lessee as a consequence of the early termination of the lease, unless the lessor establishes that at the time notice of termination was given by the lessor there was a genuine proposal to demolish within that time. (3A) If a retail shop lease is terminated on such a ground, the lessor is liable to pay the lessee compensation for the fitout of the retail shop if the lessee is required under the lease to fit out the retail shop, whether or not the proposed demolition is carried out. (4) For the purposes of this section, demolition includes repair, renovation and reconstruction.
A detailed consideration of the provisions of section 35 is contained in the judgment of Bryson J (as his Honour then was) in Blackler v Felpure Pty Ltd [1999] NSWSC 958. His Honour methodically analysed the provisions of section 35 in the context in which it occurs in the Act. It is convenient, for reasons which will become obvious, that we set out a lengthy extract form the judgment. His honour said; 25 ……………………… The basic concept of s.35 is a provision for termination on the grounds of proposed demolition. For this concept to have any application the termination must take place before the expiry of the term for which the lease was entered into; the assumption of s.35 is that the term for which the lease was entered into is to be cut short, and s.35 imposes controls on the process of cutting it short. There is no guarantee in the Retail Leases Act that the term for which a retail shop lease is entered into will not, after it is entered into, be interrupted by any supervening event. There could be supervening events which bring the term to an end by conduct of a public authority such as resumption of the land, and there also could be supervening events which bring the term for which a lease is entered into to an end before the expiry of the term through the operation of provisions of the lease itself. Leases commonly contain express or implied provisions under which their terms can be brought to an end for breach of covenant; such provisions are not, as far as I have observed, regulated by the Retail Leases Act 1994, although they are regulated by the Conveyancing Act 1919. There could I suppose be provisions of other kinds under which a lease may be terminated; provisions for termination on the grounds of proposed demolition of the building are regulated by s.35, but provisions for termination on other grounds, if there are such provisions in leases, do not appear to have been regulated by the Retail Leases Act. 26 The Retail Leases Act provides a number of protections for lessees. It protects them under s.16 by fixing a minimum term for which a lease is to be entered into, and it protects lessees under s.35 by restricting the operation of demolition clauses. The provisions of the Act overall appear to me to show contemplation that there should be both minimum terms and also demolition clauses which potentially might bring the terms to a premature end. 27 The presence in the lease of cl.7 and its provisions for termination on the grounds of proposed demolition are not inconsistent with and in my view have no impact on the requirement of subs.16(1) relating to the length of the term for which the shop lease is entered into. The recognition, implied from the presence of s.35 in the Act, that leases may be terminated, but subject to its provisions appears to me to confirm that terminations of leases may take place without regard to whether a term of five years will have expired when termination of the lease on the ground of proposed demolition takes place. 28 On behalf of the plaintiff it was submitted that termination of the lease under the demolition clause is or is analogous to forfeiture of the term and that relief against this forfeiture is available. However there is no element of breach or default on behalf of the lessee, and no event which by any analogy could be considered a forfeiture or penalty or be the subject of equitable jurisdiction to grant relief. ……………………………………….. 31 It was further contended that the defendant is subject to a duty of good faith in exercising rights under cl.7 and s.35; counsel referred to the discussion of a contractual duty of good faith in the judgment of Sheller JA in Alcatel Australia Ltd v Scarcella [1998] NSWSC 483; (1998) 44 NSWLR 349. It is quite clear from the evidence tendered on behalf of the defendant that a purpose of the defendant's proposed works, referred to in its notice and said to constitute demolition within the extended meaning in subs.35(4), is to make the ground floor of the building suitable for occupation by the defendant as the business premises of its own real estate agency, and for letting out the upper storey. The works referred to in the notice, and other works which the defendant intends to carry out, will have the effect of making the building altogether unsuitable for occupation as a pizza and pasta bar, and suitable for the defendant's real estate agency business. In my opinion it is required that the lessor in fact should have a genuine proposal to demolish the building within a reasonably practical time after the lease is to be terminated. It is quite clear as a matter of fact, and was not in substance disputed, that the defendant in the person of its principal Mr Savelle genuinely proposes to proceed with work, and to do so as soon as can be arranged so as to be able to move into the premises on the expiry of its present lease of premises nearby on 4 January 2000. 32 A duty of good faith in the exercise of its contractual right to terminate the lease should in my view be implied in the lease; the implication is readily made as it could not possibly have been the intention of the parties that the lease should be terminated on the mere delivery of notice asserting a particular intention but in the absence of any actual intention of that kind. Other principles which also support this conclusion are the principle requiring the exercise of contractual powers which may affect the rights of others to be undertaken in good faith for the purposes for which the power was conferred and at a more basic level the principle which vitiates fraud would deprive a notice asserting that there was an intention to demolish premises from any effect if in fact there was no such intention. However those situations do not relate to the present facts, and there is no reason why an intention of the defendant to occupy the premises itself, or it may be to lease them out to some particular identified person after the works have been carried out, establishes the exercise as not being carried out in good faith. The defendant can exercise its power to terminate the lease with a view to its own advantage; it is for purposes of that kind that contractual entitlements generally exist. 33 The effectiveness of the defendant's supposed termination of the lease depends on whether the letter of 14 December 1998 meets the requirements of subs.35(1) para.(a), and whether the details set out in the letter actually constitute details of work which is to be treated as demolition under subs.35(4). 34 It will be seen from the expressions in subs.35(1) that a lease cannot be terminated without at least six months' written notice of termination. That is to say, termination is a different act to giving written notice. Paragraph (a) operates on the act of terminating the lease; it does not prescribe what must appear in the written notice, and the requirement that the lessor provide the lessee with details of the proposed demolition could be complied with less than six months before termination and otherwise than in writing. There is no evidence that any details were in fact provided in any other way or at any other time than with the letter of 14 December 1998. What paragraph (a) requires, according to its express terms, is the provision of details, and that the details provided should be sufficient to indicate a genuine proposal. Although it is not expressly enacted that there must be a genuine proposal it is in my view a necessary implication that a genuine proposal must exist; it could not have been intended that the requirement could be satisfied by a provision of details which was untrue. 35 The effectiveness of the termination is to be decided upon the basis of what the details provided sufficiently indicate, not upon the basis of what the underlying proposal was. This fine distinction is of some importance in the present case because in December 1998 the defendant proposed and now still proposes to do further works which were not mentioned in the notice. The further works relate to extending the building, and the extension which is feasible and the further works have not been established because the defendant's architect has not conducted an appropriate inspection. There is a need to obtain the Shire Council's Development Consent for any such extension whereas the Shire Council may not require an application for Development Consent for the works specified in the letter of 14 December 1998. 36 The plaintiff's counsel contended that the provision of details did not comply with para.(a) because some of the works which are proposed were not referred to. In my view the facts that the defendant proposes to do further works, and may do them subject to the need to obtain Development Consent, and proposed to do them at the same time as the works specified in the notice, do not establish that para.(a) was not complied with. It is not necessary for compliance with para.(a) to furnish every detail of the proposed demolition, and it is enough if the details provided are sufficient to indicate a genuine proposal to demolish. If that is indicated, it is not a defect in the provision of details that more is to be done. 37 It is in my view significant to consider the purpose for which the provision which the Lease is taken to include requires that details be provided. The requirement to provide details is not merely a formal step imposed in the lessor's path, but the details are to be provided so that the lessee can come to a conclusion about whether the termination will be effective, and whether the lessee should accept that it will be effective or dispute it. The sufficiency of details provided should be tested in relation to that purpose. The question is whether the details provided are sufficient to indicate a genuine proposal to demolish the building; if they are not the termination cannot take place and if they are it will be effective no matter what other details of the proposed demolition exist or could have been provided. 38 There is on the evidence tendered by the defendant, particularly of Mr Sevelle no reason to doubt that there is a genuine proposal to do the work described in the letter of 14 December 1998, and to do further work subject to Development Consent, with the object of providing the defendant itself with office space in which to operate when its present lease expires on 4 January 2000, and also of creating enlarged office space in the upper storey which the defendant now proposes to let to its solicitor. There was no attack on the genuineness of this proposal and the proofs of it are clear. 39 The time when the demolition is to take place is not required by para.(b) of subs.35(1) to be provided in writing. That time is not one of the details which are required by para (a) to be provided, but is a characteristic of the proposal which the details are to indicate. The reference to a reasonably practicable time establishes a characteristic of the proposal; it does not establish one of the details which are required to be provided. The proposal indicated must be a proposal to demolish the building within a reasonably practicable time, not within a stated time, and to meet that requirement the proposal must be sufficiently well-developed and mature to proceed within a reasonably practicable time. A proposal which was immature or only partly formed or to which the lessor was not committed could not comply. All buildings eventually come to the end of their lives and have to be demolished, and it was necessary for para.(a) to circumvent manoeuvres such as terminating leases on the basis that the building would come to the end of its useful life in five or ten years' time, or that the locality would come under redevelopment pressures in five or ten years' time, so that the building would then have to be re-demolished. ……………………………………………… 61 It is not my view open to contention by the lessee whether the lessor's decision to demolish, repair, renovate or reconstruct the building is reasonable or appropriate; it is sufficient if there is a genuine proposal. Nor in my opinion is it open to debate whether the lessor could in some way modify the lessor's proposal so as to continue to accommodate the lessee after the premises have been demolished, repaired, renovated or reconstructed. The opportunity to break a lease, retake possession and take advantage of the demolition clause is a contractual opportunity made available to the lessor by the terms of the lease itself, including the provisions notionally incorporated by s.35, it is not injurious to the lessor's position whether the lessor has decided to take that advantage, and it is not relevant that the lessor has in view occupying the premises itself, or selling them after reconstruction, or leasing them again, even if the lease should be to business similar to the lessee's. The demolition clause is a reality of the party's relationship, and so is its potential operation to end the lease. 62 It was contended that the duty of good faith referred to Alcatel and the Retail Leases Act operating together make it impermissible to use the break clause when the underlying purpose is to put another occupant into possession. In my view this lease includes the break clause and it is not possible to say that by exercising rights under it the lessor is stepping outside the contemplated relationship.
Blackler has been considered by the NSW Court of Appeal in Skiwing Pty Ltd v Trust Company of Australia (trading as Stockland Property Management) [2006] NSWCA 276 Spigelman CJ (Hodgson and Bryson JJA agreeing) after referring to [61] in Blackler said; 22 In my opinion, similar reasoning is applicable in the present case with respect to the parallel formulation in s34A(a). A proposed "refurbishment redevelopment or extension" does not lose the character of a "genuine proposal" by reason of the fact that the commercial motivation of the lessor is to attract a tenant or a particular kind of tenant. The reasoning of Bryson J in Blackler v Felpure is relevantly analogous and, in my view, correct. It is as the Appeal Panel found, applicable to this case. I can see no error of law in the Appeal Panel's analysis.
Having regard to the observations of Bryson J in Blackler which we have extracted above, it is possible to set out a number of principles to assist in the determination of these proceedings. These are; 1. section 35 creates circumstances which will interfere with, and impact upon the duration of a retail lease so as to bring it to a premature end 2. there is some protection of a lessee built into the provisions of section 35 (3) and (3A) 3. it is a requirement of section 35 that there exist a genuine proposal to demolish the building or relevant part thereof within a reasonably practicable time after the lease is to be terminated 4. the notice must contain such details as are sufficient to indicate that there is a genuine proposal, and the effectiveness of the notice is to be determined upon whether such details sufficiently indicate that the underlying proposal was genuine. This is a matter which is to be distinguished from the actual basis of the underlying proposal. 5. The use of the words "sufficient to indicate" means that the details provided are sufficient to "be a sign of" or "strongly suggest" that there is in existence such a proposal (per the Oxford Internet dictionary). It is not necessary that there be proven to be in existence, and a consequential finding that there be, an actual proposal, although nothing turns in the circumstances of these proceedings on this distinction. 6. It is not necessary that the notice set out every detail of the proposed demolition, and it is sufficient if the details provided are indicative that a genuine proposal to demolish exists in the sense referred to above 7. the sufficiency of details is to be tested against whether the lessee is able to conclude that there is a basis for termination under section 35, by indicating a genuine proposal to demolish, or whether that is a matter which should be contested The requirement to provide details is not merely a formal step imposed in the lessor's path, but the details are to be provided so that the lessee can come to a conclusion about whether the termination will be effective, and whether the lessee should accept that it will be effective or dispute it. The sufficiency of details provided should be tested in relation to that purpose. The question is whether the details provided are sufficient to indicate a genuine proposal to demolish the building; Blackler at [37] 1. it is not necessary to specify a particular time when the demolition is to take place, only that the demolition is proposed to take place within a reasonably practicable time. To meet that requirement "the proposal must be sufficiently well-developed and mature to proceed within a reasonably practicable time. A proposal which was immature or only partly formed or to which the lessor was not committed could not comply." 2. The motivation of the lessor is irrelevant (unless, arguably, it demonstrates that there is no genuine proposal to demolish). It matters not that the purpose of the demolition is to advance the commercial interests of the lessor, including releasing the premises. 3. The time at which the genuineness of the proposal should be considered is the time when the notice under section 35 is issued.
We add for completeness that there are additional authorities to which we were taken by the parties during the course of the appeal hearing. They are decisions of this Tribunal and its predecessor. A certain degree of controversy has arisen, which is referred to by Spigelman CJ in Skiwing. It is not necessary that we consider these matters because, as is clear, we are bound by the judgement of Bryson J in Blackler, the controversy was largely resolved in Skiwing and it is not necessary to travel beyond Blackler.

The decision under appeal

In the course of the hearing before him the Senior Member heard oral evidence and received a great deal of documentation. We shall refer to that evidence during the course of our discussion of the Decision under appeal and the Senior Member's reasons therefor.
The Senior Member commenced consideration of whether the notice complied with section 35 of the Act by noting that the respondent bore the onus of proving that it was not a genuine proposal for demolition within a reasonably practicable time after termination of the lease as required by the section. He then observed that "in weighing the evidence of the parties the Tribunal must take into account that limited evidence, particularly if there is no contrary evidence provided by a party who is easily able to provide evidence but does not do so, may be sufficient to make factual findings" citing Hampton Court Pty Limited v Crooks [1957] HCA 28. We perceive that this observation has coloured the examination by the Senior Member of the evidentiary material and his approach to the application of the provisions of section 35 to the factual circumstances applying to the proceedings.
Hampton Court involved a claim for damages brought by a patron in a hotel when she slipped and fell on the floor of a washroom. She had said that there was some greasy or oily substance on the floor which had caused her to fall. However, the plaintiff was unable to produce any evidence of any kind that indicated that the defendant hotel had known or ought reasonably to have known that this substance was on the washroom floor. In the absence of any such evidence the High Court determined that there should be a verdict for the defendant because the plaintiff had not been able to prove negligence against the hotel. The majority judgement was delivered by McTiernan, Fullagar, Kitto and Taylor JJ. Dixon CJ delivered separate reasons for agreeing in the disposition of the proceedings. Dixon CJ observed that the facts concerning "the care and control of the premises and the precautions taken, must be peculiarly within the knowledge of the defendant." His Honour then proceeded; "But a plaintiff is not relieved of the necessity of offering some evidence of negligence by the fact that the material circumstances are peculiarly within the knowledge of the defendant; all that it means is that slight evidence may be enough unless explained away by the defendant and that the evidence should be weighed according to the power of the party to produce it,….." These observations do not compel a party to produce evidence against its interests, and certainly do not dispense with the need for a party which bears the onus of proof in proceedings to adduce evidence to discharge that onus.
We respectfully disagree that it is appropriate to make "factual findings" in contradistinction to a determination as to whether an onus or burden of proof has been discharged, by reference to the fact that some of the evidentiary material in these proceedings is peculiarly within the knowledge of the appellant. In any event, as the Senior Member observed, the relevant burden fell upon the respondent, and the focus of attention in determining the outcome of the proceedings must be directed to this issue.
The Senior Member then observed that the notice given by the appellant contained details of the proposed works and specifically referred to the demolition of walls in shop 52 and the reconfiguration of the shop into an amalgamation of 3 shops. He also noted that the appellant had entered into "binding heads of agreement" with an entity named as TK Maxx to occupy the enlarged premises. The Senior Member noted that the plans "clearly were drawn up on the basis that TK Maxx would move into the amalgamated premises." He said that on the basis of evidence given in the proceedings and by reason of the contents of the notice of termination "it is clear that, as of 25 August, 2017 the (appellant) had an agreement with TK Maxx to move into the amalgamation of 3 shops, including shop 52."
The Senior Member then noted that evidence given in the proceedings before him on 16 May 2018 by an officer of the holding company of the appellant was to the effect that at that stage there no longer existed a binding heads of agreement with TK Maxx. Nevertheless, it was the evidence of that officer that the appellant wished to proceed with the reconfiguration and amalgamation of the three shops.

Asserted deficiencies in the appellant's evidence

After commenting that the heads of agreement between the appellant and TK Maxx were not provided by the appellant in its evidence before him, the Senior Member then referred to what he called "significant deficiencies" in the appellant's evidence going to whether there was a genuine proposal for demolition as required by section 35. These deficiencies extended to; 1. a lack of evidence from an employee of the managing agent of the shopping complex and from Colliers International to establish the circumstances in which the refurbishment programme document dated August 2017 had been created and what information had been conveyed to tenants regarding the proposed refurbishment.
We are unsure why and to what extent the failure of the appellant to have adduced this evidentiary material for the purpose of the hearing would, in some way, render the notice insufficient to indicate a genuine proposal for demolition as required by section 35. Certainly there was no obligation on the appellant to produce this evidence, nor was it necessary. The notice must be read as a whole, including all of the documentation annexed to it. There is no requirement in section 35 to set out each and every detail of each and every matter which is encompassed within the demolition proposal. As we have already observed, all that is required is the provision in the notice of such details as are sufficient to indicate that it is a genuine proposal. We are unsure whether in concluding that the notice of termination was defective the Senior Member relied individually on this "deficiency" in the evidentiary material or whether he relied on this matter cumulatively with other matters identified by him. On either basis we do not accept that a failure to adduce this evidence detracted from the efficacy of the notice of termination. 1. There was a lack of evidence from the appellant concerning whether any Development Consent had been sought and obtained from the local council, that a Complying Development Certificate for the use of a private certifier had been issued and whether a Development Consent or Complying Development Certificate was required under the Environmental Planning and Assessment Act 1979.
Again, we are not aware from the reasons for decision whether this was a matter of concern for the Senior Member individually or cumulatively with other matters. In any event, we note that the notice of termination served by the appellant on the respondent indicated that work would not commence for a period of 6 months. Whether or not development consent and the other statutory requirements had been initiated as at the date of the giving of the termination notice is not a relevant matter in considering whether or not there was a sufficiency to indicate a genuine proposal for demolition within a reasonably practicable time after termination. To this extent we do not regard this as a relevant matter.

Other asserted deficiencies in the appellant's case

In his reasons the Senior Member referred to the Colliers refurbishment programme and the fact that it identified stages 1 and 2, that certain items had been shown as "completed" and other items left blank. He said that there was no indication when any of the works referred to were to be completed and that, in any event, "much of the work referred to relates to refurbishments of the Ground Level and Mezzanine Level of the building, rather than demolition and redevelopment in respect of shop 52." The Senior Member then referred to level I and shop 52 as being part of the refurbishment programme document including a plan showing the amalgamated site after the three existing tenancies had been brought within the one area. The Senior Member was critical of the document in that it did not say when Stage 2 was to commence or be completed. However, the document is clear that the intention of the appellant, at least as it applied to the amalgamation of the three existing tenancies was to "square off the end of the mall to improve access, sightlines and presentation of the dated mall, boasting an area of approximately 2000 m²." Furthermore, the document indicates that the strategy adopted was "To strengthen the weak Western end of the mall on Level 1 due to substantial vacancy and large void areas within the vicinity." The criticism of the Senior Member seems to be directed to the fact that the appellant was focusing its attention on the amalgamation of the three shops, rather than providing any evidence of its intentions with respect to the other parts of the overall development of the shopping complex.
In circumstances where there was evidence that as at the date of the giving of notice the appellant had located a prospective tenant of the proposed enlarged premises which had signed heads of agreement, we do not agree that the focus of attention on that particular area would per se detract overall from a consideration of the particular proposal for demolition pertaining to the respondent as indicating that it was a genuine proposal. We disagree that this is a matter of significance either, in the circumstances of these proceedings considered cumulatively with any other matters, or on its own.
The Senior Member did not accept evidence given on behalf of the appellant that in 2016 it had had general discussions with tenants at the complex about the intention to refurbish it. It had been asserted that the amalgamation of shops 48, 52 and 53 had been disclosed at the meeting. The Senior Member rejected this evidence. Officers of the respondent had given evidence that the first notification of any proposed demolition and redevelopment of shop 52 received by it occurred upon receipt of the notice of termination. The Senior Member gave no indication as to how he regarded this as a matter of significance. There is no indication that the failure to afford any earlier notice to the respondent of the proposal to demolish the shop other than that contained in the notice of termination detracts from the genuineness of the demolition proposal as required by section 35.
Evidence had been given on behalf of the appellant that the work proposed to be undertaken in amalgamating the shop areas was expected to take three months after vacant possession. The Senior Member said that the documentation provided by way of the fit-out contract with Upright Builders Pty Ltd did not include such a timeframe. We observe that whether or not the building contract contained a time for the completion of the project would not per se detract from the evidence given of an expectation of three months in which to complete the work. This of itself would not detract from the genuineness of the demolition proposal.
The Senior Member noted that the document consisted of a letter of offer containing an acceptance by the builder which was not on the letterhead of the builder. Furthermore, the letter of acceptance stated that it was binding until a formal written contract was executed and that it would not be "operative" until a lease was entered into with respect to the combined shops. In addition, the appellant failed to adduce evidence that it shared a common director with the building company. The Senior Member also noted that this documentation was dated almost 6 months prior to the service of the demolition notice, and this was further indication of the failure of the appellant to have informed the respondent of the proposal to amalgamate the three shops. Finally, the Senior Member criticised the building documentation because it provided that it was subject to a lease being entered into by the appellant for the tenancy of the amalgamated three shops. Accordingly, there was seen to be no obligation on the part of the builder "to do anything until the (appellant) enters into a lease in respect of the amalgamated shops 48, 52 and 53."
The Senior Member concluded that this building documentation dated 3 April, 2017 was not indicative of a genuine proposal for demolition of the building within a reasonably practicable time after the lease was to be terminated. In so concluding he relied upon four matters namely; 1. the acceptance letter was dated almost 6 months prior to the demolition notice being served 2. there was no evidence from anyone associated with the builder "providing detail of any agreement….. to perform demolition work. There was no evidence of any tenders being obtained 3. the agreement to perform the work was not operative until a lease of the amalgamated shop area had been entered into with no indication as to when that was to occur "if at all." Furthermore, it was said that this was inconsistent with evidence given on behalf of the appellant that it would proceed with the amalgamation of the three shops whether or not it had entered into a lease for that area 4. although the letter of acceptance indicated that work was likely to commence 4 weeks from the availability of the site, there was no indication how long the work would take.
We agree with the submissions of the appellant that taken either individually or cumulatively these matters are not indicative of a deficiency in the termination notice by reference to the provisions of section 35. That section does not require the work to be completed within any particular timeframe. All that is required is that there be a genuine proposal for demolition "within a reasonably practicable time after the lease is to be terminated." That is the work is to be commenced and concluded within such a time. The notice of termination was given some 6 months prior to the proposed date of termination, and obviously work could not commence until vacant possession had been obtained. Furthermore, it was not inappropriate that the appellant enter into a preliminary form of agreement with a builder predicated upon it having entered into a tenancy agreement for the amalgamated premises, because as at the date of the termination notice, it held a heads of agreement with a proposed tenant. In addition, the fact that it shared a common director with the proposed builder would not, of itself, detract from the genuineness of the proposed arrangement. Prima facie, there is nothing wrong with an owner of a retail complex entering into contracts for refurbishment, renovation and demolition of part of the complex with a builder with which it is associated, especially if the costs will be borne by it.
In expressing his conclusion, the Senior Member said that he was satisfied "on the balance of probabilities" that the demolition notice did not indicate a genuine proposal for demolition within a reasonably practicable time after the lease is to be terminated as required by section 35. Having so found, he said that it was unnecessary to make a finding "as to whether the proposed work cannot be carried out practicably without vacant possession being given."

The respondent's submissions

The respondent commenced its written submissions by making reference to previous proceedings between the parties. We have summarised the effect of those proceedings at [1] to [4] above. The respondent commented that 2 weeks after "electing to be bound to a 5 year term" the appellant served its notice of termination. It complained that a disclosure statement should have been served prior to entering into that 5 year lease as occurs "in the overall vast majority of times when a Lessee enters into a Lease pursuant to the Act." We observe that there is no evidence before us that is indicative of some general, undefined, standard, and if there was any such evidence before the Senior Member he appropriately did not have regard to it, because it is irrelevant to a consideration confined to the provisions of section 35.
In effect, the respondent complained that the issue of the termination notice was a ploy on the part of the appellant to gain vacant possession of the respondent's shop, from which it had traded for 27 years. However, there is simply no evidence that would detract from a conclusion that the respondent had been provided with details of the proposed demolition sufficient to indicate a genuine proposal for demolition within a reasonably practicable time as required by this section. Whilst the respondent might suspect that the appellant engaged in some form of subterfuge, it is necessary for it to prove that this is so.
The respondent urged us to apply a beneficial construction to the provisions of section 35 because it is intended as a beneficial protection of a tenant. We agree, as is obvious, that the provisions of section 35 are intended to be beneficial. They apply only to a retail shop lease which makes provision for termination on the grounds of a proposed demolition of the building or any part of the building of which the retail shop forms part. Section 35 limits the circumstances in which such termination may be effected by importing restrictive provisions into the lease. The various subparagraphs of subsection (1) and subsection (2) limit the grounds and circumstances of termination. Furthermore, subsections (3) and (3A) provide further protection. Their provisions are self-explanatory. However, the fact that this is a beneficial provision in favour of a tenant does not provide a reason for not applying the provisions of section 35 in a manner which reflects the language used, and which is clearly explained in Blackler.
Mr Spring, agent for the respondent informed us that he does not have legal training. He made submissions on behalf of the respondent which urged us to consider "clear disagreements and paradoxical arguments between opposing parties, members of this Tribunal, and the higher judiciary which way a demolition notice and section 35 should be interpreted." He also sought to distinguish some of those cases because they involved "substantial redevelopments" extending beyond "merely demolishing 2 inter tenancy walls and installing new ceilings, usual services and shopfront…." Such a submission is made in the face of the fact that this Tribunal is bound by decisions of Courts. There is nothing contained within Blackler which would justify distinguishing the appropriate approach to construction taken by Bryson J in the context of these proceedings. This is more so because, since that case was decided, the section was amended to remove the requirement that demolition includes any "substantial" repair, renovation or reconstruction and to include demolition as defined of any part of the building of which the retail shop forms part.
The respondent's written submissions also relied on section 78 of the Act which is in the following terms; 78 Interpretation based on industry practice In the interpretation of this Act, a court (as defined for the purposes of Part 8) is to have regard to accepted practices and interpretations within the industry concerning the leasing of retail shops.
The respondent said; It is submitted that what the Appellant urges upon the Appeal Panel is not, nor has it ever been industry best practice. The Appellant is targeting a single proprietor shopping centre tenant of 27 years tenure by virtue of a demolition notice in order to carry out an amalgamation of a tenancy either side of the target premises in an otherwise stable shopping centre. If the Appeal Panel does not have the industry experience to evaluate retail industry best practice, it should order a further hearing so that it can inform itself. Guidance on a repair or renovation to "one or two shops" can be obtained by a decision by Member Bluth in Lazaros which is set out Judgment at [72]. Member Dennis Bluth does have retail leasing industry experience, having for many years represented the Law Society in many reviews to amend the Act and who regularly chairs retail leasing industry seminars. The Respondent submits it is industry practice where there is a potential and a lessor's desire for works to effect a modest tenancy change such as one or two shops, shopping centre lessors with best leasing practices offer reasonable compensation for loss of opportunity profits or relocation under 34A of the Act……"
Lazaros is a reference to Helen Lazaros t/as Perfect Health v IOF Custodian Pty Ltd [2015] NSWCATAD 25, a decision of D Bluth, Senior Member. Those proceedings concerned a proposal by a lessor to renovate the totality of a food court contained within a large commercial building, so as to replace all of the existing tenants with a major national supermarket operator. An application by one of the food court tenants to have a demolition notice issued under section 35 set aside was dismissed. The decision of the Senior Member and the reasons therefor were orthodox and applied the principles of construction set out in Blackler. There is no mention made in that decision of any industry practice. We also observe that there is a reference in that decision to a demolition proposal affecting one or two shops, but that decision predates the amendments to section 35 to which we have earlier referred. Those comments are no longer relevant to a construction of section 35.
If a party wishes to avail itself of the provisions of section 78 of the Act that party needs to bring before the Tribunal evidence which establishes in a satisfactory manner "any accepted practices and interpretations within the industry concerning the leasing of retail shops" which is relevant to the proceedings. If it fails to do so, then, prima facie, the Tribunal is not entitled to have regard to that matter. Clearly, the Tribunal is entitled to have regard to matters which are of common knowledge to everyone, but relevant evidence is necessary with respect to accepted practices and interpretations within an industry, especially if there is any controversy between the parties about these matters. No such evidence having been adduced in these proceedings, it is not a matter which we are entitled to take into account. Furthermore, Mr Spring did not have any such evidence available for production during the course of the appeal hearing. The appropriate time to produce that evidence was in the course of the original hearing. We decline to remit the matter back for further hearing.
We do not find any merit in the respondent's submissions.

Consideration

We shall approach our consideration of this matter on the basis that the decision under appeal was founded upon a consideration of the matters to which we have referred, both individually and cumulatively. We have made comment with respect to these matters in the course of considering each of them. We have found that none of them detracts from a finding that the demolition notice did provide the respondent with details of the proposed demolition sufficient to indicate a genuine proposal for demolition within a reasonably practicable time after the lease is to be terminated. We further find that a cumulative consideration of all of these matters yields the same result.
It then becomes necessary to consider whether the demolition notice does provide the information required by section 35 (1) (a). In so approaching this matter we have regard, as is required by the section, to the notice of termination itself. It clearly requires vacant possession to be given 6 months from its date. It sets out details of the proposed renovation and reconstruction including all of the matters which we have earlier summarised. In particular it refers to the contract with Upright Builders Pty Ltd for the carrying out of the work, the contract with a private certifier, and the heads of agreement with a proposed major tenant for the amalgamated tenancy area. The notice states that the works cannot be carried out practicably without vacant possession being given, and that the works are due to commence on 26 February 2018. Annexed to the termination notice is a copy of the refurbishment programme prepared by Colliers, letter of acceptance of the fit-out contract, and architectural drawings which include the relevant area.
We observe that in accordance with the clear intention of the section, and as confirmed by the principles discussed in Blackler set out above a consideration of whether the requirements of the section have been complied with must be undertaken as at the date of receipt by the respondent of the notice of termination. It is at that date that a determination must be made whether the lessee has been provided with such details of the proposed demolition as are sufficient to indicate the existence of a genuine proposal for demolition within a reasonably practicable time after the lease is to be terminated. On this basis, it is inappropriate to consider subsequent events, unless, arguably, they are indicative that as at the date of the giving of the notice of termination a genuine proposal for demolition did not exist. A ready example would be evidence that the lessor had connived at creating the appearance of such an intention solely for the purpose of serving a notice of termination without any intention at all of undertaking the subject works. No such evidence exists. In considering matters which occurred after the issue of the notice of termination, including the fact that the heads of agreement with the proposed tenant had fallen through the Senior Member fell into error.
Having regard to all of the material contained in and annexed to the notice of termination we conclude that the appellant described a sufficiently well-developed and mature proposal that it must be considered as indicative of a genuine proposal for demolition within the terms of section 35 of the Act.
Although the Senior Member did not determine that the work could not be carried out practicably without vacant possession of the shop, it is clear to us that the walls of the existing shop required demolition to make provision for an enlarged area which included adjoining shops on either side, together with the carrying out of additional ancillary work including the ceiling, the supply of services and the like. On this basis we conclude that the proposed demolition could not be carried out practicably without vacant possession being given. We do not apprehend that the respondent argued to the contrary.
The consideration of the construction of section 35 and its application to the facts in these proceedings involve questions of law. Accordingly leave to appeal is not required. In that we have concluded that the Senior Member should have determined that the notice of termination was a valid notice given under section 35 of the Act, the appeal must succeed, and the decision set aside. We shall order accordingly.
The parties asked that costs be reserved, and we shall do so,
At the conclusion of the hearing we asked the parties to engage in discussions concerning the orders that should be made if the appeal were to succeed, especially in connection with any order securing vacant possession in favour of the appellant. This would enable the respondent to vacate the premises and take steps to secure the continued operation of its business in a structured fashion. The parties have reached sensible agreement about this which we shall reflect in the orders which we shall make.

Orders

We make the following orders; 1. Appeal allowed 2. Declaration that the notice to terminate issued by the appellant is invalid is quashed 3. Declare that the notice to terminate issued by the appellant to the respondent dated 25 August 2017 is a valid notice under the Retail Leases Act 1994 4. By consent, that the respondent deliver up vacant possession to the appellant of the premises located at Shop 0052, Burwood Plaza, 42 Railway Parade, Burwood NSW 2134 on 15 March 2019 and that the lease of the premises will be terminated on 15 March 2019. 5. Costs are reserved with liberty to apply which must be exercised within one month of this date.

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: 15 February 2019

At a glance

Court

Decision date

Source

Judgment (10 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (6)

Cited By (1)