Zappullini Proprietary Limited v Carroll
[1998] QDC 265
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Zappullini Proprietary Limited v Carroll[1998] QDC 265
Zappullini Proprietary Limited v Carroll[1998] QDC 265
DISTRICT COURT | No 108 of 1997 |
CIVIL JURISDICTION
JUDGE PRATT QC
ZAPPULLINI PROPRIETARY LIMITED (ACN 009 96 472) | Plaintiff |
v.
DAVID MARSHALL CARROLL | Defendant |
BRISBANE
DATE 18/09/98
JUDGMENT
HIS HONOUR: The plaintiff (the landlord) claimed $49,557.81 damages from the defendant (the tenant) for the repudiation of a lease over shop premises at 12 Wongabel Street, Kenmore, being the centre shop in a group of three at that address and comprising an area of about 52 square metres.
The tenant moved into that shop area on 1 July 1992 after a written agreement to lease, dated 15 June 1992. A formal lease was signed on 27 July 1992, but that document was defective inasmuch as it did not define an area of about 52 square metres which the landlord and tenant intended to be the subject of the agreement. It merely described the lease area as, “All that part of the ground floor erected on the said land,” where it should have gone on to include the words, “Being the centrally located shop in those commercial premises comprising an area of 52 square metres approximately.”
The Court is asked to rectify the lease (Exhibit 5) on the basis that the mis-description was a mutual mistake. Since it obviously was a mutual mistake and since the tenant moved into that centrally located shop and paid rent for the three year period in question, I see no obstacle to the landlord's application for a declaration designed to bringing Exhibit 5 into line with what the parties had intended and upon which they acted. See Maralinga Proprietary Limited v Major Enterprises Proprietary Limited (1973) 128 CLR 336 and Majestic Homes Proprietary Limited v Wise (1978) Queensland Reports 225.
The lease agreement, Exhibit 5, amounted to a three year lease with an option for a further three years. Under the agreement the latest date by which the tenant could exercise his option was the 31 December 1994. By 8 February 1995 the tenant had not done so, and the landlord's director wondered whether the tenant had wished to exercise his option. He wrote to the tenant in these terms:—
“Re your lease of premises from Zappullini Proprietary Limited we note that the lease called for six months' notice of exercise of option, i.e. by 31 December 1994, but that date has passed. Will you kindly please let us have your advices concerning the exercise of option by the end of this month.”
The next day, 9 February 1995, the tenant rang up and informed the director that he did wish to exercise his option and would confirm that in writing. In fact, what the tenant did was to write on the landlord's letter of 8 February 1995 two entries, the first, dated 9 February 1995, said, “Verbal advice to confirm in writing”; the second, dated 20 February 1995, said, “Please arrange to have lease extended for a period of three years as stated in lease.”
With those two entries written on it in the tenant's own hand the landlord's letter of 8 February 1995 was returned to its director, who acted on the tenant's note as though it were a simple exercise of his option under the existing lease. The landlord wrote back on 21 March 1995 in these terms:—
“Re lease our premises from Zappullini Proprietary Limited, please find enclosed herewith lease, pursuant to the option of your lease, in triplicate for your execution and return.”
At that time the tenant's original leasehold period of three years still had over two months to run and it is clear that from the 21 March 1995 the landlord treated these exchanges as amounting, in effect, to a valid exercise of the tenant's option under the original lease for a further tenancy period of three years, commencing on 1 July 1995.
On 29 May 1995 the tenant rang up the landlord's director and informed him that he did not wish to continue with the tenancy for the second three year term; that he was moving his business to other premises nearby; that his business would, due to the recession, be modified to repairs only and not retail. Somewhat taken aback, the landlord's director told the tenant he thought the option had been exercised and he would ring back.
This brought into sharp focus whether, and if so what, agreement had been reached. The landlord's director withdrew to consider the situation. Next day, 30 May 1995, the landlord's director informed the tenant that he, the tenant, had exercised his option in writing and a letter from the landlord would be sent, telling him that the landlord intended holding the tenant to his lease.
He told the tenant he may assign his lease subject to obvious commercial considerations, and that finding a new tenant was his business. That was the landlord's director's considered opinion and the landlord adopted it. The same day, the 30 May 1995, the landlord wrote in these terms:—
“Re lease of premises from Zappullini Proprietary Limited. The writer refers to our phone conversation of 29 May 1995. It is necessary to point out that you have already agreed to extend your term of occupancy for a period of three years pursuant to an exercise of option, and we enclose herewith a photocopy of your written exercise of option. The formal lease document was subsequently sent to you with our letter of 21 March 1995 following your exercise of option.
The exercise of option itself is, however, effective and the lease document is not a necessary requirement in that regard. Consequently, the landlord must, as a commercial matter, hold you to the lease term for the option period pursuant to such exercise of option. Your circumstances are appreciated as a matter of personal concern, and the landlord proposes that a transfer of the lease by you to an assignee will be assisted as a matter of expediency, but the finding of an assignee will, however, be a matter of your responsibility.”
The tenant did not respond to that letter. Instead, he vacated the premises on the expiration of the term provided by the original lease. On 30 June 1995 the landlord wrote a further letter to the tenant setting out its view of the position and the tenant's current obligations:—
“Re your lease of premises from Zappullini Proprietary Limited. We refer to your exercise of option herein and our letter to you of 30 May 1995 which remains unanswered. We draw to your attention that your vacating of the premises constitutes a breach of clause 1(k) of the lease. The lease is an ongoing instrument and rent payment obligations accrue in an ongoing manner, calendar monthly, on the first day of each calendar month.
Your obligations are therefore to continue to make payment of the rental under the provisions of the lease, and the rental payable as and from the first day of July 1995 is the sum of $1,948.49 per calendar month for the next 12 calendar months. Please advise us of what steps you are taking with a view of perhaps indicating to the landlord your intention of finding an assignee of the lease.
In the meantime, the landlord's rights are reserved and any communication is without prejudice to those rights. We refer you to clause 3(k) of the lease, namely the non-waiver provisions. The landlord wishes our relationship to remain harmonious but these circumstances are of a commercial and legal nature, and must be treated as such.”
Several days later, the 3 July 1995, the landlord wrote again in these terms:—
“Re lease of premises from Zappullini Proprietary Limited. Just before closing time on 30 June 1995, a man delivered some keys to this office on your behalf. Please note that the landlord holds the keys on your behalf pursuant to your exercise of option, and the delivery of the keys was a unilateral action on your part, not based on any agreement in that regard. The landlord's position is unequivocal; you are bound to your exercised option for a further three years from 1 July 1995.”
Again the landlord back its judgment as to the true legal position.
On or about 28 June 1996 the landlord re-let the central shop formerly occupied by the tenant to Budlia Pty Ltd for six years at a rent of $1,350 per month subject to a rent-free period of six months. There was no issue at trial that the landlord had failed adequately to mitigate its losses. The landlord claimed its rent from the premises from 1 July 1995 to 1 June 1996, that is $23,189.73; loss of rental for the first six months of the new term of the lease of Budlia Pty Ltd, $11,690.94; rental loss between 28 December 1996 to 21 March 1998, that is $8,830.39; agent's letting fee, $1,350; outgoings paid by landlord on tenant's behalf $4,496.75.
The attitude of the tenant and indeed his main defence is that there never was a valid exercise by the tenant of the option provided for in the original lease. That being the case, so the argument went, if there was a new agreement which was disputed then it was too vague to be enforceable. No premises having been identified and no rental agreed.
In argument the landlord contended that “In Duncan Properties Pty Ltd v. Hunter (1991) 1 Queensland Reports 101 it was held by de Jersey J that in these circumstances a letter purporting to exercise an option (forwarded after the time limited for giving such notice of exercise of the option) should be construed as if the option had been effectively exercised.” That contention is all very well so far as it goes but the hypothesis is conditional upon agreement having been reached about essential conditions for the fresh term. However the tenant contended that the submissions of the landlord do not accurately state the effect of the decision in the Duncan Properties case. The notations on the letter, so the argument went, are not to be construed as if the option had been effectively exercised.
In Duncan Properties Pty Ltd v. Hunter 1991 (1) Queensland Reports 101 de Jersey J, as he then was, was confronted with a fact situation somewhat similar to the present case but different in one important respect. In the Duncan Properties case lessees of certain warehouse premises purported to exercise an option for the renewal of their lease by letter forwarded after the time limited for giving notice of exercise of the option. The lessor agreed to accept the purported exercise of option. Subsequently the lessees obtained other premises and refused to take a renewal of the lease. Upon the lessor claiming specific performance the lessee sough a declaration that the purported notice of exercise of option was ineffectual. There had been an exchange of correspondence signed by both parties. That correspondence did include a stipulation as to the rental which would be paid. His Honour held that the option had lapsed completely when notice was not given within the time period limited for the giving of such notice in the lease.
In that regard the same conclusion should be reached in this case, despite the assumption of the landlord that the right and capacity to exercise an option survived the passing of 30 December 1994. In the Duncan Properties case His Honour went on and found that the parties' purported written agreement to exercise the out-of-time exercise of an option should be construed as an agreement to give and take a fresh five year lease in the same terms as if the option had been effectively exercised.
His Honour found that the letter purporting to exercise the option was a sufficient memorandum of the agreement incorporating by reference as it did the original lease and identifying the parties, the land and the terms of the lease including the rent to be paid. What His Honour had in mind of course was section 59 of the Property Law Act of 1994 which provides:—
“No action may be brought upon any contract for the sale or other disposition of land or any interest in land unless the contract upon which such action is brought, or some memorandum or note of the contract, is in writing, and signed by the party to be charged, or by some person by the party lawfully authorised.”
It is important at this point to characterise the true nature of the acts and representations under consideration in this case. The New South Wales Court of Appeal (Owen J, Roper CJ in equity and Heron J) provided a passage in Gilbert J McCaul (Aust) Pty Ltd v. Pitt Club Limited (1959) 59 SR (New South Wales) 122 at pages 123 and 124 which makes the position clear:
“In the present case the lessor irrevocably offered to grant a lease. It's offer prescribed the time and manner for acceptance. Only by performing the conditions prescribed could it be accepted and result in an agreement for a lease. A purported acceptance without performance of the prescribed conditions would not and could not be an acceptance of the offer. It would in reality be a counter offer by the original offerree requiring acceptance by the original offeror if an agreement were to result. If a conditional offer is made and the offeree without performing the condition purports to accept it, that is to say makes a counter offer and that counter offer is accepted it is a loose, although not uncommon use of language to say that the original offeror has waived performance of the condition which was prescribed by his offer as being the manner of accepting it. In contemplation of law the original offeror has done no such thing. What he has done is to accept a counter offer and in the result an agreement is made but it is not an agreement consisting of the original offer and an acceptance of that offer.”
So far as I can see that dicta has never been doubted in this country. In any event nearly a decade later in United Dominions Trust (Commercial) Limited v. Eagle Aircraft Services Limited (1968) 1 All England Reports 104 at 107 Lord Denning when referring to options to purchase real or personal property or to renew a lease said:
“In point of legal analysis, the grant of an option in such cases is an irrevocable offer (being supported by consideration so that it cannot be revoked). In order to be turned into a binding contract, the offer must be accepted in exact compliance with it's terms. The acceptance must correspond with the offer.”
In United Scientific Holdings Limited v. Burnley (1997) 2 All England Reports 62 at 71 Lord Diplock when speaking of an option clause to renew a lease said:
“Such a clause provides a classic instance of an option to acquire a leasehold interest in futuro, and it is well established that a stipulation as to the time at which notice to exercise the option must be given is of the essence of the option to renew.”
In the present case the option contained in the original lease amounted to an irrevocable offer from the landlord to renew which could only be turned into a binding contract by the tenant's acceptance within the stipulated time. Failing such acceptance the question of a fresh lease having been entered into is largely resolved by deciding whether a fresh offer and acceptance has taken place.
That is what happened in the Duncan Properties case, as it had in Traywinds Pty Ltd v. Cooper (1989) 1 Queensland Reports 223 where the landlord successfully sought arrears of rent when the lessee had continued in occupation and paid a higher rent. There it was held that a counter-offer was accepted and therefore there was an extension or a new lease on the terms of the old but with a new rent. A fresh agreement, therefore, then came into existence.
Turning to the exchanges between the parties in the present case, I have no difficulty with the proposition that the parties are identified. I have no real difficulty with the proposition that the land may be taken to have been identified. The question is whether I can decide that the rent payable in respect to the fresh lease was ever agreed. The words, “Please arrange to have lease extended for a period of three years as stated in lease” were not followed by any evidence that a rent for the new lease period was ever agreed. The language used by the tenant, and which the landlord took to be an offer, merely refers to the terms of the original lease.
The nearest that document gets to identifying a rental for the proposed renewed period of the original lease is contained in the option for renewal clause, clause 3T, which provides for a
“...further period of three years commencing from the expiration of the term hereby created at a rental for the first year thereof to be agreed upon. (The rental for the second and third years thereof shall vary in accordance with the formula hereunder.) And if the parties cannot or do not agree, then the amount to which the rent is to be increased shall, on the request or notice in writing given by either party to the other, be referred to a single arbitrator to be nominated by the president for the time being of the Queensland Law Society Incorporated pursuant to the provisions of ‘The Arbitration Act’ or any statutory modification or re-enactment thereof for the time being enforced in the State of Queensland, so that this submission and the award shall, at the instance of either party and without notice to the other of them, be made a rule or order of the Supreme Court of Queensland. Provided, however, that the rental for such year shall not be less than the rental for the previous year plus six per cent thereof the costs of the reference and award (including the fees of the arbitrator) shall be borne equally. Such renewal or extension of the term hereby created shall be upon the same terms and conditions as are herein set out with the exception of this option for renewal.”
In negotiations for a fresh lease, as distinct from the period offered by the landlord in the option clause, no rent was agreed and no reference was made to arbitration. The landlord's answer to this situation was in these terms:—
“The evidence reveals that the parties did not agree upon the rent for the first year of the option period, and nor did either of them refer it to arbitration. It is submitted that the proviso therefore applies and that the minimum applicable rental for the first year of the option period shall be not less than the rental for the previous year ($1,838.20) plus six per cent thereof - which results in a figure of $1,948.49 per month.”
No authority was provided which would support that submission and I doubt that any exists. I have found none. The question is can the proviso be applied in that way. I think not. Once the parties have agreed upon the means by which rent should be fixed, that is to say either by agreement or arbitration, then there the matter rests. All the proviso clause does is to set the minimum of any new rental figure, that is to say not less than the rental for the previous year plus six per cent. It could not provide a third means of setting the rent for a fresh lease.
Clause 3T of Exhibit 5 does not provide that the previous year's rent under the old lease plus six per cent shall apply if no agreement is reached and no arbitration is had. It is merely a proviso, a guide or benchmark set by the parties to the rent applicable if the tenant were to accept the landlord's irrevocable offer contained in clause 3T of the original lease. It does not provide for a third means of rent calculation in respect to a fresh lease. Indeed the tenant having, in effect, rejected the landlord's irrevocable offer was perfectly entitled to try to negotiate the rent for a fresh lease down, a most realistic proposition given the economic climate at the time. Any argument that the landlord in these circumstances must be seen to be entitled to its rent at at least the rent of the previous year plus six per cent falls rather flat unless it can be shown clearly, from the several acts and representations of the parties, that they intended such a rent to apply to the fresh lease.
The intention of the parties in respect to rent becomes even less clear when one examines more closely the landlord's response to the tenant's representations. With the landlord's letter of 21 March 1995 was enclosed a proposed lease which became Exhibit 8, a curious inclusion given that the landlord says it was under the impression that it was merely acknowledging the acceptance of its irrevocable offer to the tenant to exercise its option under the existing lease. In any event, it will be remembered that clause 3T of Exhibit 5, which is set out above, provides that rent for the second and third years of the new period created by a valid exercise of the option would be calculated in accordance with “the formula hereunder.”
There is a formula contained in the schedule to the original lease which adopts a starting point of $1,636, the agreed rent for the first year of the original lease. It also adopts the June 1992 CPI index. The proposed new lease, Exhibit 8, adopts the starting point of $1,948.49 as opposed to $1,636 in the original lease. Item B in the proposed new formula adopts the June 1995 CPI index. It seems reasonable to conclude that not only was there no agreement reached as to the first year's rent for the new lease, there never was any agreement as to the rent which might be paid for the second and third year or as to its method of calculation, Exhibit 8 never having been agreed and completed. See Woodford Nominees v. Masjakan Medical Proprietary Limited and another (Court of Appeal) 1995 Queensland Conveyancing Reports 54-488.
The landlord's original offer, the option, was not taken up by the tenant who had let time pass so that it lapsed. The tenant then asked the landlord to extend on similar terms without clarifying the rental he was prepared to pay. It cannot be said that the tenant's representations amounted to anything more than an invitation to treat. The landlord's response did amount to an offer because it specified all terms including the landlord's offer as to rent. The tenant did not accept that offer and terminated his occupation of the premises at the conclusion of the original period of three years. If a landlord was in any way prejudiced by this exchange it was due to its own misunderstanding as to the true legal effect of the option for consideration contained in the lease, the failure of the tenant to take up the option in time and the nature of the tenant's subsequent representations.
The possibility of an estoppel in favour of the landlord would depend on the true interpretation of the words, “Please arrange to have lease extended for a period of three years as stated in the lease” in the context of the relationship between the parties. On its face, that statement is not sufficiently clear and unqualified to found an estoppel. When considered in the light of a prior oral statement from the tenant to the effect that he did wish to exercise his option, the words may be seen as something a'kin to an offer but again the reference to the existing lease does not point to or lead to the calculation of the rent which the tenant was proposing should be paid.
It cannot be said that the landlord was induced to change its position on the faith of anything the tenants said or did. The landlord was not misled by the tenant, the tenant owed him no duty to act other than the way he did and nothing said or done by the tenant was the real cause of any loss. The action therefore fails with costs.
...
HIS HONOUR: I enter judgment for the defendant with costs to be taxed, including reserved costs.