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  • Unreported Judgment

Staythenight Pty Ltd v Rao

 

[2017] QCAT 374

CITATION:

Staythenight Pty Ltd as Trustee for the Jensen Family Trust v Camillo Rao and Fina Rao as Trustee for the Maryland Investment Trust [2017] QCAT 374

PARTIES:

Staythenight Pty Ltd as Trustee for the Jensen Family Trust

(Applicant)

v

Camillo Rao and Fina Rao as Trustee for the Maryland Investment Trust

(Respondent)

APPLICATION NUMBER:

RSL096-16

MATTER TYPE:

Retail shop leases matters

HEARING DATE:

19 May 2017

HEARD AT:

Toowoomba

DECISION OF:

Member Deane, Presiding Member

Member Judge

Member McBryde

DELIVERED ON:

31 October 2017

DELIVERED AT:

Brisbane

ORDERS MADE:

  1. Camillo Rao and Fina Rao as Trustee for the Maryland Investment Trust must pay Staythenight Pty Ltd as Trustee for the Jensen Family Trust the sum of $44,449.16 by 30 November 2017.
  2. Camillo Rao and Fina Rao as Trustee for the Maryland Investment Trust must pay Staythenight Pty Ltd as Trustee for the Jensen Family Trust the sum of $1024.83 per month from the date of this decision until 30 September 2018.
  3. Camillo Rao and Fina Rao as Trustee for the Maryland Investment Trust must pay Staythenight Pty Ltd as Trustee for the Jensen Family Trust the sum of $17.37 for each week from 19 May 2017, the hearing day, until the recommencement by Camillo Rao and Fina Rao as Trustee for the Maryland Investment Trust of the cleaning and maintenance of the common areas or until the lease is terminated or expires on 30 September 2018.

CATCHWORDS:

LANDLORD AND TENANT – RETAIL AND COMMERCIAL TENANCIES LEGISLATION – OTHER MATTERS – whether lessor wrongly failed to consent to the assignment of the lease – whether the lessor unreasonably refused to consent to assignment – whether lessee entitled to damages for loss – whether lessee entitled to terminate – whether the lessors’ conduct was unconscionable

Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 28

Retail Shop Leases Act 1994 (Qld) s 8, s 43, s 46A, s 46B, s 50, s 83, s 103

Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175

Attorney General (NSW) v World Best Holdings Ltd [2005] NSWCA 261

Shevill v Builders Licensing Board (1982) 149 CLR 620

APPEARANCES:

APPLICANT:

Staythenight Pty Ltd as Trustee for the Jensen Family Trust

RESPONDENT:

Camillo Rao and Fina Rao as Trustee for the Maryland Investment Trust

REPRESENTATIVES:

APPLICANT:

represented by Michael Jensen, director

RESPONDENT:

represented by Fina Rao

REASONS FOR DECISION

  1. [1]
    Staythenight Pty Ltd leases a shop in Stanthorpe, from which it operates a retail giftware business.  It commenced to lease the shop in 2008.  The lease was for a term of five years with an option for a further five years.  The uncontradicted evidence is, and we accept, that Staythenight expended a considerable amount in fitting out the shop and performing other improvements to the building. In 2010, the Raos bought the retail shopping centre[1] then consisting of six shops and common areas, including toilets.  Various disputes have arisen between the parties.
  2. [2]
    Most significantly, in 2015, Staythenight sought to assign the lease to a prospective buyer of its business. The contract to sell the business was conditional upon the assignment of the lease to the buyer.  It claims that the Raos wrongly failed to consent to the assignment, which resulted in the buyer terminating the contract for the sale of the business and it suffering loss.  It seeks an order that it is entitled to terminate the lease on 30 days written notice[2] and an order that the Raos pay amounts by way of compensation. The evidence is that:
    1. it continues to trade from the premises and has not sought to sell its business out of a concern that the Raos will again unreasonably refuse to assign the lease.
    2. the lease for the option term remains unregistered as the Raos have not signed a Form 13.
  3. [3]
    Staythenight claims other breaches of the lease and relies upon them to seek an order that it is entitled to terminate the lease on 30 days written notice or seeks amounts as damages. An entitlement to terminate for breach usually arises where:
    1. there is a breach of an essential term as described in the lease; or
    2. the breach is so fundamental that it has the effect of substantially depriving a party of the benefit of the lease; or
    3. a party’s conduct shows an unwillingness or inability to perform the lease according to its terms substantially or at all, which is referred to as repudiation.
  4. [4]
    The Default and Termination provisions of the lease refer to the lessee’s default[3] and sets out various essential terms all of which relate to the lessee’s obligations but not the lessor’s obligations.
  5. [5]
    Essentially Staythenight contends that the Raos have breached the lease in significant respects entitling Staythenight to terminate because the Raos have shown they intend to fulfil the lease only in a manner substantially inconsistent with their obligations and not in any other way.[4]  It seeks an order that it is entitled to accept the Raos’ repudiation and terminate. It wishes to relocate to other premises so that it may be able to sell its business and gain some value from the asset it created. The remaining term of the lease is now quite short, which makes the business less attractive to buyers.
  6. [6]
    Staythenight claims that the Raos’ conduct in all the circumstances is unconscionable and seeks damages. Such an order is available to the Tribunal, where a party engages in unconscionable conduct, under the limited powers set out in section 83(3) of the Act.
  7. [7]
    The Raos deny they unreasonably refused to consent to the assignment and dispute the other breaches claimed. In their first statement[5] and during the course of the hearing they made claims for damages for breach of the lease but did not produce any evidence as to loss. At the conclusion of the hearing, Ms Rao confirmed that they were not seeking any orders other than that the claims against them be dismissed. 
  8. [8]
    Staythenight is the applicant in these proceedings and bears the onus of establishing its entitlement to the relief sought on the balance of probabilities.

Did the Raos wrongly fail to consent to the assignment of the lease in breach of section 50(2)(a) and section 50(2)(c) of the Act and clause 9.2 of the lease? 

  1. [9]
    We find that a retail tenancy dispute exists between Staythenight and the Raos as provided in sections 50(2)(a) and 50(2)(c) of the Act, enlivening the Tribunal’s powers to make orders we consider to be just to resolve the dispute because we are satisfied that the Raos, as lessor, sought, in relation to consenting to an assignment of the retail shop lease:
    1. to impose on the buyer, as prospective lessee, an obligation to pay rent at a much higher rate per week than was the lessee’s obligation at that time; and
    2. to impose a condition (i.e. the obligation to pay significantly increased rent) that Staythenight considered unreasonable.
  2. [10]
    We also find that a retail tenancy dispute exists between Staythenight and the Raos as provided in section 50(3) of the Act, pursuant to clause 9.2 of the lease, enlivening the Tribunal’s powers to make orders we consider to be just to resolve the dispute if we are satisfied that the Raos breached clause 9.2 of the lease.
  3. [11]
    The Raos statements and oral evidence and submissions contended that there were numerous reasons why it was premature or inappropriate for them to consent to an assignment and that they were being rushed into signing the documents. We deal with these contentions below. We accept that the initial timeframe for obtaining consent was quite short. However, the timeframe was extended to 17 August 2015.[6] 
  4. [12]
    The evidence is that the contract to sell Staythenight’s business was dated 10 July 2015.[7] Originally, completion was scheduled for 27 July 2015.  There is evidence, which we accept, that the Raos’ solicitor confirmed that the Raos would not be signing the Deed[8] on 6 August 2015[9] without providing any reason and the buyer terminated the contract of sale on 13 August 2015.[10]
  5. [13]
    The Raos contend that there was no valid lease capable of being assigned. They say the original lease had expired and the exercise of the option had not been formally documented by the entering into of a new registered lease with them as lessor. They contend that they were trying to put a new lease in place but the rent payable had not been agreed.  They also say the provisions of the lease about a market review had not been followed. 
  6. [14]
    We find that:
    1. in breach of section 50(2)(a) of the Act, the Raos, on or about 22 July 2015, sought to impose on the buyer, as the prospective assignee of the lease, an obligation to pay rent at $400 (excl GST) per week ($20,800 (excl GST) per annum) at a time when Staythenight’s obligation to pay rent including outgoings was no more than $326.61 (excl GST) per week ($16,983.46 (excl GST) per annum).
    2. in breach of section 50(2)(c) of the Act, the Raos, on or about 22 July 2015, sought to impose on the buyer, as the prospective assignee of the lease, the increased rent as a condition of the Raos consenting to the assignment and that Staythenight considered that condition to be unreasonable.
    3. the buyer refused to agree to the increase in rent and terminated the contract to buy the business.
    4. Staythenight has suffered loss.
  7. [15]
    Sections 50(1) and (2) of the Act set out a number of specific circumstances, which are retail tenancy disputes between a lessor and a lessee under a retail shop lease, in relation to consenting to an assignment of a retail shop lease. These are essentially circumstances where a lessor is not responding to a request in a timely manner or is attempting unreasonably and opportunistically to take advantage of the situation to renegotiate the lease. Section 50(3) of the Act makes it clear that the circumstances set out in sections 50(1) and (2) of the Act are not exhaustive.
  8. [16]
    The Tribunal has jurisdiction to hear and determine certain retail tenancy disputes, including those set out in section 50 of the Act.[11] Section 50 of the Act does not expressly impose obligations on lessors, however, when read together with section 83 of the Act, it does. The Tribunal has broad powers to make orders, including declaratory orders, it considers just to resolve a retail tenancy dispute.[12] 
  9. [17]
    The Raos’ Response[13] to the Notice of Dispute was prepared by the Raos’ solicitors.  It was filed on 7 November 2016. It specifically admits that the Raos sought rent at $400 (excl GST) from the buyer but denies that it was unreasonable. It contends that there was a dispute as to the rent payable, says the request to pay rent was not a new obligation and that the Raos were willing to negotiate on the terms of the assignment but Staythenight unreasonably refused to negotiate. It also contends having regard to clause 9.2 that they were entitled to request the buyer to sign an agreement and for Staythenight to comply with any reasonable request and denies any breach of clause 9. There is no specific evidence before us that the buyers refused to sign any agreement other than one, which substantially increased the rent payable. There is also no specific evidence before us that Staythenight refused to comply with any reasonable request or refused to negotiate other than in respect of the amount of rent payable once a valuation had been performed.
  10. [18]
    Towards the end of the oral hearing, Ms Rao’s oral evidence was that she did not seek such an increase in rent from the buyer and that she did not instruct the lawyers to make such an admission in the Response. She also stated that they had not refused to consent to the assignment. It is difficult to reconcile this evidence with the email from the Raos’ solicitor dated 6 August that ‘they will not be executing the Deed’, which was in response to an enquiry about whether they had received instructions in relation to their client’s consent to an assignment of the lease.[14] 
  11. [19]
    Ms Rao’s oral evidence was that she spoke by phone to an unidentified person, who she understood was a representative of the buyer, and she advised that they were seeking rent at $400 (excl GST) by which she says she meant they had sought that amount of rent upon the exercise of the option in 2013. This is a significant departure from the case as set out in the Response. 
  12. [20]
    The only evidence given in these proceedings were by the Jensens, directors of Staythenight and by the Raos both by way of written statements and by oral evidence. The admission in the Response no doubt contributed to Staythenight not seeking a written statement from representatives of the buyer as to the specifics of the conversation with Ms Rao because until the oral hearing it was lead to believe the allegation was admitted. 
  13. [21]
    The Jensens’ statements attach a significant number of documents to support their contentions including correspondence passing between the parties directly or indirectly, by passing between the solicitors.  In contrast, the Raos’ statements largely set out extracts of clauses in the lease and provisions of the Act or make general denials. The Raos’ statements and oral evidence make a number of general assertions for which there is no supporting documentation and which are difficult to reconcile with the contemporaneous correspondence attached to the Jensens’ statements.  During the hearing Ms Rao referred to emails she had at home, which she contended supported her general statements.  Naturally, we are unable to place any reliance upon documents, which were not available to be viewed by Staythenight or us.
  14. [22]
    The Jensens provided evidence of conversations between representatives of the buyer and Ms Rao. This is hearsay evidence of those conversations, because it is what Mrs Jensen says she was told by the buyer’s representative and is not direct evidence of what was said by Ms Rao. Mrs Jensen’s evidence is that she was present and overheard the buyer’s representative have a phone conversation with Ms Rao on at least one occasion.  Mrs Jensen can give direct evidence about what she heard the buyer’s representative say but not what Ms Rao said because, as we understand it, Mrs Jensen did not actually hear what Ms Rao said.  Hearsay evidence is generally not admissible as evidence of the truth of what was said, as opposed to evidence that someone was told that that was what was said. The Tribunal is not bound by the strict rules of evidence but must observe procedural fairness.[15] 
  15. [23]
    Staythenight produced a copy of an email from the buyer’s solicitors to its solicitors dated 22 July 2015, which is consistent with the admission in the Response.[16] The email is also hearsay evidence of what Ms Rao told the buyer’s representative.
  16. [24]
    The Raos have had the statement, which set out Mrs Jensen’s evidence of the conversation and to which the buyer’s solicitors’ email is attached since on or about 30 January 2017. 
  17. [25]
    The Raos’ statement dated 26 February 2017[17] did not seek to specifically deny that they had requested the buyer pay rent at a rate of $400 (excl GST) nor did they seek leave to amend the Response at any time prior to the oral hearing to correct a significant admission said to have been made without instructions. The Raos did not produce any documentary or other independent evidence to support the contention that they did not instruct their solicitor to make the admission. 
  18. [26]
    Significantly, Mrs Jensen gave direct evidence of a conversation with Mr Rao on 23 July 2015.  Mrs Jensen’s evidence was that Mr Rao said he wanted more rent and that he would not sign the documents.[18]  The Raos’ statements[19] do not specifically dispute this evidence nor did Mr Rao dispute this evidence when he gave short oral evidence during the hearing. Mrs Jensen’s evidence is consistent with the admission in the Response and the contemporaneous correspondence from the buyer’s solicitors. 
  19. [27]
    In these circumstances, we prefer the evidence provided by Staythenight and find that it is more likely than not that Ms Rao did inform the buyer’s representative that they would sign the assignment documents if the buyer agreed to increase the rent to $400 (excl GST).
  20. [28]
    Even if we had not made such a finding of fact, we would not be minded to allow the Raos to depart from the admission in the Response. The Raos were effectively making an application for leave for a late amendment to their Response. The Tribunal has previously found that the principles expressed in Aon Risk Services Australia Ltd v Australian National University[20] should be considered in deciding whether to allow an amendment.  Those principles are:
    1. the extent of delay in seeking leave to amend and its associated costs;
    2. the point the litigation has reached;
    3. the prejudice to the other party, if leave is granted;
    4. the prejudice to other litigants and the efficient use of court resources;
    5. the explanation for the delay;
    6. the nature and importance of the amendment; and
    7. the need to maintain public confidence in the judicial system. 
  21. [29]
    The Raos did not seek to address us on any of these principles.
  22. [30]
    Having regard to these principles and, in particular, the lack of explanation for the delay, the lateness of the application, occurring mid afternoon during the course of the final oral hearing, and the prejudice Staythenight would suffer, we are not persuaded that the Raos should be given leave to amend. We are, therefore, not persuaded that the Raos should be allowed to depart from the admission in the Response that the Raos sought rent at $400 (excl GST) from the buyer.

Was the increase in rent sought an obligation that was not the lessee’s obligation under the lease and was the imposition of the condition unreasonable?

  1. [31]
    We find that seeking the increase in rent to $400 (excl GST) was not the lessee’s obligation and was unreasonable as the lessee’s obligation to pay rent had been determined at $326.61 (excl GST) per week ($16,983.46 (excl GST) per annum).
  2. [32]
    The Raos in the Response contend that:
    1. the request that the buyer pay rent at $400 (excl GST) was not unreasonable as there was a dispute as to the rent payable and Staythenight was aware that the Raos were seeking a rent increase to $400 (excl GST);
    2. the request to pay rent was not a new obligation; 
    3. they were willing to negotiate on the terms of the assignment but Staythenight unreasonably refused to negotiate.
  3. [33]
    We find that there was no dispute as to the rent payable under the lease as at 22 July 2015.
  4. [34]
    The Raos do not dispute that Staythenight exercised the option to extend by letter dated 28 June 2013.[21] Upon exercise of the option, a market review of the rent was due for rent payable as from 1 October 2013, the first day of the extended term. There is evidence, which we accept, that the parties sought to, but did not agree, on the rent to be paid. It took some time for the parties to agree on an appropriately qualified valuer to undertake the review. There is evidence, which we accept, that the valuers initially suggested by the Raos in December 2013 and January 2014[22] were not appropriately qualified. There appears to have been at least some delay on the part of both parties in progressing the market review. 
  5. [35]
    On 27 February 2015, the parties agreed to appoint Taylor Byrne, as specialist retail valuer.[23] There is evidence that the performance of the valuation was further delayed, by a short time, as the Raos did not pay the valuer their half share of the fees until after 19 March 2015.[24] 
  6. [36]
    There is evidence, which we accept, that the Raos submission to Taylor Byrne was that the rent should be increased to $400 (excl GST) per week.[25] 
  7. [37]
    By letter dated 22 May 2015, Taylor Byrne notified the parties of the gross effective rent as determined in the sum of $16,520 per annum as at October 2013.[26] 
  8. [38]
    On 22 June 2015, the full report was provided to the parties by email.[27]
  9. [39]
    On 17 July 2015, the valuer clarified the difference between gross effective rent and base rent as at 1 October 2013.[28] Essentially gross effective rent includes the lessee’s proportionate share of outgoings.  Under the lease, base rent was to be escalated by CPI.  The lessee’s contribution to property outgoings in 2013/2014 was a modest $92.23.  The valuer calculated that the rent as at October 2014 was $16,855.07 per annum plus GST plus the lessee’s contribution to property outgoings. 
  10. [40]
    It is clear that the Raos were and are dissatisfied with the rent determined by the valuer. It is equally clear that they did not take any formal steps to challenge the determination, which were available to them, in particular under the Act. Ms Rao gave evidence that she contacted the valuer but did not formally challenge the valuation. The Raos did not seek to set aside the determination in these or other proceedings. In these circumstances, the determination is binding upon the parties.[29] 
  11. [41]
    The Raos’ solicitors confirmed the rent payable as at 22 July 2015, which was in accordance with the valuation, as $16,855.07 (excl GST) plus lessee’s contribution to outgoings.[30]  As set out earlier, the evidence is, which we accept, that the lessee’s contribution to outgoings was a modest amount.  In the absence of a specific challenge by the Raos to the outgoings inclusive figure, we accept Staythenight’s calculation at $326.61 (excl GST) or $16,983.46 (ex GST) per annum. For these reasons, there was no dispute as to the rent payable as at 22 July 2015. 
  12. [42]
    Despite this, during this proceeding, the Raos made many allegations apparently attempting to call into question the validity of the valuation.  They included that the valuation was not performed strictly in accordance with the terms of the lease, misuse of confidential information about other tenancies during the valuation process, other defects with the process including the time to respond and the valuer inspecting the premises on a date different to that advised and without the lessor’s representative being present. The Raos also contended that the subsequent clarification provided by the valuer[31] nullified the process but did not provide any authority for this proposition.  These allegations of a defect in the valuation process are not properly before us because the Raos have not formally challenged the valuation.  We do not make any findings in respect of them other than to find that they cannot form a proper basis for failing to consent to the assignment because the valuation was not properly challenged. 
  13. [43]
    We accept that the obligation to pay rent was not a new obligation.  However, the obligation to pay rent at an amount considerably higher than that determined by the valuation was a new obligation.
  14. [44]
    The Raos contend they were willing to negotiate on the terms of the assignment but Staythenight unreasonably refused to negotiate. There is little evidence of this contention and upon what terms specifically Staythenight is said to have refused to negotiate. As we understand the Raos claims, they contend there was a need to change the lease in certain respects e.g.
    1. there was no lawn mowing being provided by the lessor because improvements had been undertaken since they purchased the centre.
    2. they had allocated a specific toilet to the tenancy and the associated responsibility for cleaning and consumables. Whether this allocation was a breach of the lease is addressed later in these reasons.
  15. [45]
    Even if we were satisfied that the changed environment meant there was no lawn to be mowed, about which there is little evidence, we would not be satisfied that such an amendment was sufficiently important to reasonably refuse to assign the lease.  If there was no lawn to be mown by the lessor it is difficult to see how a failure to do so could give rise to any cause of action against the lessor.
  16. [46]
    The evidence is that Staythenight refused to agree to amend the lease to assume a new obligation in respect of the toilet. There is little, if any, evidence about whether this was a matter upon which Staythenight is said to have refused to negotiate in respect of the assignment. If it is, we would not be satisfied that such an amendment was sufficiently important, especially having regard to the extent of compensation claimed, to reasonably refuse to assign the lease. 
  17. [47]
    In contrast, there is evidence that Staythenight did accept a requirement by the Raos that the Jensens remain as guarantors. 
  18. [48]
    We are not, therefore, persuaded that any alleged failure by Staythenight to negotiate can form a basis for forming a view that the Raos did not unreasonably refuse to consent to the assignment.

Were the Raos unreasonable in not consenting to the assignment for other reasons?

  1. [49]
    Ms Rao contended that they were not formally introduced to the buyer and they did not receive documentation under the lease and the Act and that information was kept from them including the name of the buyer. The Raos contend that there was no contact from the buyer about the bond and various other matters. 
  2. [50]
    It is difficult to reconcile these contentions with the documents produced by Staythenight. Contrary to Ms Rao’s claims, there is evidence, which we accept, that the Raos’ solicitors received the following, most of which were emailed to Ms Rao at the same time:
    1. a copy of the business contract, an ASIC search of the buyer and a title search.[32]
    2. a copy of the Deed of Assignment, a Form 18 Consent to Transfer of Lease, an Assignee Disclosure Statement, a Legal Advice Report.[33]
    3. a Financial Advice Report.[34]
  3. [51]
    The Raos point to the Disclosure Statement being partially incomplete.[35] Significant parts left incomplete were effectively addressed by the buyer providing the Legal Advice Report and the Financial Advice Report or related to the lessors’ obligation to provide a disclosure statement under the Act.
  4. [52]
    Further, we accept the evidence provided by Staythenight that the Raos solicitors’ email of 22 July 2015 stated that the Raos had all the documents required for execution.
  5. [53]
    Ms Rao’s oral evidence was that she went to see their solicitor on or about 20 July 2015 and asked to meet with the buyer. 
  6. [54]
    There is no specific evidence before us of when and how the Raos requested to meet with the buyer’s representative and there is no documented evidence before us that the Raos asked to be introduced to the buyer’s representatives. Such a request is not mentioned in the Raos’ solicitors’ email of 22 July 2015. We are not satisfied that this request was communicated to Staythenight or the buyer. In these circumstances, we are not satisfied that not being introduced to the buyer’s representatives can form a basis for failing to consent to the assignment. 
  7. [55]
    Ms Rao contended that they did not consider the buyers had the required financial capacity to support the lease payments and the business such that they were at financial risk if they agreed to the assignment. On 27 July 2015, the Raos indicated that they did not consent on the basis that they did not believe the buyers had the requisite financial capacity.[36] 
  8. [56]
    It is difficult to reconcile the view that the Raos continued to consider the assignment would put them at financial risk with the evidence that:
    1. the Jensens agreed to remain guarantors for the balance of the term such that their security was enhanced;
    2. the buyers had provided evidence they had received financial advice as required under the Act.[37]
  9. [57]
    The Raos challenged the buyer’s representatives’ retail experience. The Assignee disclosure statement outlined the retail experience of the buyer’s directors. 
  10. [58]
    The Raos also contended that some of the documents, including the disclosure statement, were inaccurate or misleading because they referred to the Raos as the lessors. Although the Raos had not executed and had registered a new lease post their purchase of the centre and the exercise of the option, the Raos were in substance the lessors. The Raos were registered on the title as owners of the land. The lease option had been exercised. The lease had not been perfected due to delays by both parties. The evidence is that documentation had been prepared and exchanged between the parties’ lawyers to regularise the lease. In these circumstances, we are not satisfied that reliance on such a technicality is reasonable. 
  11. [59]
    The Raos also refer to a failure by Staythenight to pay their legal costs of giving consent. Mr Jensen’s oral evidence, which we accept, was that they had not received a bill for payment. We are not satisfied that this is a sufficient ground for failing to give consent.

Did the Raos breach clause 9.2 of the lease?

  1. [60]
    We find that the Raos breached clause 9.2 of the lease in failing to consent to the assignment.
  2. [61]
    The Raos in the Response denied that they had breached clause 9 and claimed that they were willing to negotiate on the terms of the assignment and that Staythenight refused to negotiate.
  3. [62]
    Clause 9.2 of the lease provides that the lessor must give its consent to an assignment if:
    1. the lessee satisfies the lessor that the new lessee is financially secure and has the ability to carry out the lessee’s obligations in the lease;
    2. the new lessee signs any agreement and gives any security which the lessor reasonably requires;
    3. the lessee complies with any other reasonable requirements of the lessor;
    4. the lessee is not in breach of the lease;
    5. the lessee pays the lessor’s reasonable costs of giving its consent.
  4. [63]
    We are not persuaded that any alleged failure by Staythenight to negotiate can form a basis for forming a view that the Raos did not unreasonably refuse to consent to the assignment, for the same reasons as set out above. 
  5. [64]
    We accept the evidence presented by Staythenight, consisting of correspondence between the parties’ solicitors, that there was some negotiation of the terms of the various documents to be signed. We also accept the evidence that Staythenight and the buyer complied with or were ready willing and able to comply with clause 9.2 of the lease.
  6. [65]
    The Raos in their statement of evidence[38] raised a breach of clause 7.7 of the lease in respect of car parking. The lease provides that the lessee and its staff are not entitled to park in the centre’s carpark. The Raos did not seek to rely upon this breach in support of their not giving consent. The evidence is, which we accept, that this breach was not brought to Staythenight’s attention until the statement was delivered. In these circumstances we would not be satisfied that the Raos could reasonably rely upon such a breach to not consent to the assignment. 
  7. [66]
    The Raos contended that Staythenight was in breach of the lease as the Deed of Extension and variation had not been lodged.[39] We are not satisfied that the Raos are entitled to rely upon this breach as they were also in breach of this obligation for the reasons set out later in these reasons.

What are the consequences of the Raos’ wrongful failure to assign?

  1. [67]
    We find that Staythenight suffered loss as the buyer terminated the contract to buy the business due to the Raos’ wrongful failure to consent to the assignment of the lease. 
  2. [68]
    It claims costs it would not have incurred but for the Raos wrongful failure to consent:
    1. Solicitor’s fees in the sum of $5,868.45 incurred in relation to the sale of the business.[40] We accept that these fees have been wasted because consent was wrongfully withheld. If Staythenight obtains a further contract of sale for its business it will incur further costs of this nature. We accept Staythenight’s evidence that it intends to sell its business at an appropriate time.
    2. Accountant’s fees in the sum of $1,430.00 (incl GST) to prepare figures for the sale.[41] We accept that these fees have been wasted because consent was wrongfully withheld. If Staythenight obtains or seeks to obtain a further contract of sale for its business it will incur further costs of this nature.
    3. Overdraft interest on $242,000.00 at the rate of 5.59%. Staythenight contends that upon receipt of the proceeds from the sale of the business, $110,000.00 (incl GST) plus an amount of approximately $132,000.00 (incl GST) for stock it would have paid down its overdraft and therefore not incurred further interest. It provided copies of its line of credit bank statements.[42] The evidence shows that the overdraft balance as at 13 August 2015 when the buyer terminated was $219,111.91. Since that time, the overdraft balance has been higher through the course of the business continuing to trade. We accept that if the consent had been forthcoming and the sale completed Staythenight would have been in a position to apply at least the GST exclusive amount of $220,000.00 against its overdraft.  We are not satisfied that the whole of the interest incurred since the buyer terminated is attributable to the failure to consent to the assignment as distinct from business decisions made by Staythenight.  There is evidence that the applicable interest rate is 5.59% per annum.[43] We calculate interest incurred on $220,000.00 at the rate of 5.59% as approximately $1024.83 per month. From the time the buyer ought to have settled until the time of this decision is approximately 26.5 months. We therefore find that the Raos are to pay compensation for interest incurred in the sum of $27,158.00.  Staythenight’s loss in this respect is a continuing loss until it sells the business. We accept the evidence before us that the shorter the lease term the less attractive a sale becomes. It is not appropriate to order the payment of such damages on an indefinite basis. We consider it just to order the payment of $1024.83 per month from the date of this decision until 30 September 2018, the end of the lease term.
    4. Staythenight claims costs to relocate the air-conditioning unit from the subject premises to new premises and the cost to disassemble and reassemble shop fittings at the new premises, such cost to be incurred upon it relocating the business to other premises upon terminating the lease. We are satisfied that it would not have incurred these costs had the Raos not breached their obligations as the air-conditioning unit and fitout would have stayed in place and become the buyer’s responsibility. It provided to us written quotes[44] in the sum of $1,780.61 (incl GST) for the air-conditioning work and in the sum of $4,994.00 (incl GST) for the shop fittings work, which we accept in the absence of any other evidence to the contrary. 
  3. [69]
    In its Notice of Dispute, it claimed other amounts such as rent and outgoings from the date of termination of the sale contract and various other business expenses but did not seek to offset the income derived from the business since that date. In these circumstances, we are not satisfied that any amount is payable for these expenses. It also sought to claim an amount being the difference between the sale price less the value of the business at the date of termination of the lease. No evidence of the value of the business is before us.  In these circumstances, we have no basis upon which we can make such an order.

Breach of exclusivity – clause 7.10

  1. [70]
    We find that the Raos have breached clause 7.10 of the lease. There is insufficient evidence to award any damages arising from this breach.  The breach is some evidence that the Raos have acted inconsistent with the terms of the lease and shows at least some unwillingness or inability to perform the lease according to its terms.
  2. [71]
    Staythenight contends that the Raos, in breach of clause 7.10 of the lease, have permitted a business, which sells amongst other things jewellery, nursery and children’s clothing, giftware and accessories to trade in the Centre. It relies upon this breach to support its claim to be entitled to terminate the lease or alternatively to be paid an amount by way of damages.
  3. [72]
    It is not disputed that clause 7.10 of the lease provides a limited exclusivity right to prevent competition. 
  4. [73]
    In the Response, the Raos deny clause 7.10 has been breached and say Staythenight has not previously raised any concerns about the other store.  They deny that the other store sells nursery clothing or giftware and accessories. Somewhat inconsistently, with the denial of breach, they admit that the other store sells some children’s clothing and handmade Inca jewellery. They rely upon a contention that these lines are not the other store’s primary market, form a very small part of its range and are very different to anything sold by Staythenight. They also contend that anything sold by the other store would not impact upon Staythenight’s sales.
  5. [74]
    There is little evidence before us in respect of this claim. There is no evidence as to loss of sales or profit.  Therefore, Staythenight’s claim for damages is not capable of being made out. There is little evidence on the product range of either store. The Raos statements[45] do not address this claim at all and so provide no evidence in support of any of the contentions set out in the Response. 
  6. [75]
    At the hearing, Ms Rao gave evidence that:
    1. she had not been into the other store and could not answer whether it sold jewellery, children’s clothes and giftware;
    2. the items were very different to the items sold by Staythenight so the other store would not impact it. It is not clear to us the basis upon which this evidence could be given in view of the admission she had not been into the other store;
    3. their real estate agent had informed the other tenant of Staythenight’s exclusivity rights.[46] 
  7. [76]
    We accept Staythenight’s evidence that by letter dated 24 November 2012 it had sought the Raos’ co-operation in not breaching clause 7.10 of the lease in seeking to tenant vacant shops.[47] We also accept its evidence in the form of copies of the other store’s Facebook posts[48] that the other store opened on or about 25 March 2016. The Facebook posts clearly show that children’s clothes and jewellery are available for sale, consistent with the admission in the Response. The photos show a significant range of jewellery on display, which clearly falls within the exclusivity provision.  We accept that children’s clothes falls within the exclusivity provision in that it refers to children’s ranges of gifts. The posts also show a range of hand painted Peruvian ceramic pottery, which we accept is a type of ceramics or giftware or homewares, which also falls within the exclusivity provision.
  8. [77]
    Even if these lines are significantly different to the lines stocked by Staythenight and do not constitute a significant part of the offerings, of which there is no evidence, clause 7.10 does not seek to put such a qualification on the exclusivity.

Breach of Staythenight’s right to use common areas – clause 7.6

  1. [78]
    We find that the Raos have breached clause 7.6(1). There is insufficient evidence to award any damages arising from this breach. The breach is some evidence that the Raos have acted inconsistent with the terms of the lease and shows at least some unwillingness or inability to perform the lease according to its terms.
  2. [79]
    There is evidence, which we accept, that a locked and gated area in part of the common area, which prevents Staythenight from freely accessing its air-conditioning unit has been constructed and that the Raos did not provide notice to Staythenight of its intention to construct the area, because they did not believe they were required to do so. 
  3. [80]
    The Response contends that the construction occurred prior to the Raos’ ownership of the centre. Photographic evidence[49] demonstrates that the construction occurred at a time between 16 February 2015 and 2 March 2016. A letter dated 24 November 2016 from Border Refrigeration and Airconditioning, provides evidence that access to Staythenight’s air-conditioner was required to be obtained from the bakery for the then most recent yearly service but not for the previous yearly service.[50] This letter supports the timeframe demonstrated by the photographic evidence.  As stated earlier in these reasons, the Raos bought the centre in 2010.  We find that the construction occurred since the Raos’ became owners of the centre.
  4. [81]
    Staythenight contends that this conduct breaches clause 7.6(1), which entitles it and its employees to use the common area subject to obeying all reasonable directions and rules given by the Raos relating to their use. In the Notice of Dispute, Staythenight claims damages for this claimed breach.
  5. [82]
    There is little evidence before us in respect of this claim. There is no evidence as to loss arising from this claimed contravention. Therefore, Staythenight’s claim for damages is not capable of being made out.  During the hearing, Mr Jensen requested that we consider any breaches of the lease established as grounds for entitling Staythenight to terminate the lease. 
  6. [83]
    The Raos statements[51] do not address this claim at all.  Ms Rao gave oral evidence that the gate was constructed as other tenant’s goods were being stolen. 
  7. [84]
    Given that the area is locked and that access to service the air-conditioner is now required to be obtained from another tenancy i.e. the bakery, we find that it is more likely than not that the Raos have granted exclusive use of that part of the common area to another tenant, which prevents Staythenight and its employees from using part of the common area, which they were previously entitled to use. 
  8. [85]
    Further, given that no notice was given to Staythenight there were no reasonable directions and rules given by the Raos relating to the common area’s changed use. In any event, the Raos’ right to make rules and amend them by notice to Staythenight is subject to the condition that no rule is to prejudice Staythenight’s rights under the lease.[52]  We find that it was not open to the Raos to unilaterally change Staythenight’s access rights to its detriment.

Failure to clean and maintain common areas   

  1. [86]
    We find that the Raos have failed to clean parts of the common area and Staythenight is entitled to compensation under section 43(e) of the Act for a failure to clean and maintain common areas since November 2013:
    1. compensation in the sum of $2,281.74 as claimed;
    2. compensation at the rate of $17.34 for each week[53] for 54 weeks until the hearing day in the sum of $936.36; and
    3. further compensation at the rate of $17.34 for each week since the hearing date until the recommencement by the Raos of the cleaning and maintenance of the common areas or until the lease is terminated or expires. 
  2. [87]
    The undisputed evidence is that there were a number of toilets in the common area.  The lease did not provide that Staythenight was to clean parts of the common property. The Response admits it was the lessor’s responsibility to clean the common property until other arrangements were put in place by agreement with the tenants. There is evidence that Staythenight brought this obligation to the Raos’ attention by letter dated 24 November 2012.[54] 
  3. [88]
    After purchasing the centre, the Raos sought to allocate a lockable toilet to each of the tenants for their exclusive use and make the tenants responsible for cleaning their allocated toilet and providing their own consumables. The evidence is, and we accept, that the hand basin is outside of the lockable toilets and that the Raos ceased providing consumables such as hand soap and paper towels and ceased to clean that part of the common area. 
  4. [89]
    Ms Rao’s evidence was that the other tenants in the centre agreed to the change. The undisputed evidence is that Staythenight did not agree to amend their lease to include such obligations. Staythenight wrote to the Raos about the failure to clean the common property by letter dated 11 November 2013.[55]
  5. [90]
    The Raos contend they had the right to make rules and amend them by notice. As referred to earlier in these reasons, the Raos’ right to make rules and amend them by notice to Staythenight is subject to the condition that no rule is to prejudice Staythenight’s rights under the lease.[56]  We find that it was not open to the Raos to unilaterally change Staythenight’s rights to its detriment.
  6. [91]
    There is little evidence as to the compensation payable for the Raos’ failure to maintain the common area. Staythenight has estimated compensation[57] as:
    1. 30 minutes per week for an employee at the rate of $23.30/hour for 38 weeks from October 2013 to June 2014; $24.08/hour for 52 weeks; $24.68/hour for 44 weeks to May 2016.
    2. $5 per week for consumables.
  7. [92]
    The Raos have not sought to challenge the amount of the compensation sought by Staythenight. 
  8. [93]
    In the absence of contrary evidence, we accept Staythenight’s evidence.

Failure to rectify defects

  1. [94]
    We are not satisfied that Staythenight has proven that the Raos have failed to rectify defects for which they are responsible.
  2. [95]
    Staythenight contends that the Raos are liable to pay compensation under section 43(d) of the Act for a failure to rectify a defect in the building in the sum of $538.53, as a result of a water leak causing damage to stock and shop fittings.
  3. [96]
    The undisputed evidence is that from time to time water enters Staythenight’s shop. The parties have different views as to what is causing the water penetration and therefore who is responsible. Ms Rao’s oral evidence was that if the cause can be ‘pin pointed’ they would accept responsibility to rectify.
  4. [97]
    There is limited evidence before us. There is evidence that the Raos have taken some steps to locate the problem and to seek to remedy the issue.[58]  There is no expert evidence or report from a qualified tradesperson or professional as to the cause of the water penetration before us. 
  5. [98]
    There is insufficient evidence before us to form a view that on the balance of probabilities the water penetration is caused by a failure to rectify defects in the building for which the Raos, as lessors, are responsible. 

Should Staythenight be entitled to terminate the lease?

  1. [99]
    We are not satisfied that Staythenight has established an entitlement to terminate the lease.
  2. [100]
    The breaches of lease by the Raos, which Staythenight has established, either in isolation or collectively are not in our view so fundamental that they have the effect of substantially depriving Staythenight of the benefit of the lease. There is little evidence before us as to the loss flowing from the breaches. The loss established for most of the breaches is not substantial.  We are also not satisfied that the Raos’ conduct shows an unwillingness or inability to perform the lease according to its terms substantially or at all. 

Unconscionable conduct 

  1. [101]
    We are not satisfied that Staythenight has established that the breaches relied upon constitute the serious allegation of unconscionable conduct.
  2. [102]
    A lessor, must not in connection with a retail shop lease engage in conduct that is, in all the circumstances, unconscionable.[59]
  3. [103]
    Staythenight contends that the Raos demand for a significant increase to the rent despite a specialist retail valuation determining the applicable rent and consequent failure to consent to the assignment constitutes unconscionable conduct in circumstances where:
    1. they knew the sale of the business was conditional upon their consent and the Jensen family intended to relocate from Stanthorpe to Toowoomba upon the sale;
    2. the Raos breached the lease and the Act in a number of respects.
  4. [104]
    Staythenight seeks an order that the Raos pay damages.
  5. [105]
    Unconscionable conduct is a serious allegation. A finding of unconscionability requires evidence of a ‘high level of moral obloquy’ and not merely evidence that conduct is unfair or unjust.[60]
  6. [106]
    The Act sets out matters which we may have regard to in deciding whether a party has engaged in unconscionable conduct.[61]
  7. [107]
    Staythenight did not draw our attention specifically to any of those matters. 
  8. [108]
    In so far as Staythenight rely upon various breaches of the lease and that the Raos have been rude to Staythenight’s representatives, even if we were satisfied of each of the factual matters contended, about some of which there is little evidence, we would not be satisfied to the requisite standard that such conduct was unconscionable.
  9. [109]
    Ms Rao conceded they were aware that the Jensens wished to relocate to Toowoomba. A sale of the business would have facilitated that move. The Raos bargaining position was relatively greater because denying consent to the assignment would place pressure upon Staythenight to agree to their requests.
  10. [110]
    We accept that the demand that the buyers pay rent at an amount significantly higher than the rent recently determined by the specialist retail valuer was not reasonably necessary for the protection of the lessors’ legitimate interest.
  11. [111]
    However, we weigh these matters against the fact that the time between the request for consent i.e. 10 July 2015 and the original date for completion i.e. 27 July 2015 was quite short and the parties were still seeking and obtaining clarification of the valuation as recently as 17 July 2015.  Whilst the conduct could be viewed as unfair and unjust we are not satisfied that Staythenight has established to the requisite standard that the Raos’ actions lacked good faith or otherwise were unconscionable.

Failure to lodge Form 13 

  1. [112]
    We find that the Raos are in breach of clause 17.3 of the lease which requires the parties to sign a Further Lease or an instrument of variation within a reasonable time where the option to renew has been exercised.
  2. [113]
    Staythenight contends that the Raos despite demand have failed to lodge a Form 13 amendment with the Titles Office upon the exercise of the option to extend the lease to 30 September 2018. Staythenight seeks an order that the Raos pay damages. There is little evidence as to specific loss and damage arising from this breach. We are not satisfied that Staythenight has proved its loss.
  3. [114]
    Ms Rao contended that the Jensens ought to have prepared the Deed of Extension and Form 13 to record the exercise of the option and to have lodged it for registration. This evidence is difficult to reconcile with the documents produced by Staythenight including a request by them for a Form 13 and Deed of Amendment to the lease documenting the renewal on 4 June 2015[62] and an email from Ms Rao dated 7 July 2015,[63] which stated that they would have the Form 13 to Staythenight as soon as possible. We accept the evidence that Staythenight had been seeking a Form 13 from the Raos for some time and had been provided with a draft by 14 July 2015[64] and that some amendments to the Form 13 were requested.[65]

Summary

  1. [115]
    We find that the Raos are to pay Staythenight the sum of $44,449.16 by 30 November 2017, calculated as follows:
    1. Solicitor’s fees in the sum of $5,868.45;
    2. Accountant’s fees in the sum of $1,430.00;
    3. Interest to the date of this decision in the sum of $27,158.00;
    4. Relocation of air-conditioning in the sum of $1,780.61;
    5. Relocation of shop fittings in the sum of $4,994.00;
    6. Compensation for failure to clean and maintain the common area in the sum of $3,218.10.
  2. [116]
    We also find that the Raos are to pay Staythenight interest in the sum $1024.83 per month from the date of this decision until 30 September 2018.
  3. [117]
    In addition, we find that the Raos are to pay Staythenight $17.37 for each week from 19 May 2017, the hearing day, until the recommencement by the Raos of the cleaning and maintenance of the common areas or until the lease is terminated or expires on 30 September 2018.

Footnotes

[1]Retail Shop Leases Act 1994 (Qld) (the Act), s 8.

[2]Exhibit 8 refers to 30 days notice rather than 28 days notice, which appears in the Notice of Dispute, Exhibit 1.

[3]Lease, clause 14.

[4]Shevill v Builders Licensing Board (1982) 149 CLR 620, 625 – 627 (Gibbs CJ).

[5]Exhibit 4.

[6]Exhibit 3, attachment 61.

[7]Exhibit 2, attachment 4.

[8]Being a reference to the proposed Deed of Assignment of Lease.

[9]Exhibit 2, attachment 5.

[10]Exhibit 2, attachment 6.

[11]The Act, s 103.

[12]The Act, s 83.

[13]Exhibit 7.

[14]Exhibit 2, attachment 5.

[15]Queensland Civil and Administrative Tribunal Act 2009 (Qld) (QCAT Act), s 28(3).

[16]Exhibit 2, attachment 26.

[17]Exhibit 4.

[18]Exhibit 2, attachment 2, pages 9 – 10.

[19]Exhibits 4, 5 and 6.

[20](2009) 239 CLR 175.

[21]Exhibit 2, attachment 32.

[22]Exhibit 4, attachment 1.

[23]Exhibit 2, attachment 22.

[24]Ibid, attachment 29.

[25]Exhibit 4, attachment 8.

[26]Exhibit 2, attachment 23.

[27]Exhibit 3, attachment 74.

[28]Exhibit 4, attachment 9.

[29]Lease, clause 3.4 (4)(d).

[30]Exhibit 3, attachment 59.

[31]Exhibit 4, attachment 9.

[32]Exhibit 2, attachment 34.

[33]Exhibit 3, attachment 55.

[34]Exhibit 3, attachment 58.

[35]Exhibit 4, attachment 17.

[36]Exhibit 2, attachment 5.

[37]Exhibit 3, attachment 58.

[38]Exhibit 4.

[39]Exhibit 4, pages 11 and 12 in respect of clause 17.3 of the lease.

[40]Exhibit 2, attachment 35.

[41]Ibid, attachment 36.

[42]Ibid, attachment 40 and parts of Exhibit 9.

[43]Exhibit 2, Attachment 40.

[44]Part of Exhibit 9.

[45]Exhibit 4, 5 and 6.

[46]As we understand Ms Rao’s evidence, this was done since these proceedingscommenced.

[47]Exhibit 2, attachment 7.

[48]Ibid, attachment 8.

[49]Exhibit 2, attachment 9.

[50]Ibid, attachment 10.

[51]Exhibit 4, 5 and 6.

[52]Lease clause 16.3(1).

[53]30 mins at the rate of $24.68/hour plus $5 for consumables.

[54]Exhibit 2, attachment 7.

[55]Exhibit 2, attachment 12.

[56]Clause 16.3(1).

[57]Exhibit 2, attachment 14.

[58]Ibid, attachment 16, 18.

[59]The Act, s 46A.

[60]Attorney General (NSW) v World Best Holdings Ltd [2005] NSWCA 261 at [121] per Spigelman CJ.

[61]The Act, s 46B.

[62]Exhibit 3, attachment 75.

[63]Ibid, attachment 76.

[64]Exhibit 3, attachment 77.

[65]Ibid, attachment 78.

Close

Editorial Notes

  • Published Case Name:

    Staythenight Pty Ltd as Trustee for the Jensen Family Trust v Camillo Rao and Fina Rao as Trustee for the Maryland Investment Trust

  • Shortened Case Name:

    Staythenight Pty Ltd v Rao

  • MNC:

    [2017] QCAT 374

  • Court:

    QCAT

  • Judge(s):

    Presiding Member Deane, Member Judge, Member McBryde

  • Date:

    31 Oct 2017

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.
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