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Nancy & Albert Pty Ltd v McDonald's Australia Pty Ltd[2018] QCAT 285

Nancy & Albert Pty Ltd v McDonald's Australia Pty Ltd[2018] QCAT 285

QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL

CITATION:

Nancy & Albert Pty Ltd v McDonald’s Australia Pty Ltd [2018] QCAT 285

PARTIES:

NANCY & ALBERT PTY LTD CAN 085 188 736

(applicant)

v

MCDONALD’S AUSTRALIA LTD CAN 008 496 928

(respondent)

APPLICATION NO/S:

RSL057-17

MATTER TYPE:

Retail shop leases matter

DELIVERED ON:

17 August 2018

HEARING DATE:

4 June 2018

HEARD AT:

Brisbane

DECISION OF:

PJ Roney QC

Neil Judge

Don McBryde

ORDERS:

The application is dismissed.

CATCHWORDS:

LANDLORD AND TENANT – RETAIL AND COMMERCIAL TENANCIES LEGISLATION – OTHER MATTERS – ground lease – determination of current market rent on the basis of unimproved land value – whether determination by specialist retail valuer complies with the requirements of the Retail Shop Leases Act, reprint 3E – whether valuer failed to comply with s 29 of the Retail Shop Leases Act in not determining the rent on the basis of the rent that would be reasonably expected to be paid for the retail shop if it were unoccupied and offered for leasing for use for which the shop may be used under the lease or substantially similar use, but instead determined the current market rent on the basis that the lease was a ground lease and did not take into account improvements on the leased land – whether a specialist retail valuer’s report was not a proper determination because it failed to disclosure certain information relied upon within it, indicate how comparable properties were relevant, how the benefit of easements have been taken into account – whether the report failed to have regard to exclusive use provisions – whether valuer failed to specify the matters taken into account – whether adequate

Acts Interpretation Act 1954 (Qld), s 27B

Retail Shop Leases Act 1994 (Qld) reprint 3E, s 28, s 29, s 31, s 35, Schedule

Annandale Pharmacies (NQ) Pty Ltd v The Angliss Estate (Annandale) Pty Ltd [2017] QCAT 429

Bank of South Australia v SA Health Commission (1996) 65 SASR 409

Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430

Brisbane Comedy Pty Ltd t/as Albion Comedy Club & Restaurant v Malisano & Ors (2015) QCAT 340

City of Subiaco v Home Base Management Pty Ltd [2015] WASCA 54

Finn v Central and Northern Queensland Regional Parole Board [2016] QSC 233

Fletcher Construction Australia Ltd v Lines Macfarlane & Marshall Pty Ltd [2001] 4 VR 28

Fletcher Construction Australia Ltd v Lines Macfarlane and Marshall Pty Ltd (No 2) [2002] 6 VR 1

Legal and General Life Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314

McGlen-McLeod v Galloway [2012] NSWCA 368

S.H.I.F.T. Whitsunday Pty Ltd v McLean Cooke Pty Ltd [2012] QCAT 38

Secretary of State for Foreign Affairs v Charlesworth Piling & Co [1901] AC 393

Vesco Nominees Pty Ltd v Stefan Hair Fashions Pty Ltd [2001] QSC 169

APPEARANCES & REPRESENTATION:

 

Applicant:

C Wilson QC, instructed by Mullins Lawyers

Respondent:

G Gibson QC and S Forder, instructed by Corrs Chambers Westgarth

REASONS FOR DECISION

The principal matter in issueError! Bookmark not defined.

Factual background3

The valuation process5

The grounds for challenge6

The statutory provisions6

The ground lease issue8

The inadequate reasons ground15

The principal matter in issue

  1. [1]
    This application concerns whether a rental determination made by a specialist retail valuer (‘SRV’) appointed to undertake a determination of the current market rent of a McDonald’s fast food restaurant and drive-thru at Sunnybank in Brisbane complied with the requirements in s 29 and 31 of the Retail Shop Leases Act 1994 (Qld) (‘the Act’) which relevantly applied to the lease.
  2. [2]
    In particular, it raises two specific questions.
  3. [3]
    First, the SRV determination is said not to have complied with the requirements under s 29 of the Act because the determination was said not to have been made on the basis of the rent that would be reasonably expected to be paid for the retail shop if it were unoccupied, but instead determined the market rent on the basis that the lease was a ground lease; that is, without reference to the shop or any building constructed on the premises, with a view to determining the market rental appropriate to the unimproved value of the land constituted by the demised premises.
  4. [4]
    Secondly, although the SRV’s determination was recorded in a so called speaking determination of some 29 pages in length, that is that it provided some degree of identification of the factual and other issues which were necessary to be taken into account, and disclosed the process of reasoning to arrive at the conclusions expressed in it, whether in this particular determination the explanations and reasoning were sufficient to comply with the requirements of s 31 of the Act which it is contended specify what the SVR’s determination must provide or identify in material respects.
  5. [5]
    The structure of the Act is that in relation to retail shop leases, where there is to be a determination of current market rent, if the parties cannot agree it is to be determined by an SRV. The rent as determined by the SRV is deemed to be the current market rent of the premises, and the rent payable under the lease for the period under review.[1]
  6. [6]
    This Tribunal has a limited role. It has jurisdiction to hear a dispute about ‘the procedure for the determination of rent payable under the retail shop lease, but not the actual amount of the rent’.[2]
  7. [7]
    The Tribunal may make orders that it considers necessary to resolve the dispute and if it finds that the determination did not comply with the requirements of the Act, it may order that the determination be set aside and a further determination in compliance with the section be made.[3]
  8. [8]
    The definition of a retail tenancy dispute in the current schedule to the Act identifies it as ‘any dispute under or about retail shop leases, or about the use or occupation of a leased shop under a retail shop lease, regardless of when the lease was entered into’.

Factual background

  1. [9]
    The Respondent (‘McDonald’s’) operates a fast food restaurant and drive-thru from premises owned by and leased to it by the Applicant (‘Nancy & Albert’) situated at 250 McCullough Street, Sunnybank. The land comprises an area of 2,116 square meters and the area is described as Lease F on SP 133291.
  2. [10]
    McDonald’s entered into a 20-year lease of the site by lease commencing in 2000. By the terms of the lease, there was to be a market review in rental year 16, that is, as at 26 June 2015, as well as in some earlier years. After the parties failed to reach agreement on the market rent which was to be applied from that date for the further term, Mr Bruce Barrington was appointed as the SRV, charged with the responsibilities imposed upon such valuers under the Act where the parties cannot reach agreement.
  3. [11]
    He made a written determination dated 27 March 2017 that identified the market rent as being $197,545 plus GST at the relevant date. There was a proviso about outgoings in the determination. That rent was a figure lower than the initial annual rent 17 years earlier.
  4. [12]
    It is common ground that the subject site was a retail shop, and that the subject lease was a retail shop lease within the terms of the Act.
  5. [13]
    It is also common ground that in respect of the determination which was required to be made by the SRV, the applicable provisions were those as they stood in reprint 3E of the Act, reprinted as in force on 1 January 2006. That is of critical significance in this case because in that reprint, unlike the position to be found in later versions of the Act, there was no express requirement, as there was in later reprints, in s 31 of the Act, to ‘state detailed reasons for the determination’. There is nevertheless an issue as to the extent to which, in making the determination, the SRV was required to provide reasons, and whether the reasons provided in this case were sufficient to meet whatever those requirements were.
  6. [14]
    We pause to observe that in some other decisions of this Tribunal, where the requirements to provide reasons have been the subject of comment, there has not always been an appreciation of the fact that the requirements of later reprints to the Act, including the current version of the Act, which require that the SRV’s determination of current market rent must state detailed reasons for the determination were not present in earlier versions of the Act. To the extent that that distinction has not been properly made in those other cases, some care must be taken with earlier statements of principle as to what the requirements of a determination are and have in the past been.
  7. [15]
    Prior to the determination in writing being made, the parties each engaged with the valuer to provide him with instructions as to the methodology that he was to adopt. That engagement started with correspondence from the valuer seeking clarification specifically as to what methodology the parties regarded as appropriate to adopt.
  8. [16]
    One of the peculiarities of the case is that the critical challenge to the findings of the valuer which Nancy & Albert makes is based upon a challenge to the approach that the valuer took which it is conceded for the Applicant was an approach that the valuer was specifically requested to undertake in undertaking the valuation. It nevertheless contends that both parties were wrong in inviting him to adopt that approach, and that the error that the valuer made in consequence is nevertheless open to challenge because of its non-compliance with the requirements of the Act.

The valuation process

  1. [17]
    It is common ground that in correspondence from the valuer on 2 November 2016, after identifying that the valuer had been appointed to assess the market rent, identified that in the description of the premises being leased, apart from identifying the area of land, the demised premises were defined as meaning the land in Item 5 of the Form 7, which was the specific lease on SP 133291, and that there was no mention of buildings or its area in either of the above. He requested confirmation that the lease was for the whole of the land including building improvements and not just a lease of the land only.
  2. [18]
    In that context he identified that the provisions of the rent review procedures under the lease, specifically clause 3.2A, provided that the process required the lessor to notify the lessee of what it considered to be the annual market rental appropriate to the unimproved value of the land constituting the demised premises, and that a valuer in determining the annual market rental was to assess the valuation on the unimproved land value of the land area of the demised premises.
  3. [19]
    In that letter the SRV also expressed concern that the requirements for determining market rent under s 29 of the Act required the assessment of the gross rent less the lessor’s outgoings payable by the lessee under the lease of the retail shop lease, and was not to be assessed on the unimproved land value of the land area of the demised premises. He was concerned that this definition led to inconsistency between the terms of the lease and his task under it, and the task required by s 29 of the Act.
  4. [20]
    In reply, on 27 November 2016, the solicitors for Nancy & Albert wrote that the valuer should assess the rent, amongst other things, on the unimproved value of the land, taking into account the improvements supplied by the lessor, which it said were substantial.
  5. [21]
    The response from the solicitors for McDonald’s on 18 November 2016 was that McDonald’s agreed that the determination was to be made in accordance with s 29 of the Act, and that the valuer should have regard to that section alone when making the determination. It agreed that the ‘premises’ included the lessor’s works as they were described, as well as an easement for right of way and temporary parking.
  6. [22]
    On 17 November 2016, the solicitors for Nancy & Albert wrote to the valuer confirming the rent was to be determined under s 29 and:

…is to include the whole of the land taking into account the various easements and encumbrances... and does not include the buildings, however the lessors work schedule... needs to be taken into account when determining the market rent.

  1. [23]
    Hence it was concluded and agreed that the valuer’s approach was to assess the valuation on the unimproved value of the land taking into account the improvements made by the lessor.
  2. [24]
    In his follow up letter of 28 November 2016, the SRV identified that as the approach which he would take, and he agreed to accept his appointment and apply the terms of the Act in accordance with those instructions. Hence he said he would determine the current market rent of the demised premises as prescribed by the Act but treating it as a ‘ground lease’. He would not have regard to clause 3.2B and parts of clause 5 of the lease, but would have regard to other terms and conditions of the lease and other provisions of the Act in proceeding with the determination.
  3. [25]
    It is clear that from that time on, the SVR proceeded to conduct his determination in accordance with the agreed methodology. It was only after the application of that methodology to arrive at a determination, that in this proceeding Nancy & Albert sought to challenge the determination on the basis that it did not comply with the requirements of the Act.

The grounds for challenge

  1. [26]
    The specific grounds of challenge to the determination as set out in the Amended Application are as follows:
    1. (a)
      That the determination of current market rent did not comply with s 29 of the Act in that it did not determine the rent ‘...on the basis of the rent that would be reasonably expected to be paid for the retail shop if it were unoccupied and offered for leasing for the use for which the shop may be used under the lease or a substantially similar use', as provided in s 29(a)(i) of the Act, but instead determined the current market rent on the basis that the lease is a ‘ground lease’ and did not take into account the building erected on the leased land (‘the ground lease issue’);
    2. (b)
      Alternatively, that the determination of current market rent in the report dated 27 March 2017 was not a proper determination, in that:
      1. The report did not disclose the details of the agreements for lease considered by Bruce Barrington and referred to in comparison with the lease;
      2. The report does not state how each of the comparable properties identified specifically compares to the subject premises;
      3. The report does not identify how Bruce Barrington has taken into account the benefit of the easements in favour of the leased land, signage and the benefit of the lessor’s (applicant’s) works on the leased premises;
      4. The report did not determine the rent on an effective rent basis, in accordance with s 29 of the Act, in that the report did not have regard or had no sufficient regard to clause 20 (exclusive use) in the lease, made no reference or no proper reference to how that provision impacted on the rental, and made no reference or no proper reference of any similar clauses in any comparable evidence (‘the inadequate reasons issue’).
  2. [27]
    It is to be noted that non-compliance with s 31 of the Act is not expressed referenced, however argument in support of the reasons issue depended upon the application of the terms of s 31.

The statutory provisions

  1. [28]
    The Act at the relevant time provided:

28 Rent review on basis of current market rent

(1) This section applies if—

  1. (a)
    rent under a retail shop lease is to be reviewed on the basis of the current market rent of the leased shop; and
  1. (b)
    the lessor and lessee can not agree on the current market rent within 1 month after the review date.
  1. (2)
    The current market rent is to be determined by a specialist retail valuer agreed by the lessor and lessee, or failing agreement, nominated by the chief executive.
  1. (3)
    The valuer may carry out the determination only if the valuer is independent of the interests of the lessor and lessee.

29 Matters to be considered by specialist retail valuers

In making a determination of the current market rent, the specialist retail valuer—

  1. (a)
    must determine the rent—
  1. (i)
    on the basis of the rent that would be reasonably expected to be paid for the retail shop if it were unoccupied and offered for leasing for the use for which the shop may be used under the lease or a substantially similar use; and
  1. (ii)
    on the basis of gross rent less lessor’s outgoings payable by the lessee under the lease; and
  1. (iii)
    on an effective rent basis; and
  1. (b)
    must not have regard to the value of the goodwill of the lessee’s business or the lessee’s fixtures and fittings in the retail shop; and
  1. (c)
    must have regard to—
  1. (i)
    >submissions from the lessor and lessee about the market rent of the shop; and
  1. (ii)
    the other matters prescribed by regulation.

...

31 Requirements of determination

  1. (1)
    The specialist retail valuer’s determination of the current market rent must be in writing, identify the location of the leased shop and specify the matters taken into consideration by the valuer in making it.
  1. (2)
    The determination must also state:
  1. (a)
    whether the current market rent includes GST; and
  1. (b)
    if the rent includes GST, the GST amount.
  1. [29]
    Section 5 of the Act defined the expression ‘effective rent basis’ as follows:

effective rent basis, for the determination of rent under a retail shop lease, means the determination of the rent taking into account all associated advantages and disadvantages under arrangements made between the lessor and lessee that reflect the net consideration passing to the lessor from the lessee under the lease and associated arrangements.

The ground lease issue

  1. [30]
    In this case the lease provided that the premises were to be used as a take away restaurant and referenced buildings which were to be erected on the premises. By the terms of the lease, McDonald’s was entitled to make structural alterations or additions to the premises which were in keeping with McDonald’s usual standards. Any such alterations as it made were to be made by or at McDonald’s expense. In addition, the leased premises included some easements for the benefit of McDonald’s. These were to provide a right of way and temporary car parking in common with Nancy & Albert and any other tenants. No rent was to be paid in respect of the parking easement.
  2. [31]
    There were other easements provided for the benefit of McDonald’s which related to the use of signage. There was an easement which burdened the leased premises, which was for an electrical substation pursuant to which an energy provider was entitled to occupy an area of the premises to conduct electrical works. There was another informal arrangement which permitted McDonald’s customers to park in the basement of a larger retail centre that Nancy & Albert conducted, and which included the premises.
  3. [32]
    We have already mentioned, that prior to conducting his determination, the SVR was in communication with the parties as to the method that he was to adopt to conduct his analysis, and arrive at his determination.
  4. [33]
    Both parties then made detailed and extensive submissions, as well as providing information specifically requested and described in the determination itself. The determination, inter alia, made reference to the submissions which had been made, and summarised the substance of those submissions. The submissions for both parties used as their main method for identifying the market rent, market evidence of other leases concerning similar ground leases occupied by other fast food tenancies.
  5. [34]
    The report adopted several methods for arriving at the rental determination. The first, which he identified as his primary method, was a direct comparison to other ground leases to which reference had been made in each of the parties’ submissions, bringing into account the use to which the ground lease was to be put in each case.
  6. [35]
    In the course of communicating with the parties with a view to making his determination, Nancy & Albert failed to provide specific figures identifying the extent of the lessor’s works on the site. In consequence the SVR decided to apply a notional allowance for those works and explained this in the report. He took into account the car parking, and the easements associated with the site which have been described above and other cases where there had been insufficient car parking facilities on the site which was the subject of the lease, that this had been provided over adjoining land at no additional cost. He also made comparisons with other ground leases having regard to the signage available.
  7. [36]
    The report adopted two check methods. The first of those, which he described as the one upon which he placed greater reliance, was to compare the valuation that he arrived at using the primary method, to turnover and occupancy cost ratio. He also applied a second check method which was to consider the rent as a percentage of unimproved land value.
  8. [37]
    The Applicant has argued that earlier decisions of this Tribunal[4] have identified the effect of s 29 of the Act as providing a codification of the process conducting a market rent review and that s 31 obliges the valuer to specify the matters taken into consideration and that that must include an explanation by him how he took them into account.
  9. [38]
    Care should be adopted in using the language suggesting s 29 provides a code, if the use of that language suggests that it is an exhaustive list of the matters to be taking into account, and those which are not to be taken into account or excluded. Properly construed, what is set out in s 29 is a list of matters which a valuer is to consider or have regard to. Insofar as it refers in s 29 to the method by which the rent must be determined, the methodology there is expressly identified, however there may be a multiplicity of ways in which one could determine the rent in a given case in the application of that formula having regard to a range of different considerations which the particular valuer regarded as relevant to determining the rent in accordance with that formula. The prohibition is expressly upon having regard to the value of goodwill of the business, or the lessee’s fixtures and fittings, but otherwise the requirement is to have regard to the submissions and other matters prescribed by the regulation. This leaves open a wide range of matters, both discretionary and otherwise, which the SVR could bring into account, and as to the manner in which it was to be treated.
  10. [39]
    There can be no doubt that one of the purposes sought to be achieved by the Division 4 rent review provisions of the Act was for there to be a system which engaged retail valuers with specialist skill and knowledge in that area, who would conduct the function of determining rents under retail shop leases in ways which bound the parties, and provided a relatively inexpensive and expeditious method of fixing rent under such arrangements, and resolved disputes about such matters expeditiously. It is to be noted that the only person vested with the power to determine the actual amount of rent are such valuers, and not even this Tribunal has that power. This Tribunal’s powers are limited to disputes about the procedure of the determination of rent. This therefore places legislative responsibility for the decision upon the valuer, and implies that a level of respect is to be given to the conclusions of specialist retail valuers required to discharge their functions under the Act save where they have failed to adopt the procedure set out under the Act.
  11. [40]
    Having said that, there is nothing in the Act which prevents parties agreeing on the appropriate methodology to be adopted by an SRV. Indeed the Act implicitly encourages agreement between the parties about values, and only requires the engagement of an SRV to apply the statutory formula where there is no agreement. The notion that parties can agree on how the SRV is to apply the terms of the lease, to the circumstances of the particular retail shop lease, but that the SRV cannot apply that approach if it might lead to a different approach to applying the formula in s 29 if the SRV were not as instructed seems a surprising outcome. Before the SRV is engaged the parties are free to agree on the new rent unimpeded by the terms of s 29.
  12. [41]
    Even under the general law, it is not an easy task to impeach a valuation arrived at by an expert appointed by a contract. For example, in Legal & General Life Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, at 335-336, McHugh JA said in the context of attempted impeachment of a valuation;

While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract... In each case the critical question must always be: Was the valuation made in accordance with the terms of the contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value... The question is not whether there is an error in the discretionary judgment of the valuer.

  1. [42]
    Consistently with that, is the proposition stated by this Tribunal in S.H.I.F.T. Whitsunday Pty Ltd v McLean Cooke Pty Ltd [2012] QCAT 38 at [9]-[13] where it was said:

[9] The applicant is asking the Tribunal effectively to set aside the valuation provided by a Specialist Retail Valuer appointed under the Act. Generally, if a specialist valuer gives a valuation honestly and in good faith, the parties are bound by it even if a mistake is made. If there is a fundamental mistake, for example, if the expert reviews the wrong lease or the wrong property the valuation would not be in accordance with the lease (see for example Jones v Jones [1971] 1 WLR 840). But if the reviewer carries out the instructions in the lease, although these may be approached in different ways, there is no recourse (Jones v Sherwood Computer Services plc v Merost Pty Ltd (1988) 14 NSWLR 300 at 303 per Giles J). The purpose of the appointment of an expert is that there is special virtue in a simple, expressed valuation. The rationale behind this is that it is a matter of expert opinion and most difficult to prove that opinion is wrong.

[10] To what extent might the valuation have to be erroneous before it can be called into question? The Tribunal is of the view that the expert had to depart from the instructions given in a material respect and the departure would have to materially affect the ultimate result. The Tribunal does not accept that the mere attribution of too much or too little weight to matters might vitiate the opinion.

[11] Sheahan J in Mayne Nickless Ltd v Solomon [1980] Qd R 171 [at 178] in dictum, stated that he doubted whether speaking or non-speaking valuations made by a valuer chosen by the parties was impeachable for error or mistake and that if the mistake could be demonstrated by the party adversely affected, that party might have a remedy in damages against the valuer but nothing else.

[12] Duncan in his book Commercial Leases in Australia Third edition on page 105 suggests the better view is that the operation of the rent review clause is subject to an implication that the expert should be seen to give due and proper weight to all relevant considerations which might thereupon the valuation. This goes to relevance.

[13] The onus is clearly on the Applicant to provide evidence to impeach the valuation. The two areas that have been chosen are: the inclusion of the cleaning outgoings in the calculation of market rental by Mr Sheehan; and the decision by Mr Sheehan to only make a nominal allowance in relation to rental for the use of licensed areas by the Respondent.

  1. [43]
    It was contended for Nancy & Albert that the determination identified that the lease was a ground lease and that the description of the premises made no reference to the shop or any building constructed on the premises. The valuer noted that other premises to which he was making some comparison which were at Southport, were not comparable because it included a building shell.
  2. [44]
    By reference to what it contends constitutes the ‘mandatory code’ for the determination of market rent to be found in s 29 of the Act, it is contended that there was a requirement that the valuer determined the rent on the basis that the shop was unoccupied and offered for leasing for similar use as a similar lease, and that it was not possible to reconcile that formula with a determination that did not compare improved land with other improved land, but considered only so called ground leases. By analogy with the facts, the decision by Muir J, as he then was, in Vesco Nominees Pty Ltd v Stefan Hair Fashions Pty Ltd [2001] QSC 169, concerned a case involving a rental determination of a retail shop lease which was a restaurant. It was challenged because it was contended the valuer, contrary to the requirements of the definition of ‘effective rent basis’ in s 29, failed to take into account the advantages and disadvantages following from the existence of a balcony, and another sublease, where parties to the lease were at pains to specify that particular balconies associated with the lease were tenant’s fixtures in circumstances in which those balconies were erected at the expense of the lessee, and were removable or were required to be removed from the lessor in some circumstances.
  3. [45]
    For the Applicant it is contended that s 29 requires the valuer to determine rent on the basis that the shop is unoccupied and offered for leasing for similar use as a subject lease, and it is not possible to reconcile the requirements of s 29 with a determination which does not compare improved land, but instead considers only ground leases or so called unimproved land.
  4. [46]
    Hence, it is contended that in circumstances where a building has been constructed by a tenant, the appropriate adjustment when considering the ‘effective rent basis’ is to make adjustments to allow for the lessee’s expenditure.
  5. [47]
    In support of this Nancy & Albert put forward a report from an expert valuer, Ms Murdoch, which sought to amortise and bring into account the value of that expenditure. We have already mentioned earlier that the information which conceptually might have been provided to the SRV in this case which might have permitted him to have conducted analysis was not in fact provided. Ms Murdoch was therefore at a significant advantage to the position of the SRV when he made his determination.
  6. [48]
    In the context of arguing the issue presently under discussion, both parties obtained the opinions of independent expert valuers who opined, variously, on appropriate methodology, for valuation in the circumstances, and in some respects went to swearing the issue, concerning what the requirements of s 32 of the Act are. It is generally undesirable for expert valuers to be asked to comment upon or form opinions about the very issues which the Tribunal is required to consider, particularly when that involves the application of some legal test set out in the statute.
  7. [49]
    Neither of the authors of expert valuation reports before the Tribunal were required for cross-examination, notwithstanding that the authors of those reports were in furious disagreement over a wide range of matters. In the end it is neither possible to, nor necessary to, reconcile the differences between the expert valuers, because ultimately the question is one of statutory interpretation, having regard to what the SRV has determined, and by reference to the report which identifies the basis upon which the determination was made.
  8. [50]
    Putting aside what effect ought be given to the specific instructions that Nancy & Albert gave to the SRV to adopt the methodology which he did, the submission made that to conduct his determination he was required to identify and place some kind of value on the improvements which were placed on the land by McDonald’s to arrive at the effective rental basis and that he could not assess the market rental appropriate to the unimproved value of the land and in that context make comparison with other so called ground leases is clearly wrong. The notion of what comprises retail shops, and a retail shop lease under the Act, do not depend upon whether there are improvements built upon land, or whether the lease identifies who it was that placed the improvements upon the land and how rental was to be paid or other accommodation made for the cost associated with those improvements. In other words, the operation of the Act permits for the possibility that the retail shop lease is a so called ground lease, upon which subsequently a tenant might construct a building or other improvements on the site, pursuant to the terms of the lease, or some associated agreements.
  9. [51]
    The SRV was entitled to determine the rent that would be reasonably expected to be paid for the retail shop by reference to what rent would be reasonably expected to be paid in the marketplace for such premises as a ground lease. Nothing in s 29 says otherwise.
  10. [52]
    Indeed, it is difficult to see how the SRV could have done anything differently, without going well beyond what was provided in the lease itself and conducting extensive investigations as to the surrounding circumstances concerning the arrangements between the parties. The relevant area, for example, of the building which was constructed on the site is not identified in the lease. There was an associated deed which outlined the works that McDonald’s would do, but there is ambiguity as to what the internal area of the building is. This confusion about what that area is, is demonstrated by the fact that in the expert report of Ms Murdoch relied upon by Nancy & Albert, she identifies the internal area of the building as being 559 square metres, whereas elsewhere in the material associated with the deed, different figures are presented.
  11. [53]
    That is not to say that in an appropriate case an SRV might not seek to resolve such inconsistencies and take account of the size, value or other circumstances of improvements on the site. It does not, however follow that if an SRV does not amortise a tenant’s expenditure on improvements that there has been a non-compliance with the requirements of s 29 of the Act.
  12. [54]
    The terms of s 29(a)(iii) make it clear that the SRV was to determine the rent on an effective rent basis, taking into account:

…all associated advantages and disadvantages under arrangements made between the lessor and lessee that reflect the net consideration passing to the lessor from the lessee under the lease and associated arrangements.

There are clear references within the determination that the SRV acknowledged that the nature of what was constructed on the premises was relevant to the extent that it describes the use the premises be put. It also recognised that while the determination was of a ground rent, it must have regard to the use, and that it was reasonable to assume that a lessee whose business is of the same or a similar use would construct the same building or a substantially similar one for their use and generate turnover from it. It also made reference to comparable leases and the location of other fast food and take away restaurants, and their proximity to the premises. It also made reference to comparable leases which required tenant’s works.

  1. [55]
    One of the submissions made for McDonald’s in relation to this issue was to the effect that if Nancy & Albert’s arguments in this context were correct, it would mean that this was not in fact a retail shop lease, nor a retail shop lease dispute, and this matter was beyond the jurisdiction therefore of QCAT to resolve. It is unnecessary to decide what the implications of Nancy & Albert’s arguments about this were if they were correct. The submission does however appear to be inconsistent with the concession by the parties that the relevant lease was a retail shop lease, notwithstanding that its terms focused a valuer upon the unimproved value of the land.
  2. [56]
    This was not a lease of vacant land and neither party made the submission that it was a lease of vacant land. Again, it is unnecessary to decide whether it might be possible for there to be a lease of vacant land, but which nevertheless was, or purported to be a retail shop lease, because those are not the facts here. McDonald’s did not contend that a lease of vacant land could be a retail shop lease, but sought to draw the distinction between a ground lease, and a lease of vacant land. The distinction between those two types of leases can be exemplified by reference to a decision in the Court of Appeal in Western Australia in City of Subiaco v Home Base Management Pty Ltd [2015] WASCA 54, in which the Chief Justice identified the specific arrangements in place there as having the characteristics of a ground lease:[5]

That is to say a commercial arrangement pursuant to which the tenant is given the right to possession of the relevant land on the basis that it will carry out improvements on the land which will enhance its use and which will revert to the landlord on the expiry of the lease.

  1. [57]
    The other feature of such a ground lease identified in that case was that:[6]

Obviously the rental negotiated by the parties to such leases will take account of the extent of their respective rights and obligations including, in the case of the tenant, the obligation of carrying out improvements which will revert to the landlord upon the expiry of the lease, the costs of which must therefore be amortised over the period of the lease. That commercial characteristic of a ground lease usually has the consequence that, where the improvements to be carried out by the tenant are substantial, the tenant will require a long-term lease in order to amortise and recover the costs of those improvements over the life of the lease.

  1. [58]
    It is abundantly clear that the SRV here did apply the test that the parties invited him to apply in arriving at his determination, did properly take into account the nature and circumstances of the arrangement which was in the nature of a ground lease, and took account of all the advantages and disadvantages associated with it, and the affiliated arrangements between the parties which were not necessarily referenced in the lease itself.
  2. [59]
    It is of course a matter for the SRV to decide precisely what advantages and disadvantages associated with the arrangements in place ought properly be brought into account. The matters that he was undoubtedly entitled to bring into consideration dealing with a so called ground lease was the extent that there had been improvements to the site, and as to whether it was the lessor or the lessee that had provided them and paid for them. In that regard, reference may be made to the decision of Olsson J in Bank of South Australia v SA Health Commission (1996) 65 SASR 409 at [419], where His Honour, albeit not dealing with a retail shop lease issue, but concerning the appointment of a valuer in a different context, said:

In my opinion such an exercise necessarily involves the valuer taking into account the facts that:

  • the improvements have been paid for and maintained by the lessee;
  • the lessee is to continue to maintain them and pay all outgoings in respect of the demised premises;
  • the improvements will remain at the sole risk of the lessee; and
  • at the conclusion of the lease there will be a “windfall” in favour of the lessor, in that the lessor will become absolutely entitled to the improvements at no cost.

There is considerable force in Mr McNamara’s point that the striking of a proper rent must ensure that it was scarcely in the contemplation of the parties that, having borne the total cost of improving and maintaining the demised premises, the lessee would then be required both to bear that cost and its other ongoing commitments and also pay a full market rent reflecting the value of the improvements without any offset or abatement at all.

  1. [60]
    Similarly, in the decision referred to earlier of Vesco Nominees Pty Ltd v Stefan Hair Fashions Pty Ltd, Muir J was considering whether a balcony area which was sublet and so resulted in benefits flowing to the tenant fell within the description of lessee’s fixtures and fittings which were required by s 29 of the Act to be excluded from consideration in rental determinations. There, Muir J held:[7]

[46] The purpose of section 29(b) in excluding “the lessee’s fixtures and fittings” from consideration in the determination of market rent is to prevent perceived unfairness which could flow from the rent being increased to take into account the enhanced value of the demised premises and the benefit to the lessee resulting from the lessee’s own expenditure on items for the improvement of its business.

[47] Acceptance of the applicant’s argument would produce the rather unlikely result that the provision would not apply to an item of the nature of a tenant’s figure if the lease contained a clause preventing its removal on the expiration of the term. In those circumstances, the lessor would have the benefit of the improvement as capital as well as being able to demand a higher rent.

[48] I see no good reason why the provision should be construed in this way. It is of a remedial nature and no narrow or pedantic approach to its construction should be taken. It should be construed so as to give the relief which the fair meaning of its language will allow. In my view, having regard to the foregoing discussion, there is no difficulty in regarding the balconies as lessee’s fixtures and fittings within the meaning of s 29(b). The applicant has not established that the valuer erred in law in failing to have regard to the existence of possible benefits flowing to the respondent as a result of the sub-lease and the existence of the balconies.

  1. [61]
    Here the determination did not fail to comply with s 29 of the Act because of the methodology that it adopted in treating the lease as a ground lease, or in the other requests which are criticised and are associated with it.

The inadequate reasons ground

  1. [62]
    As was identified earlier in these reasons, the second aspect of the application is a challenge to the determination on the basis that the determination was not a ‘proper determination’ because the report did not disclose or state in sufficient detail aspects of the matters brought into consideration in arriving at the determination. In two respects, it is complained that the determination does not identify how easements, signage for the benefit of the applicant’s works on the leased premises were taken into account. The final of these was that no regard was made to the exclusive use provisions in the lease, and the determination made no reference or ‘proper reference’ to how that impacted on the rental.
  2. [63]
    It is convenient to deal with the last two first.
  3. [64]
    To a large extent the issue of whether the SRV took into account the relevant advantages and disadvantages which ought relevantly been brought into account has been dealt with above.
  4. [65]
    In support of these two grounds, the applicant’s submissions were of relatively narrow compass. The first is that although the valuer identified the easements relating to the parking and signage, there was no explanation as how those easements affected the determination. The second point which concerns how the allowance for the lessor’s works was brought into account, quantified or explained has been in large part deal with earlier in these reasons. But in this context it is contended for Nancy & Albert that the allowance was not ‘quantified or explained’.
  5. [66]
    In relation to the last ground, the narrow submission made is that the valuation ‘makes no reference to the exclusive use clause in the context of market rent’.
  6. [67]
    In relation to the notional allowance applied to the value of the lessor’s works, it is difficult to see how this complaint could be made out in circumstances in which the SRV did all that he could in terms of obtaining information about the value of these works and did the best with the information he had. The ground lease’s summary schedule which is attached to the determination drew comparisons with other leases where rents were cognisant of the fact that there were works to be performed by the tenant.
  7. [68]
    In clause 7.1 of the determination, the adjudicator made reference to the full extent of the lessor’s work as expressed in the deed attached as an annexure. He identified that although the actual extent of the works was unknown, presumably referring to both the extent and value of the works, he was unable to make a specific allowance or variance to take account of them, but he did in any event apply a notional allowance.
  8. [69]
    It does not, in our view, invalidate the process that he was forced to, and did make a notational allowance, but precisely what that notional allowance was worth, or precisely how it was treated in the ultimate result does not invalidate the determination.
  9. [70]
    In relation to the complaint about easements and signage, clause 7.2 of the determination, which is headed ‘Easement and Basement Car Parking’, identifies the relevant easements, and then goes on to refer to what he regards as the considerations relevant to the determination thrown up by the existence of those easements and any benefit to those and other undocumented arrangements. In the lengthy paragraph which follows he identifies in broad terms the process that he undertook in deciding what the benefit, if any, of these easements and the like were.
  10. [71]
    It is clear that he did not consider the existence of those easements and other benefits as providing such a benefit to the tenant, that it required some specific adjustment or monetary factor to be brought into account.
  11. [72]
    In any event, the determination is not open to challenge merely on the basis, were it true, that there is ‘no explanation as to how the easements have affected the determination’ because in our view, there is no requirement that it do so in any particular way.
  12. [73]
    The final grounds concern the alleged failure to identify the agreements for lease considered by the valuer in circumstances in which the valuer states that he had considered ‘multiple agreements for lease’ and the complaint that there was no statement as to how each comparable property compared to the subject premises.
  13. [74]
    It was submitted for Nancy & Albert that the valuation ‘should contain detailed reasoning as to how the rent figure is arrived at’ in the decisions of this Tribunal referred to. The first is the Brisbane Comedy decision referred to earlier. The second is Annandale Pharmacies (NQ) Pty Ltd v The Angliss Estate (Annandale) Pty Ltd [2017] QCAT 429 at [55].
  14. [75]
    Care should be taken with these statements. In both cases they concern themselves with the terms of s 31(1) after it was amended to specifically require ‘detailed reasons for the determination.’ Secondly, to require detailed reasons for a determination does not in every case involve a full, comprehensive, indeed exhaustive analysis of the relevance of every element and every aspect of matters brought into consideration in arriving at a determination. It does not, as a matter of necessity, require every fact or element brought into consideration to be weighed up, and the methodology by which it is weighed up specified in the determination.
  15. [76]
    A conclusion arrived at in the Annandale Pharmacies decision which drew upon the requirements of s 27B of the Acts Interpretation Act 1954 (Qld) was imposing an obligation on an SRV to give:

…written reasons for a determination, the SRV must also set out his or her findings on material questions of fact and refer to the evidence or other material on which those findings were based. The valuer was required to weight the evidence to arrive at a conclusion about how the evidence is to be taken into account.

  1. [77]
    Although the matter was not fully argued before us, we would question whether anything in s 27B could be of assistance in deciding what as SRV must do to meet the requirements of s 31 of the Act. An expert valuer is not a judicial officer, nor discharging any judicial function. The valuer’s role is more akin to that of an expert appointed to determine an issue as between commercial entities in circumstances in which they cannot agree. Section 27B would not appear to us to have application to the function of an SRV, because s 27B is concerned with circumstances in which legislation requires a Tribunal or person with a statutory duty to ‘give written reasons’ or grounds. That is not the specific language of s 31 of the Act.
  2. [78]
    Section 27B provides;

27B Content of statement of reasons for decision

If an Act requires a tribunal, authority, body or person making a decision to give written reasons for the decision (whether the expression ‘reasons’, ‘grounds’ or another expression is used), the instrument giving the reasons must also—

  1. (a)
    set out the findings on material questions of fact; and
  1. (b)
    refer to the evidence or other material on which those findings were based.
  1. [79]
    Counsel for the parties did not refer us to an authority on the meaning to be given to the words ‘person making a decision to give written reasons’ where they appear in s 27B. On one view of it, s 31 of the Act sets out the extent of the duty on SRV’s in this context, and there is no scope for the application of s 27B of the Acts Interpretation Act.
  2. [80]
    Even if the approach in Brisbane Comedy is the correct approach to be applied since s 31(d) of the Act came into force, we are not persuaded that there was a requirement for a more detailed statement of reasons for the determination than has been made in this case.
  3. [81]
    A requirement that a valuer specify the matters taken into consideration is not a requirement to state in every conceivable detail precisely how the valuer arrived at the determination in question. It is well accepted that the conduct of a valuation requires the use of inferences and inclinations of opinion, and which ‘being more or less conjectural, are difficult to reduce to exact reasoning or to explain to others’.[8]
  4. [82]
    The fact that such valuations have that character must of necessity mean that determinations under this Act in stating the matters taken into consideration, and stating the detailed reasons, are not required to disclose on their face each and every element of the analysis in every last detail possible.
  5. [83]
    Senior Counsel for the Respondent contended that the criticisms made of the determination here were hypercritical and inappropriate. We agree.
  6. [84]
    A requirement to set out the findings on material questions of fact and refer to the evidence or other material on which those findings are based does not describe a qualitative process. A material fact is a fact that can affect the outcome of a decision. Accordingly, the findings on the material facts are those that support the decision.
  7. [85]
    Even in the context of judicial decisions the standard is not to require absolute transparency.
  8. [86]
    At a fundamental level, it may be said that for reasons to be sufficient or adequate in a given case it will in general terms require that they:
    1. (a)
      Refer to the evidence which was significant, or which bore upon important aspects of the issues which were required to be determined;
    2. (b)
      Set out material findings of fact, not just state the issues which raise those points;
    3. (c)
      Deal with how and why the conclusions based on those findings of fact have been reached. That would almost always involve stating upon what basis it is that the decision maker has arrived at the conclusion that there is a preference for some part of the evidence in preference to another competing part, or some other inconsistent aspect of the case.[9]
  9. [87]
    What is the threshold for ‘acceptability’ and how far must you go? The Victorian Supreme Court in Fletcher Construction Australia Ltd v Lines Macfarlane & Marshall Pty Ltd (No 2) (2002) 6 VR 1 per Charles, Buchanan and Chernov JJA, put these limits in place, for a start:[10]

The duty to deal with facts or evidence is not absolute. The evidence must be significant in the sense that, unless disposed of, it stands in the way of the court's conclusions. The court need not deal in terms with evidence when its importance falls away because of the manner in which the court disposes of the case. Nevertheless, if evidence is significant, it is not to be peremptorily shunted aside or ignored.

  1. [88]
    In McGlen-McLeod v Galloway [2012] NSWCA 368, Allsop P said:[11]

It can be accepted that the appropriate form of reasons for, and the acceptable judicial approach to, the resolution of controversies can be difficult subjects for generalised assertion. The tendency to generalise rules from the application of principle to particular factual situations can lead to overly specific, and at times conflicting rules. I do not wish to risk being accused of this vice; and I make no criticism of Tobias AJA’s reasons along these lines. What can be said about this appeal is that the primary judge was obliged to resolve the dispute before her thrown up by the evidence. That involved a significant body of oral evidence of the plaintiff that was tested in cross-examination. It was necessary to engage with its acceptability and reliability. That did not mean mentioning every line of it. Summary and evaluative choice play their part in judgment writing. (emphasis added)

  1. [89]
    In Finn v Central and Northern Queensland Regional Parole Board [2016] QSC 233 the reason given for the Board’s decision was:[12]

The Board reasonably believes that you failed to comply with the conditions (d)and (i) of the Board-ordered parole order, namely, “to give a test sample as directed by a Corrective Service officer” and “not take preparatory steps to breach, or otherwise evidence an intention to breach, this order”. You failed to provide a valid test sample, and attempted to provide a false sample, on 10 November 2015.

  1. [90]
    Henry J held that:[13]

The purported “reason” given in the Board’s notice did not give the applicant sufficient information to be able to make any meaningful attempt to show cause. The reason was in reality a statement of belief and statement of the result of an assessment. The reasons for the belief and the result were simply not given. To use the language of s 27B generously to the respondent, these were at best findings. They did not, as they should have, refer to the evidence or other materials on which the findings were based.

  1. [91]
    That finding was not overturned on appeal.[14]
  2. [92]
    By comparison with those present facts the present determination is in a vastly different category. The determination of the SRV here ran to 29 pages of analysis, excluding annexures. The annexures to the report ran for in excess of a further 100 pages, and included his Ground Lease Summary Schedule which in itself reflected analysis of the terms of other leases regarded as comparable.
  3. [93]
    Furthermore, the criticisms are unfounded for other reasons. It is not apparent why it is that if a valuer states that he has considered multiple agreements for lease, that it is a requirement that those leases be attached to the determination, or their terms revealed. Indeed, one could review multiple agreements for lease of other sites occupied by McDonald’s but draw little if any use from them. In the end, a mere statement that one has considered other agreements does not mean that a determination which references that fact is defective.
  4. [94]
    The last aspect of the complaint is that the valuation contains no explanation or reconciliation of comparable rentals to explain how he had arrived at a determination of $110.00 per square metre in this case.
  5. [95]
    In our view this determination sufficiently stated what comparable properties and leases the valuer took into account and how that occurred. Reference was made to each of the other agreements where McDonald’s sites required similar works:
    1. (a)
      Reference was made to the range of rents paid under the comparable leases, with one property accepted for specified reasons;
    2. (b)
      Reference was made to other comparable leases relied upon by Nancy & Albert, and one of those was regarded as not comparable for specified reasons;
    3. (c)
      The adjudicator made reference to the relative superiority of location of the subject property to other properties; and
    4. (d)
      The absence of incentives in other agreements for lease meant that there was no adjustment for incentives in respect of those leases or in the present lease.
  6. [96]
    In our view, the applicant’s complaints on these issues are without foundation. It follows, that it should be ordered that the application be dismissed.
  7. [97]
    McDonald’s has foreshadowed an application seeking to argue for the costs of the application. If that application is maintained, the parties will have an opportunity pursuant to directions which this Tribunal will make, to put in written submissions on this issue directed specifically to the matters mentioned in s 102 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld).

Footnotes

[1] The Act, s 33.

[2] Ibid s 103(2)(a).

[3] Ibid s 83.

[4] For example, Brisbane Comedy Pty Ltd t/as Albion Comedy Club & Restaurant v Malisano & Ors (2015) QCAT 340, [8].

[5] [2015] WASCA 54, [6].

[6] Ibid.

[7] [2001] QSC 169, [46]-[48].

[8] See for example statements to this effect more than a century ago in Secretary of State for Foreign Affairs v Charlesworth Piling & Co [1901] AC 393, 391, and in numerous other decisions which have referenced it.

[9] See Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430, 431; Fletcher Construction Australia Ltd v Lines Macfarlane and Marshall Pty Ltd (No 2) [2002] 6 VR 1, 31-33.

[10] (2002) 6 VR 1, [157].

[11] [2012] NSWCA 368, [1].

[12] [2016] QSC 233, [18].

[13] Ibid [12].

[14] Central and Northern Queensland Regional Parole Board v Finn [2018] QCA 47.

Close

Editorial Notes

  • Published Case Name:

    Nancy & Albert Pty Ltd v McDonald's Australia Pty Ltd

  • Shortened Case Name:

    Nancy & Albert Pty Ltd v McDonald's Australia Pty Ltd

  • MNC:

    [2018] QCAT 285

  • Court:

    QCAT

  • Judge(s):

    Member Roney, Member Judge, Member McBryde

  • Date:

    17 Aug 2018

Appeal Status

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

Cases Cited

Case NameFull CitationFrequency
Annandale Pharmacies (NQ) Pty Ltd v The Angliss Estate (Annandale) Pty Ltd [2017] QCAT 429
2 citations
Bank of South Australia v SA Health Commission (1996) 65 SASR 409
2 citations
Beale v Government Insurance Officer of New South Wales (NSW) (1997) 48 NSWLR 430
2 citations
Brisbane Comedy Pty Ltd v Malisano [2015] QCAT 340
2 citations
Central and Northern Queensland Regional Parole Board v Finn [2018] QCA 47
1 citation
City of Subiaco v Home Base Management Pty Ltd [2015] WASCA 54
3 citations
Finn v Central and Northern Queensland Regional Parole Board [2016] QSC 233
4 citations
Fletcher Construction Australia Ltd v Lines Macfarlane & Marshall Pty Ltd (2001) 4 VR 28
1 citation
Fletcher Construction Australia Ltd v Lines MacFarlane & Marshall Pty Ltd (2002) 6 VR 1
4 citations
Foreign Affairs v Charlesworth Piling & Co [1901] AC 393
2 citations
Jones v Jones (1971) 1 WLR 840
1 citation
Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314
2 citations
Mayne Nickless Ltd v Solomon [1980] Qd R 171
1 citation
McGlen-McLeod v Galloway [2012] NSWCA 368
3 citations
S.H.I.F.T. Whitsunday Pty Ltd v McLean Cooke Pty Ltd [2012] QCAT 38
2 citations
Vesco Nominees P/L v Stefan Hair Fashions P/L [2001] QSC 169
3 citations
Woolworths Limited v Merost Pty Ltd (1988) 14 NSWLR 300
1 citation

Cases Citing

No judgments on Queensland Judgments cite this judgment.

1

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