The bible for commercial leasing practitioners in Australia has long been the various versions of Commercial Tenancy Law.

The previous version was staring to age, having been published in 2018. However, as of last month, a new version has been published, its full title being Croft, Hay and Virgona, Commercial Tenancy Law (5th ed, LexisNexis).

The book is essential reading for all leasing practitioners, and I recommend that readers get a copy.

Readers will be aware of the ongoings problems with the length of the lists in the Building and Property List at VCAT. 

Practitioners should be aware that the Building and Property List has implemented a new practice as of yesterday listing matters for trial only after interlocutory steps have been completed up to (but not including) preparation of a Tribunal Book.

For those unfamiliar with the process, the usual steps up to a trial (although it varies from case to case) are:

1. first directions hearing;
2. pleadings (or VCAT documents in the nature of pleadings);
3. discovery;
4. expert reports;
5. compulsory conference or mediation;
6. (if appropriate) lay witness statements;
7. Tribunal Book;
8. (for complicated cases) written openings;  and
9. trial.

Under the new practice, VCAT will now make orders up to (but not including) the Tribunal Book, then list the matter for an administrative mention.  

If all interlocutory steps have been completed by the administrative mention, then the parties can write to the Tribunal giving and estimate of the length of the trial and the Tribunal will proceed to list the matter for a hearing in chambers, without the need to an appearance.  The parties can also request orders at that stage for a Tribunal Book, written opening submissions and any other orders that may be required.

Although it may take some time before effects are felt, we should hopefully see a shortening of wait times to trial over the coming months.

At this stage, there is no practice note that I am aware of.

Many practitioners in this area have observed in recent years an increasing number of cases of current market rent determinations for retail premises being set aside. Many of those cases involved determinations being set aside due to shortcomings in the valuer’s reasons.  

In response, some specialist retail valuers have added a clause in their standard terms of engagement that require the determination to be remitted back to them in the event that it is set aside by the Tribunal. 

In cases that I have worked on, a number of respondents to proceedings seeking orders setting aside determinations of the current market rent have threatened to enforce such a contractual provision.  However, until recently, unsuccessful respondents have not pressed that claim and have (usually begrudgingly) agreed to engage a fresh valuer to determine the current market rent.

However, in the case of 328 Hampshire Road Pty Ltd v Medical One Pty Ltd (Building and Property) [2021] VCAT 1117 the Tribunal set aside a purported determination of the current market rent because the valuer failed to give detailed reasons to:

1. explain why rent paid by Aldi was relevant to determining the rent for a pharmacy;  and
2. provide analysis or critique of market evidence to allow the reader to conclude that the valuer considered the entirety of that evidence.

There was also an argument about the construction of the rental covenant. The valuer determined the rent as a net rent.  The landlord argued that the valuer made an error because the lease required payment of semi-gross rent.  The tenant argued for a different construction of the lease, suggesting that net rent was payable.  The Tribunal declined to determine that issue and held that if the valuer got that question wrong, then it was not a vitiating error.

The respondent did not appeal, but instead sought orders that the determination of the current market rent be remitted back to the original valuer.  The decision in the subsequent case is reported in Medical One Pty Ltd v 328 Hampshire Road Pty Ltd (Building and Property) [2022] VCAT 795.

In that case, the valuer’s terms of engagement contained the following clause:

Review of the determination by a Court of [sic] Tribunal 

17.       Should either the landlord or tenant obtain an order from a Court or Tribunal that: 

17.1       the determination carried out pursuant to this engagement is not in accordance with the provisions of the lease; or 

17.2       the determination of the rent should be assessed at a different figure or in accordance with a different procedure (whether or not the Court or Tribunal provides any specific direction in this regard); 

Then the parties agree to appoint us again to provide a determination in accordance with any directions provided by the Court or Tribunal; and the parties will share equally all our costs and expenses involved in providing the revised determination.

The landlord resisted remittal of the determination back to the valuer on the grounds that (among others):

1. sub-s 37(3) of the RLA 2003 gives the parties the right to agree and, by necessary implication, to disagree with the appointment of a specialist retail valuer.  The above clause is inconsistent with that right and was, accordingly, void under s 94;  and
2. the valuer had already determined the issue of net rent versus semi-gross rent and there is a perception that he would not bring an independent mind to that issue.

The Tribunal rejected those arguments:

1. holding that the time to agree or disagree to the appointment of a valuer arose when the parties could not agree on the rent under the lease.  As the valuer’s terms of engagement (including the disputed clause 17) were signed after that time, the parties were not deprived of their statutory right to agree or disagree to that appointment;  and
2. rejecting the submission that there was an apprehension of bias.

It is not clear how the Tribunal will respond in circumstances where it was satisfied of an apprehension of bias.  There is Victorian Supreme Court authority suggesting that an expert determination should not be remitted to the original expert when the expert has displayed a propensity to support the impugned valuation after the challenge was made (see Candoora No 19 Pty Ltd v Freixenet Australia Pty Ltd (No 2) [2008] VSC 478).  However, there does not appear in that case to have been a clause in the expert’s terms of engagement to the same effect as clause 17 above.

The following are the take-home points from this case:

1. clauses like clause 17 above are becoming increasingly common in valuer’s terms of engagement.  If a valuer is engaged to determined the current market rent for a retail premises, practitioners should check the valuer’s terms of engagement to see if it has one;
2. as the law presently stands, those clauses should be viewed as generally enforceable at VCAT;  and
3. practitioners should advise their client of the presence of the clause and its implications for a challenge to a determination, noting that a clause like clause 17 above can be a useful tool if the determination falls your client’s way and you need to defend a challenge to it. On the other hand, the clause can be problematic if your client wants to challenge a determination.

Sam Hopper and Eli Fryar

Earlier posts here and here discussed a construction issue that keeps coming up in the LIV copyright lease about the interaction between: 

• the boilerplate provisions of the lease about rent review on exercise of an option;  and
• the provisions in the schedule that also regulate rent reviews.

In the recent case of Amazing Accommodations Pty Ltd v OU (Building and Property) [2023] VCAT 986 a similar issue arose under the August 2014 revision of the LIV copyright lease.

In that lease, clause 11 contains the market review provisions that are materially the same as in the previous versions (with some minor variations).

However, clause 12 stated that (relevantly, underlining added):

12.2     The lease for the further term –

…

12.2.2    has a starting rent determined in accordance with clause 11 as if the first day of the further term were specified as a market review date in item 16(a), and

…

Items 16 and 17 of the Schedule to the lease stated (underlining added):

Item 16

[2.1.1, 11, 18]

Review date(s):

Term

(a)	Market review date(s)	Not applicable
(b)	CPI review date(s)	Not applicable
(c)	Fixed review date(s) and percentage of fixed amount increases:	4% increase upon each anniversary of the commencement date

Further term:

(a)	Market review date(s)	Not applicable
(b)	CPI review date(s)	Not applicable
(c)	Fixed review dates(s) and percentage or fixed amount increases:	4% increase upon the commencement date of each further term and upon each anniversary of the commencement date of each further term (if any)

Item 17

[2.1.1, 11, 18]

Who may initiate reviews:

Market review:                                                Not applicable

CPI review:                                                      Not applicable

Fixed review:                                                   Review is automatic

Senior Member Forde made the following findings (emphasis added):

[13]     The tenant argues that on the proper construction of the lease, clause 11 in conjunction with clause 12.2.2 overrides items 16 and 17 in the schedule. It says that this construction of the rent review clauses of the lease means that a market rent review is to be implemented at the commencement of each further term.

[14]     The tenant relies upon the decisions of the Member Nash in Baroud Nominees Pty Ltd v Mereland Technology Pty Ltd^[1] (‘Baroud’) and Senior Member Riegler (as he then was) in MD & S Griggs Pty Ltd v DWH Pty Ltd^[2] (‘Griggs’) in support of its position. It says the lease clauses are the same.

[15]     The lease in this proceeding is not the same as the lease considered by the Tribunal in Baroud and Griggs. This lease has a different item 16 in the schedule to those cases. 

[16]     Item 16 of the lease specifically references “further terms” of the lease. Item 16 in the leases in Baroud and Griggs did not include a provision in relation to further terms. They only referenced “Review date”. The interpretation of the rent review mechanism in the leases in those cases does not apply to this proceeding. The cases are distinguishable.

[17]    There are two inconsistent clauses in the lease. Clause 12 specifically provides what happens when the tenant exercises an option to renew the lease for a further term. It provides that the starting rent will be determined in accordance with clause 11 which is the market review clause. However, item 16 contains a different mechanism for the starting rent of any further term. It provides that the market review is not applicable and that a fixed review mechanism applies, being a 4% increase upon the commencement date of each further term.

[18]    The lease contains two mechanisms for determining the rent for any further term: one being a market rent review and the other being a 4% increase.

[19]     The starting point for interpreting the lease is to consider the plain meaning of the language. Where there is conflict, other relevant terms in the lease might help determine the meaning of the language. It is important to consider the contract as a whole. There are circumstances where it is permissible to look at surrounding circumstances to assist with interpretation.

[20]     I have no evidence before me of the negotiations prior to the lease terms being agreed. The lease is for a short term of two years with two, two year options. The maximum term is six years. It is quite conceivable that the parties intended five years of the lease to have 4% rent increases. I simply do not know.

[21]     I am left with the text of the lease itself.

[22]     When interpreting a contract, the text is given its natural and ordinary meaning. There is nothing ambiguous about the wording in clause 12 or item 16. This is not a situation where I can give effect to both sets of wording or read down one clause to overcome any inconsistency. This is not a situation where other parts of the lease provide a resolution to the apparent conflict. 

[23]     The parties by including the “further term” mechanism in item 16 inserted an inconsistent provision.

[24]    As a general rule of contract construction where there are two clauses in a contract that conflict with each other, the clause which is specifically negotiated, ie item 16 of the Schedule to the lease, prevails over the printed clauses forming part of a standard form contract …^[3]

[25]    To the extent that there is an inconsistency between the requirements in item 16 to determine the starting rent of any renewed term being what the parties engrossed and a requirement in clause 12 of the lease, item 16 will prevail. For this reason, the commencing rent for any renewed term is a 4% increase on the previous year. 

[26]     For the reasons stated I find and declare that the commencing rent for each further term of the lease is as set out in item 16 of the schedule to the lease, being a 4% increase of the rent payable in the previous year.

As discussed in my earlier post here, the latest re-draft probably addresses this issue, provided that the Schedule is filled out correctly. 

However it appears that there are a lot of poorly drafted leases and schedules in the marketplace, particularly in the old versions of the LIV lease that are still out there.

Consequently, practitioners should be:

• aware of these decisions and keep an eye out for further decisions as they arise (I will try to post about any that I see on my blog);  and
• alert to drafting quirks that are caused by items 16 and 17 of the Schedule to the LIV copyright lease whenever they cross your desk.

^[1]   [2022] VCAT 516.

^[2]   [2016] VCAT 1718.

^[3]   Dalges Trading Pty Ltd v Skamper Pty Ltd [2006] VCAT 1220.

I have recently received a few inquiries about my earlier posts here and here, particularly about whether VCAT has jurisdiction to hear and determine a retail tenancies dispute that includes a claim under the ACL.

Readers considering this issue should be aware of the following:

• In the decision of Owners Corporation 1 Plan No. PS707553K v Shangri-La Construction Pty Ltd (No 3) (Building and Property) [2022] VCAT 1385, his Honour Judge Anderson, sitting as a Vice President of VCAT, considered whether a reference in VCAT pleadings to ‘Australian Consumer Law’ without a reference to whether the state or Commonwealth version of that statute was being invoked should be construed as a reference to the Victorian statute.  The Vice President concluded at [37] and [38] that such a claim was in fact articulated under the Victorian statute.
• In my earlier post here I referred to a VCAT case that pleaded the Victorian version of the ACL and was referred to a judicial member to determine whether the case raised a matter of Commonwealth jurisdiction that was outside VCAT’s jurisdiction.  Since then, the applicant made submissions to the judicial member to which the matter was referred based on the Shangri-La decision and requested that the matter be returned to VCAT’s usual list.  The submissions were considered by Justice Woodward, the President of VCAT.  His Honour adopted and applied Judge Anderson’s reasoning from Shangri-Laand made orders with reasons remitting the matter for hearing and determination of the proceeding in VCAT’s usual list.  Justice Woodward’s orders and reasons have not been reproduced on AustLii, so I have attached a copy of the order to this post.
• While it is still a matter for individual VCAT members to determine whether the Tribunal has jurisdiction in any particular case, and a reference to a statute in VCAT pleadings must always be read in its particular context, these decisions combined suggest that VCAT has jurisdiction to hear and determine an ACL claim that either refers to the Victorian version of the ACL or does not identify which version of the ACL is relied upon.