The Australian Financial Services Authority has updated its 9 minute power point presentation on the Personal Property Securities Act. See: https://bit.ly/2IYWNf8
The AFSA claims that this is a handy resource for PPSR practitioners to use when educating clients or new staff about the PPSR and its implications for businesses selling or hiring on terms.
There is also a PPSR Industry information section on the website, which includes a space for comments, suggestions and improvements to be left. see: https://bit.ly/2HnmEAd
WG Stark
Hayden Starke Chambers
Melbourne Property Law Blog
Monday, 16 April 2018
Friday, 13 April 2018
Can a lease cease to be covered by the Retail Leases Act 2003 during its current term?
William Buck (Vic) Pty Ltd v Motta Holdings Pty Ltd [2018] VCAT 15
1. This VCAT case (decided by Senior Member
Riegler) is important because the Tribunal held a lease could cease to be a “retail
premises lease” during its term.
2. The decision has the potential of narrowing the
application of the Retail Leases Act 2003 (Vic) serving as
some good news for retail landlords.
Does GST form a part of the occupancy
costs?
3. The first issue that Senior Member Riegler
had to decide was whether GST should be taken into account when calculating
occupancy costs for leases entered into before 22 April 2013. He decided yes.
4.
However,
that part of the decision is of limited application due to Retail Leases
Regulations 2003 which state that any lease which is to commence from
22 April 2013 is to exclude GST from total occupancy costs.
Background
5. On 19 December
2006, the Tenant originally entered into a written lease in respect of premises
located in Hawthorn East. It continued to occupy a part of those premises. The original
Lease provided for an initial term of eight years with two further terms of six
years each. The parties renegotiated the Tenant’s tenure upon the expiration of
the first term. A new lease was entered into, under which the Tenant occupied
less floor area than what was originally leased (and with less rent payable).
The parties agreed that the Retail Leases
Act 2003 (‘the RLA’) governed the current lease.
6. However, what was
in dispute was whether the original Lease was also governed by the RLA.
7. Under the terms
of the original Lease, the Tenant was required to pay land tax. According to
the Tenant, it paid $251,234.68 to the Landlord as reimbursement of land tax up
until 31 December 2014. However, if the RLA applied to the original Lease, then
the clause requiring the Tenant to reimburse the Landlord for land tax is
deemed to be void ab initio, pursuant to s 50 of the RLA.
8. The Tenant claimed
that the original Lease was governed by the RLA and as a consequence the
payment of land tax was paid under mistake of fact or law and it was entitled
to be repaid.
9. Whether the original
Lease fell within the provisions of the RLA depends on the amount of occupancy
costs payable under that Lease. Occupancy costs are
defined under s 4(3) of the RLA as:
(a) the rent payable under the lease, and
(b) the outgoings, as estimated by
the landlord, and
(c) any other costs of prescribed kind
10. If the occupancy
costs were more than $1 million, then under s 4(2)(a) of the RLA
and r 6 of the Retail Leases Regulations 2003 the leased premises
fall outside of the definition of retail premises and the RLA
does not apply.
11. The starting
rent under the original Lease was $802,795, plus GST. Prior to the
commencement of the Lease, and pursuant to s 46 of the RLA, the Landlord gave
the Tenant an estimate of the outgoings for the first year of the lease term.
That document stated that the estimated outgoings in the first year of the
first term of the Lease was $150,209 (‘the Estimate of Outgoings’).
12. Whether this
amount is inclusive or exclusive of GST, this document formed the basis
upon which occupancy costs were to be calculated, as at the
commencement of the Lease.
13. According to the
Tenant, if GST is not counted for the purpose of assessing occupancy
costs, then the occupancy costs amount to $953,004 and the RLA applies.
That would mean that the clause in the Lease requiring reimbursement of land
tax is void ab initio.
14. According to the
Landlord, if GST is added to the starting rent and Estimate of Outgoings, then
the occupancy costs amount to $1,048,304.40 and the RLA does
not apply. That would mean that there is no prohibition against requiring the
Tenant to reimburse the Landlord for land tax.
15. Senior Member
Riegler found that the aggregate occupancy costs at the time
when the original Lease was entered into exceeded $1 million and consequently,
the RLA did not apply to the original Lease.
16. He noted (in
paragraph 15):
… Where the rent payable under a lease is expressed as a base figure plus GST, it is the aggregate amount that constitutes the consideration for the taxable supply. In other words, expressing the rent as ‘$802,795 (plus GST)’ or simply as $883,074.50 constitutes the same consideration paid by the Tenant (by way of rent) for the taxable supply.
17. He concluded (at
paragraph 16):
Therefore, I am of the opinion that rent
payable under the lease means the sum payable by the Tenant to the Landlord for
rent, inclusive of GST and irrespective of the fact that some of that payment
will create a GST liability upon the Landlord. In other words, even if the
Lease expressly distinguishes between the base rent and the amount
of GST payable (by using words such as ‘plus GST’) does not mean that the
contractual rent payable by the Tenant is limited to the base rent.
This is because the Tenant does not pay the GST. GST is paid by the Landlord.
Where words such ‘plus GST’ are used to describe the rent payable under a
lease, a tenant must pay the base rent plus ten per cent. The
aggregate of those amounts then constitutes the contractual rent payable under
the lease. Of that sum, the Landlord is liable to pay an amount equal to 10 per
cent of the base rent, by way of GST.
18. He went on to
analyse whether the definition of occupancy costs under s 4(3)
of the RLA excluded GST from the calculation of the rent payable under
the lease, and concluded (at paragraph 20) that the reference to the
word taxes, when read with paragraph (b)(ii) of the definition
of outgoings must also include GST.
19. He was
reinforced in holding that view by the fact that GST is expressly referred to
in s 47(6) of the RLA, which states, in part:
(6) However, the outgoings statement given
under subsection (3)(b) need not be accompanied by an auditor’s report if it –
(a) does not relate to any outgoings other
than –
(i) GST; and
...
20. In the Senior
Member’s view, the reference to GST as an outgoing in s 47(6) of the RLA
indicates Parliament’s intention to treat GST as a component of outgoings.
21. The relevant
regulation was amended in 2013. However, the Senior Member decided that the
amending regulation did not clarify what was the case prior to 2013. Rather, it
changed the meaning of r 6, as it existed prior to 2013. At that time, the
prescribed amount was simply stated as $1 million.
22. Senior Member Riegler was
not persuaded that the words of r 6, as they existed prior to 2013, indicated
an intention to assess occupancy costs exclusive of GST. He
noted that such an interpretation seemed to be at odds with the definition
of outgoings set out in s 3 of the RLA, which
includes taxes payable by the landlord.
Can premises cease to be Retail Premises
during the term of the lease?
23.
The more
noteworthy comments from the decision are those relating to late exit from the
RLA.
24. In that respect,
s 11(2) of the RLA states:
(2) Except as provided by Part 10 (Dispute
Resolution), this Act only applies to a lease of premises if the premises are
retail premises (as defined in section 4) at the time the lease is entered into
or renewed.
25. At paragraph 56,
Senior Member Riegler concluded:
Therefore, if leased premises do not fall within the definition of retail premises at the time that the parties entered into the lease (or its renewal), the premises cannot become retail premises later (for example if the occupancy costs reduced to under $1 million during the term of the lease). However, that does not prevent the reverse scenario. For example, if the occupancy costs were under $1 million at the time the parties entered into the lease, then the premises fall within the definition of retail premises. However, if the occupancy costs subsequently increased to over $1 million during the term of the lease, then the premises would no longer fall within the definition of retail premises.
26.
While the
opinion is not legally binding, it is likely to persuade other VCAT members
until it is confirmed or rejected by the Supreme Court in an appeal from VCAT.
27.
The effect
of this decision is that if one of the statutory exemptions to the application
of the RLA is triggered during the term of a 'retail' lease (such as the
occupancy costs), the lease could then 'exit' the RLA regime.
28.
Therefore,
all landlords and tenants should consider this decision during any negotiations
relating to the terms of the lease. This is particularly relevant in situations
where:
(a)
The occupancy
costs at the commencement of a lease fall just below the threshold of $1 million
(excluding GST) but will increase above the threshold during the term of the
lease as a result of rent reviews;
(b)
The lease
may be assigned from a retail tenant to an entity which is listed on a stock
exchange (or is a subsidiary of such an entity);
(c)
The
existing tenant itself may list on the stock exchange during its tenure, or be
bought by a corporation that is so listed; and
(d)
The permitted
use of the premises is changed during the term of the lease (by variation or
assignment) to a use which does not satisfy the definition of a 'retail
premises' (this may not be as relevant after the recent CB Cold Storage decision).
Potential
impact
29.
The
following issues are different for commercial leases that are not covered by
the RLA:
(a)
A
landlord is able to recover land tax from a tenant;
(b)
The rent
review provisions could include clauses such as the old ratchet provisions, a
provision which states that the rent shall not decrease during the tenant’s
tenure, or “the higher of …” types of rent review clauses (all of which are not
applicable under the RLA);
(c)
Disputes
can be heard in courts rather than VCAT;
(d)
The landlord
does not have the same onerous disclosure obligations in relation to outgoings
for further terms;
(e)
A tenant
and a guarantor are not released automatically upon the assignment of a lease; and
(f)
A
landlord could include difficult relocation, demolition and repair and maintenance
provisions into the lease.
Hayden Starke Chambers
Sunday, 8 April 2018
Can I challenge an expert valuer's rental determination made under section 37 of the Retail Leases Act, 2003?
Rental
Determinations
1. Challenging Rental
Determinations made under section 37 of the Retail Leases Act 2003 (RTA) has always been difficult. However, in the last 12 months there
have been at least 2 successful VCAT challenges made to a valuer’s rental determination.
Dalmatino Pty Ltd v Creative Laser Pty Ltd
2. In Dalmatino Pty Ltd v Creative Laser Pty Ltd
[2017] VCAT 875, I appeared for the landlord, and Sam Hopper appeared for the
tenant. Unusually, it was the landlord who was unhappy with the valuation in
that case.
3. Dalmatino is a
well-established restaurant in Bay St, Port Melbourne. One of the 2 brothers
that operated the business left the partnership, and the landlord alleged that
things went downhill as a result.
4. Several disputes
erupted; the most significant related to what the rent was to be for the period after a new lease term commenced.
5. The landlord
alleged that there was an agreement reached about the rent for the second term
of the lease, commencing in 2012, and the parties jointly appointed a valuer to
determine the rent for the period commencing in 2015.
6. The tenant
denied the 2102 agreement, and sought to appoint a valuer for 2012 as well, under
section 37 of the RTA. The rental determination that was completed concluded that the
tenant had been overpaying the rent by thousands of dollars each year.
7. In VCAT, one of the main
issues for the Tribunal’s determination was whether the 2012 valuation complied
with section 37 of the RTA.
8. The Tribunal
rejected the contention that there had been an agreement reached about the
rent for the period commencing in 2012. As a result, the rental determination became relevant.
9. In the event, Member
Kincaid found that the determination was flawed, as it did not comply with the
requirements of section 37 of the RTA. For the purpose of determining the
current market rent in respect of the first year of the third term of the
lease, the valuer’s written reasons demonstrate that the valuer had regard to
premises “...for the same, or a substantially similar, use to which the
premises may be put under the lease” within the meaning of the section.
However, the rental determination was still set aside for failure to comply
with the requirements of section 37 of the Act.
10. Section 37 of
the Act provides, in part:
Rent reviews based on current market rent
(1) A retail premises lease that provides for
a rent review to be made on the basis of the current market rent of the
premises is taken to provide as set out in subsections (2)-(6).
(2) The current market rent is taken to be the
rent obtainable at the time of the review in a free and open market between a
willing landlord and willing tenant in an arm’s length transaction having
regard to these matters:
(a) the provisions of the lease;
(b) the rent that would be reasonably expected
to be paid for premises if they were unoccupied and offered for lease for the
same, or a substantially similar, use to which the premises may be put under
the lease;
(c) ...
(d) ...
but the current market rent is not to take
into account the value of goodwill created by the tenant’s occupation or the
value of the tenant’s fixtures and fittings...
(5) In determining the amount of the rent, the
specialist retail valuer must take into account the matters set out
in subsection (2).
(6) The valuation must-
(a) be in writing; and
(b) contain detailed reasons for the
specialist retail valuer’s determination; and
(c) specify the matters to which the valuer
had regard in making the determination
Relevant Determination Principles
11. At paragraphs 43 – 45, Member Kincaid analysed the relevant determination authorities, in the following terms:
In Commonwealth
of Australia v Wawbe Pty Ltd and Anor [1998] VSC 82, Justice
Gillard adopted the following statement of McHugh JA in Legal and
General Life of Australia Ltd v A Hudson Pty Ltd as stating the law
concerning challenges to valuation determinations (at [38]-[39]):
In my opinion the question whether a valuation
is binding on the parties depends in the first instance upon the terms of the
contract, express or implied...It will be difficult, and usually impossible,
however, to imply a term that a valuation can be set aside on the ground of the
valuer’s mistake or because a valuation is unreasonable. The terms of the
contract usually provide, as the lease in the present case does, that the
decision of the valuer is “final and binding upon the parties”. By referring
the decision to a valuer, the parties agree to accept his honest and impartial
decision as to the appropriate amount of the valuation. They rely on his skill
and judgment and agree to be bound by his decision.
While mistake or error on the part of the
valuer is not by itself sufficient to invalidate the decision or certificate of
valuation, nevertheless the mistake may be of a kind which shows that the
valuation is not in accordance with the contract. A mistake concerning the
identity of the premises to be valued could seldom, if ever, comply with the
terms of the agreement between the parties. But a valuation which is the result
of the mistaken application of the principles of valuation may still be made in
accordance with the terms of the agreement. 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 represents a gross over or
under value. Nor is it relevant that the valuer has taken into consideration
matters which he should not have taken into account. The question is not whether
there is an error in the discretionary judgment of the valuer. It is whether
the valuation complies with the terms of the contract [emphasis of his Honour].
Justice Gillard
went on to say (at [45]):
In my opinion it follows that the court should
consider three questions-
1. What did the
parties agree to remit to the expert?
2. Did the valuer
make a mistake and what was the nature of the mistake?
3. Is the mistake
of such a kind that demonstrates that the valuation was not made in accordance
with the terms of the contract and accordingly does not bind the parties?
The leading authorities on setting aside a rental
determination (including the above extract from Wawbe) were
summarised by Croft J in Epping Hotels Pty Ltd v Serene Hotels Pty Ltd [2015] VSC 104, when his
Honour concluded (at [59]):
As the authorities make clear, the Tribunal’s
task was to consider whether the Rental Determination answered the contractual
description of what the valuer was required to do. For present purposes, it is
sufficient to note that, by virtue of s 37(1) of the Act, sub-s (2) is taken to
be a term of the lease, that is, a term of the contract between the parties.
Therefore, the valuer was required to make a determination that accorded with
the requirements of that sub-section.
12. Member Kincaid
then proceeded to analyse whether the rental determination failed to comply
with the provisions of section 37(2)(a) and (b) of the Act.
13. At paragraph 67
and following, the Member found:
I consider that
in order for the valuer to have satisfied himself that he has had regard to
“the rent that would be reasonably expected to be paid for premises if they
were unoccupied and offered for lease for the same, or a substantially similar,
use to which the premises may be put under the lease”, he need only look to the
essential use of the premises under consideration. I find, doing as best I can
from the valuer’s descriptions given in his table, that the essential use of
each of the various premises described in the valuer’s table at numbers 16, 21
and 24-27 on pages 15-17 of the rental determination is that of a “restaurant,
not being part of a chain of restaurants”.
I therefore find that the premises described
in premises numbers 16, 21 and 24-27 on pages 15-17 of the rental determination
are offered for lease for:
a. the “same” use
(to the extent that any of them may have a general liquor license, like the
tenant, or even a licence in modified form); or
b. “substantially
similar” use (to the extent that any of them may not have a liquor license)
to which the premises may be put under the
lease, within the meaning of section 37(2)(b) of the Act.
14. Having found
that some of the premises referred to by the valuer were within the
requirements of section 37, the Member then considered (at paragraph 69 and
following) whether
… the reasons contained in the rental
determination are such as to indicate, when read as whole, that when
determining the current market rent, the valuer had regard to “the rent that
would reasonably be expected to be paid for premises having the same, or
substantially similar, use to which the premises may be put under the lease”.
The giving of reasons by an expert serves
generally as a means by which a reviewing Court or Tribunal is able to be
satisfied that he or she took into account matters required to be taken into
account. Section 37(6) of the Act expressly makes it clear that, in the case of
a specialist rental valuer appointed under the provisions of the Act, the
reasons given by the valuer must not only be “detailed”, but they must “specify
the matters to which the valuer had regard in making the determination”. These
are, at least, I consider, the matters set out in section 37(2)(a)-(d) of the
Act.
15. Member Kincaid concluded
(at paragraph 71) that he could not be satisfied that this was so, and as a
result he found that the determination did not comply with section 37. At paragraph
72, he noted that the extent to which the valuer had regard to the requirement
set out in section 37(2)(b) of the Act could only gathered from the text of the
rental determination. Then, at paragraphs 73 – 75, he noted:
The above extract from the reasons show, in
substance, that the valuer first identified a “rental range” between a “low” of
$385pm2 per annum (as to which particular premises referred to
in the tables contained in the rental determination, it is not clear) and a
“high” of $937pm2 per annum. The valuer goes on to state
that, in his view, “the most relevant data is in the range of $500 to $570
[psm] per annum net”. It is impossible to determine from this statement the
extent to which the valuer considered, if at all, premises having the same, or
a substantially similar, use to which the premises may be put under the lease.
In particular it is not clear, other than perhaps by supposition, that the
valuer had regard to premises 16, 21 and 24-27, being premises that I have
found have the same, or substantially similar use as that to which the premises
may be put under the lease.
Further, having identified “the most relevant
data range of $500 to $570 [psm] per annum net”, there are no particulars
provided by the valuer of how he then arrives at a current market rental of
$525 per square metre. Having expressly informed the reader about his use of
the Direct Comparison Technique which, he states, involves the
making of “inevitable adjustments for all factors which influence market rental
value”, no particulars are provided as to the adjustments that were presumably
applied to the rents payable for other relevant premises to take into account
factors applicable to the premises that may “influence the market rental value”
of the premises, even at a very general level of description.
Section 37(6)(b) of the Act requires the
valuer to give “detailed reasons”. Section 37(6)(c) of the Act requires the
valuer to “specify the matters to which the valuer had regard in making the
determination” including, I consider, the matters to which the valuer is
required to have regard in section 37(2) of the Act. For the reasons set out
above, one is largely left to speculate as to how the valuer formed his
opinion. This does not, in my view, sufficiently comply with section 37(6) of
the Act.
Josephine Ung Pty Ltd v Jagjit Associates
Pty Ltd
16. In Josephine Ung Pty Ltd v Jagjit Associates
Pty Ltd [2017] VCAT 2111, Rob Hay QC appeared for the respondent tenant,
and Sam Hopper appeared for the applicant landlord.
17. In that case,
Member Edquist concluded that the rental determination undertaken by the valuer
was vitiated by
error, and was of no effect. The case concerned a rental determination made in
relation to a cafe in South Yarra. The applicant landlord, Josephine Ung Pty Ltd (ACN 158 852 487)
owned two shops in Claremont Street which it leased to the respondent tenant
Jagjit Associates Pty Ltd (ACN 164 331 480) for a term of 10 years commencing 3
February 2012.
18. The lease provided that the rent should be
reviewed on the fourth anniversary of the commencement date. A specialist
retail valuer conducted a market review of the rent under the lease for the
year commencing 3 February 2016. The Valuer also issued a determination (“the
Determination”) on 14 October 2016 and issued a letter supplementing his
written reasons in the Determination on 29 November 2016.
19. The landlord claimed that the Determination
was vitiated by error, and alternatively that the Valuer failed to provide detailed
reasons. The tenant denied this.
20. The landlord’s claim was that there were
three related errors:
- The Valuer failed to have regard to concessions as required by s 37 (2)(d) of
the RLA,
or failed to adequately disclose
that consideration;
- The Valuer did not have regard to
the provision by the landlord of certain installations and, in so doing, failed to have regard to the terms of the lease
as required by s 37 (2)(a) of the RLA and valued the wrong premises,
or his reasons do not adequately disclose the
regard given by him to those items; and
- The Valuer failed to have regard to
the term implied into the lease by s 52(2) of the RLA.
21.
The
member discussed several authorities, and then quoted from the decision in Commonwealth
v Wawbe Pty Ltd [1998] VSC
82 noted above, where Gillard J agreed with McHugh JA’s statement of the law, and
went on to add:
In my opinion it follows that the court should answer three questions-
(i) What did the parties agree to remit to the expert?
(ii) Did the Valuer make a mistake and if so what was the nature of the mistake?
(iii) Is the mistake of such a kind which demonstrates that the valuation was not in made in accordance with the terms of the contract and accordingly does not bind the parties?
(ii) Did the Valuer make a mistake and if so what was the nature of the mistake?
(iii) Is the mistake of such a kind which demonstrates that the valuation was not in made in accordance with the terms of the contract and accordingly does not bind the parties?
22.
The
Member noted that his task was to identify the terms of the contract made
between the parties, as this will identify the parameters within which the
rental determination was to be conducted. In other words I must identify what Croft
J described in Epping Hotels as the Valuer’s “charter”.
23.
With
respect to the requirement contained in s 37(6) of the RLA that the Valuer
provide “detailed reasons”, both parties referred to the decision of Croft J
in Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd [2016] VSC 244. Relevantly, his
Honour said at paragraph 40:
It is clear that it is not sufficient for a Valuer to “leap to a
judgement.” The valuation must disclose the steps of reasoning.
24.
The
Member also noted that Croft J went on to note that the position is reinforced
by the provisions of s 37(6)(c) of the RLA, which requires the Valuer “to
specify the matters to which the Valuer had regard in making the
determination”.
25.
The
member accepted the landlord’s argument about the first alleged error. The
Tribunal noted in paragraph 24:
Although the Valuer expressly confirmed in his Determination that he had
had regard to rent concessions and other benefits offered to prospective
tenants of unoccupied retail premises in undertaking his task, this is
contradicted by the subsequent correspondence. In particular, in his letter of
29 November 2016 the Valuer stated:
My deliberations in this regard have not extended to incorporating a
rent free period into my Determination.
Is the
mistake a vitiating error?
26.
The
Member then noted that this conclusion opened up a new issue: if the Valuer made
a mistake, is there a basis for the Tribunal to find that the mistake was of
the kind referred to by McHugh JA in Legal & General or
Nettle JA in AGL Victoria that would entitle the Tribunal to
set the Determination aside?
27.
At
paragraph 32, the Tribunal concluded that the Valuer’s error in failing to take
into account rent concessions available to prospective tenants in determining
current market rent is an error of such magnitude that the Determination has
been made outside the Valuer’s charter. The error is of such a nature that it
vitiates the Determination.
28.
For the
sake of completeness, and in case the Tribunal was wrong in the conclusion
about alleged error 1, the Member proceeded to examine the other alleged
errors.
29.
The
landlord’s principal contention was that the Landlord’s Installations formed
part of the leased premises, and yet, in making his Determination, the Valuer
did not have regard to those items. Although the Valuer referred to the
landlord’s installations in his Determination, the Determination did not
identify how the provision of this fitout is taken into account. The Tribunal
also accepted these arguments. It found at paragraph 51:
a. In circumstances where the Valuer merely makes the statement that he
has had regard to the “Landlord’s provision of installations” but has not given
any indication of how he has done this, I think there is a break in his chain
of reasoning. It is not apparent that the Valuer has fully appreciated the
particular nature of the premises in the present case, that is to say premises
already substantially fitted out by the landlord as a commercial kitchen, with
associated preparation and service equipment.
b. The landlord’s installation … clearly had value. The fact that a
value for the installation was not precisely established did not mean that the
landlord’s argument that the installation had to be taken into account was
“misconceived”.
c. The landlord’s complaint is that the Valuer did not really base his
Determination on comparable values appears to be made out because he did not
identify any other restaurant/cafe in his table of comparable properties which
had a substantial landlord’s fit out.
30.
The
Tribunal specifically found that the Valuer had not demonstrably taken into
account the landlord’s installations. In this respect, the Valuer fell into
error. By failing to explain adequately how he had taken
the landlord’s installation into account, the Valuer breached s 37(6)(b) and
also (c) of the RLA. This error vitiated the Determination as the Valuer
had not performed the contract he made with the parties.
31.
Finally,
the landlord contended that the Valuer failed to have regard to s 52(2) of
RLA, and erroneously had regard to a different repair and maintenance
obligation expressed in the lease. The central proposition underpinning the
landlord’s complaint is that clause 4.2.1 of the lease is inconsistent with s
52(2) of RLA.
32.
The
landlord contended that it was unclear what value had been attributed to the
tenant’s (non-existent) obligation to maintain the property.
33.
The
landlord also articulated a separate argument arising out of the particular
circumstances of this lease, under which the landlord had provided a
substantial amount of the fit out, including refrigerators, and ice maker,
dishwashers, and extraction system, all floor coverings and certain light
globes. The argument was that because sub-sections 52(2)(b) and 52(2)(c) of the
RLA respectively extended the landlord’s maintenance obligations to “plant and
equipment at the retail premises” and “the appliances, fittings and fixtures
provided under the lease by the landlord ...” the hypothetical tenant had been
relieved of the cost of maintaining those items. This represented an unusually
significant saving to the hypothetical tenant, which would further inflate the
rent that he or she would be willing to pay. Accordingly, the landlord argued,
either the Valuer did not have regard to the true terms of the lease (as
amended by s 52 of the RLA) or his reasons do not disclose the regard to
that section that he did have. Either way, it said the Determination is invalid
and should be set aside. The Tribunal accepted the landlord’s arguments.
34.
The Tribunal applied the test articulated by Croft J
in Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd [2016] VSC 244 and noted that the
Valuer must disclose the steps of his reasoning. The Tribunal found that there
was a failure by the Valuer to give “sufficient” reasons in respect of his
consideration of the tenant’s and the landlord’s repair and maintenance
obligations. The nature of these errors was such that the Tribunal was
satisfied that the Valuer did not discharge the contract he had made with the
parties to apply the terms of the lease, including all the terms implied by the
RLA. Accordingly, applying the law as set out by McHugh J in Legal and
General (1985) 1 NSWLR 314 at
335-336, the Tribunal concluded that the rental determination was
vitiated.
Conclusion
35. Both of these cases demonstrate that a valuer, in making a rental determination under section 37 of the RTA, cannot simply open his filing cabinet and review the leases of several premises with which he is familiar and then make his determination based upon that information. The task of a valuer in making a rental determination under section 37 is onerous. The failure by the valuer to provide detailed reasons for the determination, or the failure to consider the specific terms of the lease in question, can lead the valuer into error in making the determination. Once the determination is shown to be in error, it can be set aside by VCAT.
Conclusion
35. Both of these cases demonstrate that a valuer, in making a rental determination under section 37 of the RTA, cannot simply open his filing cabinet and review the leases of several premises with which he is familiar and then make his determination based upon that information. The task of a valuer in making a rental determination under section 37 is onerous. The failure by the valuer to provide detailed reasons for the determination, or the failure to consider the specific terms of the lease in question, can lead the valuer into error in making the determination. Once the determination is shown to be in error, it can be set aside by VCAT.
WG Stark
Hayden Starke Chambers
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