Posts Tagged Robert Hay Property Law Melbourne
The Supreme Court of Victoria has ruled that a lease that is a “retail premises lease” (within the meaning of s.11 of the Retail Leases Act 2003) when it is entered into cannot cease to be such a lease during its term.
In Richmond Football Club v Verraty  VSC 597. Croft J upheld an appeal by a tenant from a VCAT decision which held that a lease that was a “retail premises lease” when entered into could cease to be such a lease during the lease term. VCAT held that the Act ceased to apply when “occupancy costs” exceeded $1,000,000 exclusive of GST.
Section 4(2) of the Act sets out circumstances in which premises are excluded from the definition of “retail premises” in s.4(1). The exceptions include, among other things, where “occupancy costs” (i.e. estimated outgoings plus the rent) exceed $1,000,000 exclusive of GST, where the tenant is a publicly listed company or a subsidiary of such a company, and where the Minister makes a declaration that the premises are premises to which s.4(2)(f) applies with the consequence that the premises are not “retail premises”.
The effect of Croft J’s decision appears to be that all of the circumstances listed in s.4(2) of the Act are relevant only when the lease is entered into – they are not relevant after that time. Unless one of the exclusions in s.4(2) applies when the lease is entered into, the lease will be a retail premise lease for the term of the lease.
The judgment is less clear concerning the terms of a lease resulting from the exercise of an option. It appears that even if an exclusion in s.4(2) applies (i.e. so that the premises are not “retail premises”) when a renewed lease commences (i.e. following the exercise of an option), the renewed lease will nevertheless contain the provisions implied into the lease by the Act (i.e. provisions such as ss. 37, 52 – 57) and the provisions of the lease made void by the Act (i.e. provisions such as those referred to in s.35(3) (ratchet clauses) and 50 (land tax) will remain void. The only way to avoid the renewed lease containing the terms implied by the Act, or to revive provisions made void by the Act, is to include appropriately worded provisions in the lease that are to apply if the Act ceases to apply.
I will write further about this case.
Can a “retail premises lease” (within the meaning of s.11 of the Retail Leases Act 2003) cease to be a “retail premises lease” during its term? That long-standing question has finally been resolved.
In Verraty Pty Ltd v Richmond Football Club Ltd  VCAT 1073 the Tribunal held that a lease could cease to a “retail premises lease” during the lease term. The lease was for a term of 20 years commencing 7 May 1998. A variation made in 2004 effected a surrender and regrant with the consequence that a “retail premises lease” was entered into at that time. In April 2017 the tenant exercised an option to renew the Lease from 7 May 2018 for a term of 10 years. The landlord claimed that the lease had ceased to be a “retail premises lease” from 7 May 2016 because “occupancy costs” were $1,000,000 or more and that the renewed lease was not a “retail premises lease”.
The issues were:
(a) whether the lease ceased to be a “retail premises lease” for the period 7 May 2016 to 6 May 2017 and was therefore not governed by the Act;
(b) if yes to (a), did the lease remain outside the ambit of the Act for the period 7 May 2017 to 6 May 2018; and
(c) if yes to (b), was the renewed lease resulting from the exercise of the option a “retail premises lease”?
VCAT answered “yes” to each of the three questions.
Section 11 says, among other things, that the Act applies to a “retail premises lease”. Section 11(2) says that “….this Act only applies to a lease of premises if the premises are retail premises…at the time the lease is entered into….” (emphasis added)
While the Act does not contain a definition of “retail premises lease” the expression “retail premises” is defined in s.4(1). Where “occupancy costs” are $1,000,000 or more per annum premises are excluded from the definition of “retail premises” (s.4(2)(a)) and regulation 6 of the Retail Leases Regulations 2013). “Occupancy costs” are defined in s.4(3) to mean:
- the rent payable under the lease (s.4(3)(a)); and
- the outgoings, as estimated by the landlord, to which the tenant is liable to contribute under the lease (s.4(3)(b))
There is a note under s.4(3) that says s.46 requires the landlord to give the tenant a written estimate of the outgoings to which the tenant is liable to contribute.
The landlord alleged that the lease had ceased to be a “retail premises lease” on 7 May 2016 because the “occupancy costs” for the next 12 months were $1,000,000 or more.
The landlord gave the tenant an estimate of outgoings dated 12 May 2016 (Estimate) pursuant to s.46(2) of the Act for the landlord’s 12 month accounting period commencing on 7 May 2016. Section 46(3) requires an estimate to be given before a retail premises lease is entered into and in respect of each of the landlord’s accounting periods during the term of the lease, at least one month before the start of that period. Section 46(4) says that a tenant is not liable to contribute to any outgoings of which an estimate is required to be given to the tenant until the tenant is given that estimate. The Estimate was not given at least one month before the start of the landlord’s accounting period commencing 7 May 2016. The Estimate and the rent exceeded $1,000,000 for those 12 months.
On 3 May 2017 the landlord estimated the outgoings to which the tenant was liable to contribute for the 12 month accounting period commencing 7 May 2017. No written estimate was given to the tenant. The estimated outgoings and rent exceeded $1,000,000 for those 12 months.
The landlord contended that whether or not the lease was a “retail premises lease” was governed solely by s.4(3) and that s.46 was irrelevant – all the landlord had to do was make an estimate of outgoings – a written estimate did not have to be given to the tenant. Consequently, it did not matter that the Estimate was not given within the time prescribed by s.46(3). The landlord also contended that because the lease ceased to be a “retail premises lease” on 7 May 2016 it was not required to given a written estimate under s.46 for the year commencing 7 May 2017 – all it had to was make an estimate of the outgoings under s.4(3).
The tenant contended, among other things, that a “retail premises lease” could not cease to be a “retail premises lease” during its term but that if a lease could cease to be a “retail premises lease” all the provisions made void by the Act were not revived – the lease continued without those provisions. The lease contained a “ratchet clause” that prevented the rent from decreasing – such clauses in a “retail premises lease” are void (s.35(3)).
The Tribunal held that:
- a lease could cease to be a “retail premises lease” during its term – s.11(2) prescribed the time at which a lease had to be a “retail premises lease” for the Act to apply but said nothing about a lease ceasing to be a “retail premises lease”;
- the landlord had to give an estimate under s.46(1) for the year commencing 7 May 2016 and, because the Estimate was give late, any outgoings referable to the period 7 May 2016 to 12 May 2016 had to be excluded from the estimate of outgoings;
- even with outgoings for the period 7 May 2016 to 12 May 2016 excluded, “occupancy costs” exceeded $1,000,000 for the 12 months commencing 7 May 2016 with the consequence that the Act did not apply for those 12 months;
- because the Act did not apply it was not necessary for the landlord to give an estimate of outgoings under s.46 for the accounting period commencing 7 May 2017 – all that the landlord had to do was to make an estimate of outgoings as required by s.4(3);
- the landlord made an estimate of outgoings on 3 May 2017 and, because “occupancy costs” exceeded $1,000,000 for the 12 months commencing 7 May 2017, the Act did not apply for those 12 months;
- the renewed lease was not a “retail premises lease”; and
- clauses in a lease that were void while the lease was a “retail premises lease” (such as the “ratchet clause”) were not void once the Act ceased to apply.
The Tribunal also held that the note at the foot of s.4(3) referring to s.46 was no more than a reminder that if the lease were a retail premises lease the landlord had to comply with s.46.
The tenant is likely to seek leave to appeal.
The following propositions emerge from the case:
(i) where the commencing rent under a new lease does not exceed $1,000,000 for the first 12 months, before the lease is entered into the landlord should make an estimate of outgoings (under s.4(3)) for the first 12 months of the lease and keep a record of the making of the estimate;
(ii) where the estimate of outgoings plus the rent for the first 12 months exceeds $1,000,000 the lease will not be a “retail premises lease” and a written estimate of outgoings under s.46 need not be given to the tenant;
(iii) where the estimate of outgoings (made under s.4(3)) plus the rent for the first 12 months does not exceed $1,000,000 it is necessary to give a written estimate of outgoings pursuant to s.46 to the tenant;
(iv) a “retail premises lease” can cease to be such a lease during its term;
(v) a lease can cease to be a “retail premises lease” during its term because “occupancy costs” exceed $1,000,000 provided an estimate of outgoings has been given under s.46;
(vi) where a lease ceases to be a “retail premises lease” during its term the landlord should make an estimate of outgoings (under s.4(3) for each remaining 12 month accounting during the term but need not give a written estimate of outgoings (under s.46) to the tenant where “occupancy costs” exceed $1,000,000.
With respect to (vi), while the Tribunal did not determine whether a lease that has ceased to be a “retail premises lease” during its term can revert to being a “retail premises lease” during the term, it is likely that a lease can revert to being a “retail premises lease” during the term.
The High Court has resisted an invitation to expand the grounds on which a party can enforce an oral contract for the sale of the land on the ground of part performance.
Legislation in each State and Territory requires that contracts for the sale of land meet certain formal requirements if they are to be enforceable. The legislation is the modern iteration of s 4 of the Statute of Frauds 1677. In Victoria, s 126(1) of the Instruments Act 1958 says:
“An action must not be brought to charge a person upon a special promise to answer for the debt, default or miscarriage of another person or upon a contract for the sale or other disposition of an interest in land unless the agreement on which the action is brought, or a memorandum or note of the agreement, is in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note.
The Statute of Frauds can be avoided where the party seeking to enforce the contract has undertaken acts of part performance. Australian courts have ordered specific performance of oral contracts for the sale of land of land where there have been acts of part performance that are, in words of the Earle of Selbourne LC, “unequivocally, and in their own nature, referrable to some such agreement as that alleged”.
In Leon Pipikos v Trayans  HCA 39, which considered the South Australian equivalent of s 126, the appellant submitted that test referred to above was unduly demanding of a party seeking specific performance of an oral contract for the sale of land and urged the adoption of a more relaxed approach. The appellant argued that a court should ask whether a contracting party has knowingly been induced or allowed by the counterparty to alter his or her position on the faith of the contract. The court unanimously rejected the appellant’s arguments.
The court held that the reference to “some such agreement” in the above quote suggested that the requirement was not concerned with the particular contract in question, but with dealings between the parties which in their nature established that the parties were in the midst of an uncompleted contract for the sale or other disposition of an interest in land. The equity to have the transaction completed arises where the acts that are proved are consistent only with partial performance of a transaction of the same nature as that which the plaintiff seeks to have completed by specific performance.
The acts of part performance should be sufficient to indicate a change in the respective positions of the parties in relation to the land that is the subject of the oral contract. The mere payment of money is unlikely to amount to part performance because such payment could also be consistent with a loan, whereas a defendant putting a plaintiff into possession of land is likely to be a sufficient act of part performance.
Acts of part performance must be acts by the party seeking to enforce the contract; it is not necessary for a plaintiff to prove detrimental reliance on its part to establish an equity to relief.
Once there are sufficient acts of part performance, regard may be had to the terms of the oral contract in order to ascertain the appropriate orders by way of specific performance.
In summary, it is necessary first to determine whether the acts performed establish the equity and then to refer to the terms of the oral agreement in order to ascertain the terms in which the equity is to be enforced.
In Maddison v Alderson (1883) 8 App Cas 467 the Earle of Selbourne LC said at 479 that “the acts relied upon as part performance must be unequivocally, and in their own nature, referrable to some such agreement as that alleged”.
Following last week’s High Court decision in Burns v Corbett  HCA 15 the Victorian Victorian Civil and Administrative Tribunal has lost its jurisdiction to hear and determine a dispute where one of the parties is resident of a State other than Victoria.
This will pose significant problems for VCAT particularly concerning its exclusive jurisdiction to hear and determine a “retail tenancy dispute” under the Retail Leases Act 2003 (2003 Act). Proceedings in the Tribunal where a party is not resident in Victoria will be affected by the decision. Because VCAT never had jurisdiction to hear and determine a matter where a party was not resident in Victoria, Burns is also likely to have consequences for proceedings that have been heard and determined where one party was not a resident of Victoria.
Where a party is not resident in Victoria, disputes under the 2003 Act will have to be heard and determined in a Victorian court, the Federal Court or an interstate court. Where a “retail tenancy dispute” is heard in a court, a significant issue will be whether the cost regime in the 2003 Act applies or whether the awarding of costs will be governed by court rules. Except in limited circumstances, s.92 of the 2003 Act requires each party to bear its own costs.
In Burns the High Court held that provisions of the Civil and Administrative Tribunal Act 2013 (NSW) were invalid to the extent that they purported to confer jurisdiction upon the Civil and Administrative Tribunal of New South Wales (NCAT) concerning matters between residents of different States.
Chapter III of the Australian Constitution includes ss75 to 77. Section 75(iv) provides that the High Court has original jurisdiction in all matters between residents of different States. Section 76 enables the Commonwealth Parliament to confer additional original jurisdiction on the High Court. Except for the High Court, s.77 permits Parliament to defines the jurisdiction of any federal court including defining the extent to which the jurisdiction of any federal court is exclusive of the jurisdiction of a State court, and gives State courts federal jurisdiction. Section 39 of the Judiciary Act 1903 invests State courts with federal jurisdiction subject to certain conditions and restrictions.
In Burns, Mr Burns complained to the Anti-Discrimination Board of New South Wales about statements made by Ms Corbett and Mr Gaynor which he alleged vilified homosexuals contrary to the Anti-Discrimination Act 1977 (NSW)). Mr Burns was a resident of New South Wales, Ms Corbett was a resident of Victoria and Mr Gaynor was a resident of Queensland.
The complaint against Ms Corbett was referred to the Administrative Decisions Tribunal of New South Wales (predecessor to NCAT) which found that Ms Corbett had breached the Act and ordered her to make an apology. Ms Corbett refused to apologise and Mr Burns commenced a proceeding in the Supreme Court charging Ms Corbett with contempt. Ms Corbett contended that neither the ADT nor NCAT had jurisdiction because she was a resident of Victoria. The complaint against Mr Gaynor was dismissed by NCAT. However, Mr Gaynor obtained leave to appeal to the Court of Appeal in respect of an interlocutory costs order on the basis that NCAT had no jurisdiction to determine matters concerning residents of a State other than New South Wales.
The New South Wales Court of Appeal determined the jurisdiction disputes. The Court had to decide whether NCAT could hear and determine a dispute arising under the Act between a resident of New South Wales and a resident of another State. It was common ground that in determining Mr Burns’ complaints, NCAT was exercising the judicial power of the State despite it not being a “court of a State” within the meaning of Chapter III. The Court held that NCAT had no jurisdiction to hear and determine the complaints against Ms Corbett or Mr Gaynor.
The High Court unanimously dismissed the appeals with a majority deciding that Chapter III permitted adjudicative authority concerning the matters in ss 75 and 76 to be exercised only by a State court. Chapter III would be undermined were a State Parliament able to confer adjudicative authority concerning any of the matters referred to in ss 75 and 76 on a State tribunal that was not a State court.
Parties to current litigation in VCAT need to consider whether the proceeding can continue in the Tribunal.
See s.89(4) of the Retail Leases Act2003.
Vendors of properties who have paid commissions to real estate agents are gearing up to recover the commissions on the ground that they were paid by mistake following the Court of Appeal’s decision in Advisory Services Pty Ltd v Augustin  VSCA 95. Agents are in turn likely to take action against the party that drafted the standard form real estate agent’s authority which was found not to comply with the Estate Agents Act 1980.
Advisory concerned an appeal from the County Court where the trial judge decided that a real estate agent’s authority from its client (the vendor of land) did not contain the precise wording of s.49A(4)(c) of the Act with the consequence that the authority was unenforceable pursuant to s.50.
Section 50(1) provides, among other things, that an estate agent is not entitled to sue for or recover or retain any commission or money in respect of any outgoings unless the agent has complied with s.49A(1) with respect to the engagement or appointment.
Section 49A(1) says:
(a) An estate agent must not obtain, or seek to obtain, any payment from a person in respect of work done by, or on behalf of, the agent or in respect of any outgoings incurred by the agent unless:the agent holds a written engagement or appointment that is signed by the person (or the person’s representative); and
(c) the engagement or appointment contains –
(i) details of the commission and outgoings that have been agreed; and
(iii) a rebate statement that complies with subsection (4).
Section 49A(4) says:
A rebate statement complies with this subsection if it is in a form approved by the Director and it contains-
(a) a statement of whether or not the agent will be, or is likely to be, entitled to any rebate in respect of –
(i) any outgoings;
(c) a statement that the agent is not entitled to retain any rebate and must not charge the client an amount for any expenses that is more than the cost of those expenses.
Section 48A(1) says that an estate agent is not entitled to retain any amount the agent receives from another person as a rebate in respect of –
(a) any outgoings; or
(b) any prepayments made by the client in respect of any intended expenditure by the agent on the client’s behalf; or
(c) any payments made by the client to another person in respect of the work.
Section 48B(1) says:
An estate agent must not seek to obtain from the client an amount for any outgoings or proposed outgoings (the expenses) that is more than the amount paid, or payable, by the agent for those expenses.
The agent’s authority provided for the agent to be paid a commission but did not require the client to pay outgoings. However, the authority did not contain a statement in the exact words set out in in s.49A(4)(c). The language used in the authority was based on one of the two forms approved by the Director of Consumer Affairs Victoria and available for download by real estate agents. One of the forms contained the words used in s.49A(4)(c) and the other did not. In accordance with the latter form, the authority stated:
Item 6: Rebate Statement – No Rebate will be received
“The Agent will not, or is not likely to be, entitled to any rebate. A rebate includes any discount, commission or other benefit, and includes non-monetary benefit, and includes non-monetary benefits.”
(*If entitled to a rebate, complete and attach the rebate statement approved by the Director of Consumer Affairs Victoria, at the time of signing this Authority. The statement can be downloaded at www.consumer.vic.gov.au)
Item 8 of the authority provided, under the heading “Agent’s role”, that the “Agent will advertise, market and endeavour to sell” the property.
In the Particulars of Appointment that formed the front page of the authority, there appeared a section headed “Marketing Expenses” which included spaces for “Advertising”, “Other Expenses” and “Total” which were filled in with a dashe that the parties agreed meant that there were no Marketing Expenses payable by the client.
The trial judge held that whether or not an agent was entitled to a rebate, s.49A(c) applied but that substantial compliance with the section would suffice. However, the judge held that the authority did not comply with s.49(4)(c) because it did not convey the information that the estate agent was not entitled to retain any rebate and must not charge the vendor an amount for any expenses that is more than the cost of those expenses. The judge also rejected an argument that a rebate statement would comply with s.49A(4) if it was in a form approved by the Director. The Authority did not make it clear that no rebate could arise.
The Court of Appeal held that ss48A and 48B were explicit prohibitions on certain conduct by estate agents and viewed in that light, the requirement in s.49A(1)(c) that the statement be contained in the engagement or appointment could be seen as ensuring that the client was advised as to the existence of the prohibitions. The Court said that the relevant question was whether the Act required notice to the client in circumstances where the prohibitions could not, by virtue of the arrangement between the estate agent and the client, be breached in any event? The Court answered this question “yes”. The Court said that that it was apparent that Parliament intended the client be aware of the prohibitions in the context of being able to negotiate the terms of commission and payments in respect of outgoings. The Court held that the correct construction of s.49A(4)(c) was that the statement it describes must be contained in the rebate statement required by s.49A(1) irrespective of whether the agent would be, or likely to be, entitled to any rebate or charge any amount by way of expenses.
The CB Cold Storage and IMCC Group saga has ended. This morning the High Court of Australia refused the landlord’s application for special leave to appeal. The consequence is that the Court of Appeal’s decision in IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd  VSCA 178 stands and practitioners can draft leases and give advice confident that the so-called “the ultimate consumer test” remains one of the main indicia in determining whether premises are “retail premises” and therefore governed by the Retail Leases Act 2003. The saga began as a preliminary question in VCAT – the question being whether the Act applied to the premises. The lease permitted CB Cold Storage to operate the premises as “Cold and cool storage warehouse and transport facility” and also contained a clause that precluded CB Cold Storage from operating the premises as “retail premises”. The prohibition on the tenant operating the premises as “retail premises” was irrelevant because the landlord agreed that that the tenant’s actual use of the premises accorded with the permitted use; this meant that the only question was the premises should be characterised as “retail premises” under the Act. Premises are “retail premises’ where:
“under the terms of the lease…the premises are used, or are to be used, wholly or predominantly for –
(a) the sale or hire of goods by retail or the retail provision of services” (s.4(1))
In Wellington v Norwich Union Life Insurance Society Ltd  1 VR 333 Nathan J said that:
“The essential feature of retailing, is to my mind, the provision of an item or service to the ultimate consumer for fee or reward. The end user may be a member of the public, but not necessarily so.”
His Honour’s statement has been applied many times. Where a service is provided there will be few instances where the service is not “consumed” or used in the leased premises. In CB Cold Storage the service was “consumed” or used in the premises by the ultimate consumer, being the tenant’s customers. While the tenant’s customers ranged from large primary production enterprises to very small owner operated businesses, any person could store goods in the premises. VCAT held that the premises were not ‘retail premises’ on the basis that the tenant’s customers were using the tenant’s service for business purposes rather than for personal use. In CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd  VSC 23 Justice Croft held that the premises were “retail premises” and the Court of Appeal agreed with His Honour. The Court of Appeal held that the “ultimate consumer test” was one of the indicia of the retail provision of services. In all cases it is necessary to consider whether the premises are “open to the public” – that is there are no restrictions on access to the service and who can use it. The characteristics of the user – that is whether the use is an individual or a business is not relevant. At  the Court of Appeal said:
“In summary, the services were used by the Tenant’s customers who paid a fee. Any person could purchase the services if the fee was paid. The Tenant’s business was open during normal business hours. The Tenant’s customers have not passed on the services to anyone else. They were the ultimate consumers of the Tenant’s services. In isolation, none of these features would suffice to constitute the premises as retail premises. Conversely, the absence of one or more of them, would not necessarily result in a finding that the premises were not retail premises. However, in the circumstances of this case, when all of those features are taken together, the conclusion must be that the premises are retail premises.”
Where the parties intend that premises not be governed by the Act the permitted use should make that clear. A good example is Sofos v Coburn  2 VR 505 where the permitted use was “wholesale and export fish supply”. The tenant was undertaking retail sales. Nathan J held that the tenant could not rely on what it was actually doing when that contradicted the express terms of the lease.
VCAT recently held that a tenant had not breached a lease by permitting users of AirBnB to stay in the tenant’s apartment. The landlord argued that the tenant had breached the lease by subletting the apartment in breach of the lease. The landlord sought possession of the apartment. The cornerstone of a lease is that the tenant has “exclusive possession” of the premises. The landlord’s case failed in VCAT because the Tribunal held that the AirBnB guests did not have exclusive possession of the apartment and therefore did not occupy the apartment under a sublease. VCAT held that the nature of the legal relationship between the tenant and the AirBnB guests was a licence to occupy, rather than a lease.
The landlord applied for leave to appeal. The application was determined this morning by Justice Croft. See: Swan v Ueker and Greaves  VSC 313. Justice Croft granted leave to appeal and granted the landlord’s appeal. His Honour held that VCAT either identified the wrong legal test concerning exclusive possession or applied the correct legal test wrongly. The judgment contains a detailed analysis of what is meant by “exclusive possession”.
Justice Croft said that this was not a case about the merits of AirBnB’s arrangements but rather the legal character of the arrangement. His Honour also said that a broad prohibition in the lease on sub-leasing, assigning the lease, granting any licence to occupy all or part of the premises or otherwise parting with possession without the landlord’s prior consent would avoid the need to characterise the nature of the arrangement as a sub-lease or a licence.
I will be writing further about this judgment.
Valuers determining the “current market rent” rent under leases concerning retail premises must ensure that the valuation:
- contains “detailed reasons” for the determination; and
- “specify the matters to which the valuer had regard in making the determination”.
See: s.37(6)(b) and (c) of the Retail Leases Act 2003.
Both requirements must be met; a determination that specified the matters to which the valuer had regard but failed to provide detailed reasons for the determination would not comply with s.37(6).
In Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd  VSC 244 Justice Croft had to consider what was required of a valuer in “giving detailed reasons” and “specifying the matters” to which he or she had regard in making the determination. Higgins concerned an application for leave to appeal from a decision given in VCAT.
After reviewing case law concerning provisions in New South Wales similar to s.37(6), His Honour said at  that it was not sufficient for a valuer to “leap to a judgment”: the valuation “must disclose the steps of reasoning” and that both the Victorian and NSW provisions “eschew and do not entertain any ‘blinding flash or light’ as satisfying their ‘requirements’”.
In Higgins the valuer examined the tenant’s financial records and determined the rent using the “profits method” of valuation for determining the rent. The tenant had a 24 hour liquor licence but traded only to 11pm. The valuer referred to the tenant’s actual sales and determined that an additional $536,782 was achievable in annual turnover for the business, being a 26% increase over the actual sales. The only indicator as to how that figure was arrived at was in comments made by the valuer in a document furnished after the valuation was made where he said the figure was derived:
“Based on the liquor licence in place, and comparable venues in the region which I hold on file.”
No details of the comparable venues were furnished.
The landlord sought to defend the valuation on the basis that it was an opinion of an expert and, given the valuer’s experience, that was sufficient in terms of reasoning for the purpose of s.37(6).
Justice Croft rejected the landlord’s argument and refused refused leave to appeal. His Honour referred to and agreed with the following analysis of the valuation given by the Tribunal:
“One might speculate that the Valuer placed considerable emphasis on the fact that the Tenant traded up until 11 pm in circumstances where the 24 hour liquor licence allowed it to trade well beyond that time. However, having to speculate as to how the Valuer formed his opinion is, in my view, contrary to what is required under s.37(6) of the Act. Moreover, no detail was provided as to what other venues were used as a comparator. That, of itself, raises a number of questions: Did those other venues have similar GLAR? Did they have the same type of liquor licence? Were they also being operated as a restaurant/bar? Was their location proximate or did they cater for the same demographic clientele? Without those details, I consider the reasoning to be deficient and not in accordance with the Act.”
His Honour said at  that the valuer’s reference to an undisclosed file of material upon which he had made an assessment was “worse than a mere ‘blinding flash of light’” and that the reasoning process was “entirely opaque”.
When a valuer is engaged the parties should refer the valuer to the requirement in s.37(6) to both provide detailed reasons and specify the matters to which the valuer had regard. A determination based on an opinion that does not disclose the valuer’s reasoning will not comply with s.37(6).
Tenants should dispute the rent specified by a landlord at a rent review date within the time specified by the lease. Dire consequences can follow if the time periods are ignored . The rent review process for setting the market rent commonly provides for:
- the landlord to propose the new rent and, if the tenant does not object within a specified period of time, the rent proposed by the landlord is the new rent;
- the rent to be determined by a valuer if the tenant objects to the rent proposed by the landlord.
The question often arises whether time is of the essence in the construction of clauses concerning rent reviews.
The starting point is the House of Lords decision United Scientific Holdings Ltd v Burnley Borough Council (1978) AC 904. In Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80 (CA) Gleeson CJ referred with apparent approval to a summary of the effect of United Scientific in the judgment of Slade LJ in Trustees of Henry Smith’s Charity v AWADA Trading and Promotion Services Ltd (1983) 47 P & CR 607, 619 as follows:
“(1) Where a rent review clause confers on a landlord or tenant a right for his benefit or protection, as part of the procedure for ascertaining the new rent, and that right is expressed to be exercisable within a specified time, there is a rebuttable presumption of construction that time is not intended to be of the essence in relation to any exercise of that right.
(2) In a case where the presumption applies, the other party concerned may, if he wishes to bring matters to a head after the stipulated time for the exercise of the right has expired, give to the owner of the right a notice specifying a period within which he requires the right to be exercised, if at all; the period thus specified will if it is reasonable then become of the essence of the contract …
(3) The presumption is rebuttable by sufficient ‘contraindications in the express words of the lease or in the interrelation of the rent review clause itself and other clauses or in the surrounding circumstances.’ …
(4) Though the best way of rebutting the presumption is to state expressly that stipulations as to the time by which steps provided for by the rent review clause are to be taken is to be treated as being of the essence (see United Scientific Holdings Ltd v Bunley Borough Council per Lord Diplock [ AC] at 936, and per Lord Salmon [ AC] at 947), this is not the only way. Any form of expression which clearly evinces the concept of finality attached to the end of the period or periods prescribed will suffice to rebut the presumption. The parties are quite free to contract on the basis that time is to be of the essence if they so wish.”
The authorities make it plain that it is a question of construction of a lease whether there is express or implied rebuttal of the presumption that time is not of the essence
In Mailman the rent review provision the lease allowed the tenant a specific time to dispute the lessor’s assessment of the market rent and spelt out the consequence of failing to dispute the assessment within than time. There was no clause stating that time was of the essence. The relevant clauses were as follows:
“Prior to the expiration of fourteen (14) days…[from the service of the lessor’s notice], the Lessee may, by notice in writing, dispute the amount set out..[in the Lessor’s notice}…(clause 2.02(b))”
Another clause provided that if the lessee did not serve a notice of dispute within the prescribed time it was deemed to have agreed that the amount set out in the notice was current market rental.
The Court of Appeal held unanimously that the lease evidenced an intention that the 14 day time stipulation was of the essence. The decisive factor was the deeming of the tenant to have agreed to the rent if it failed to serve the notice of dispute.
The issue of whether time periods in rent review clauses are of the essence was revisited recently in Sentinel Asset Management Pty Ltd v Primo Moratis  QSC 200. The tenant failed to serve a notice disputing the rent specified by the landlord within the time prescribed by the lease with the consequence that iff time was of the essence the rent would increase by 22%. The critical clause provided that:
“Unless the Tenant gives the Landlord a notice stating that the Tenant’s assessment of the current annual market rent of the Premises at the relevant Market Review Date within 30 days after the Landlord gives the its notice, the Rent on and from the relevant Market Review Date is the current annual market rent in the Landlord’s notice.”
The lease also said that if “the Tenant gives a notice…. on time” (underlining added) the parties must attempt to agree the rent in writing failing which a valuer could be be appointed to determine the market rent.
The court found that time was of the essence with the consequence that the rent specified by the landlord applied.
The court also rejected an argument that the rent specified by the landlord had to be “reasonable”. The rent specified by the landlord in its notice was higher than the rent contained in an expert valuation obtained by the landlord.
The lesson is that it is critical for tenants to respond within the time prescribed by the lease.
Date of termination confirmed as the date for assessing damages for breach of contract for sale of land
The general rule is that damages for a breach of a contract for the sale of land are assessed at the date of the breach. The task is usually to compare the contract price with the value of the land a the time of the breach. If the value is greater than the contract price, the vendor has suffered no loss. But if the value is less than the contract price, it may be inferred that the discrepancy is an element of the vendor’s loss (Vitek v Estate Homes Pty Ltd  NSWSC 237 at ).
In Ng v Filmlock Pty Ltd  NSWCA 389 the NSW Court of Appeal heard an appeal by a purchaser of land from a judgment where the trial judge had assessed the vendor’s loss as being the difference between the contract price and the price obtained on a resale. The contract restricted the use of the resale price as an element in the quantification of loss to a resale within 12 months of termination but otherwise the vendor was entitled to damages for breach of contract. The resale took place more than 12 months after termination and therefore the general law applied. The land had declined significantly in value by the time of the resale.
The vendor argued that there was no available market as at the date of the breach of contract and therefore the resale price was relevant to the calculation of loss. The argument was based on a proposition said to be derived from the decision of the English Court of Appeal in Hooper v Oates  Ch 287: the correct date for assessment of damages for breach of contract is the date of breach only where there is an immediately available market for the subject matter of the sale.
Emmett JA, after noting that the English Court of Appeal did not explain what was meant by an “immediately available market”, said at :
“While a sale of land might take longer than the sale of other types of assets, it does not follow that there should be a departure from the general rule, which focuses on the value of the land as at the date of termination of the contract. There is good reason for that approach where the damages sought by the innocent seller are loss of bargain damages. The critical date is when the bargain was lost.”
While the appeal was successful the court accepted that in an appropriate case the interests of justice may require that “the date of breach” rule should not apply and damages may be assessed by reference to a later date, such as the contract price on resale. See: Johnson v Perez (1988) 166 CLR 351 at 367.
Gleeson JA said at :
“….whether a market value may be assessed in the case of land as at “the date of breach” is ultimately a question of fact. Of necessity, the sale of land will generally require a period to elapse for proper marketing. Unsuccessful attempts by a vendor to resell the property are not determinative as to whether there is no market for the land. Much will depend on the usual method of sale for the land in question having regard to its location, particular characteristics, the range of likely interested purchasers, and the time usually required for proper marketing of land of that type. Expert valuation evidence is likely to have a significant role.”
And at :
“It needs to be emphasised that that departure from the general rule is not a matter of discretion: Clark v Macourt  HCA 56 at  (Keane J). A vendor claiming damages assessed at a date later than “the date of breach” must demonstrate that there are particular reasons on the facts which would make it unjust to apply the prima face or “usual” measure of damages.”