A tenant of a major Brisbane shopping mall has been stalemated in a 10 yr retail lease battle despite compensation being awarded for disruption to customer access and customer flow caused by the centre’s redevelopment.
Andrew Goldsmith and partner Janne Tippet had operated a successful newsagency at the Mount Ommaney shopping centre in Brisbane’s west since 2004.
Their shop – the only newsagency in the centre – was well placed in the middle of the mall, adjacent to the Coles entry and near a Terry White branded pharmacy and was a shopper “destination in its own right”.
In June 2008, landlord AMP began a $145m construction project to expand the centre with a new wing and a multilevel car park which ran until mid-2010.
The project called for a 30% reduction in the agency’s floor area for which a pro rata rent reduction was applied.
The pair’s company Gold Tip Pty Ltd sought compensation pursuant to Retail Shop Leases Act section 43 for disruption caused by the expansion project – car park closures, the closing of entrances, blocking off of malls and diminished foot traffic in the vicinity of their premises – to cover its financial losses.
It accepted AMP’s $30k payment for losses sustained to July 2009.
The business’s move to its brand-new location – scheduled for September that year – did not eventuate until February 2010 by which time the redevelopment was substantially completed.
During the intervening period both Coles and Terry White relocated to their new premises, stranding the Gold Tip business in a “dead-end” of the mall with no passing foot traffic.
When Gold Tip took up a lease of a newly fitted-out shop in the new wing, its annual base rent was $265k with a marketing levy and outgoings on top and turnover rent at 7% coming in when gross revenue exceeded $3.8m.
Unfortunately, the 20% increase in turnover the tenant expected to yield from the better-positioned premises and improved design did not materialise.
On the tenant’s case, the disappointing result was due to further disruption caused by “noise, dust and general disturbance in and around the centre”, on-going fit outs, roadworks, defective lifts, loading dock construction associated with further works on another new area to be occupied by JB HiFi.
It filed proceedings in QCAT in February 2011 seeking RSLA compensation for disruption for the period July 2009 to February 2010 under the earlier lease and after that date, under its new lease. Those proceedings were abandoned and the Goldsmith and Tippet – as assignees from Gold Tip – filed a fresh claim in Brisbane’s District Court against AMP in February 2016.
In the meantime, AMP had terminated the lease in March 2012 at which time rental arrears were said to be $77k.
The dispute occupied Judge Bernard Porter for five days in May.
The pair did not formulate their losses resulting from each instance of disruption but rather argued that that the court should infer that there were impacts of the kind contemplated by RSLA s. 43(1) from the disruption “as a whole”.
They contended that “the more probable inference” as to why the business did not succeed in the financial years of the works (FY2009 and thereafter) was that the works had caused that outcome.
Expert evidence was called from Kerrianne Muelman – a retail economist – about the impact of the works on foot traffic and on the performance of the centre overall and from Teri Dee Roberts – a valuer – who had on instructions from NAB (the Goldsmith’s bankers) predicted the 20% increase in turnover once installed in the new location.
Accountant Peter Haley – relying on the valuer’s prediction- furnished calculations of Gold Tip’s financial loss pitched at $530k.
The plaintiffs led no evidence of customer counts for either the old shop or the new premises.
Nor were there any figures produced showing an increase in customers visiting or walking past the new premises after the work was completed as compared to before.
Against the Goldsmith contentions, AMP demonstrated that most of the work carried out from the date the tenant moved into its new premises until June 2010 was conducted at night and behind hoardings.
It also produced evidence as to customer count, centre sales volumes and supermarket sales which demonstrated that in 2010 the centre “outperformed by considerable margin that [business activity] which had been achieved” during earlier years.
AMP’s accounting expert drew the court’s attention to the performance of the business before the works were started.
Those figures showed – contrary to Mr Goldsmith’s testimony that it had operated successfully over four years – it to have been “barely profitable” and that its performance was consistent with evidence that newsagencies had sustained generally downwards sales trend in the relevant period.
Ultimately His Honour found that many of the assumptions relied upon by Ms Roberts as to estimated maintainable gross newsagency sales were unreliable.
“I do not accept Ms Roberts’ report provides a basis to conclude that but for the works, the business would have achieved an enduring 20% increase in turnover nor indeed any other particular increase in turnover,” he concluded.
While His Honour agreed compensation – which he assessed at $65k – ought to be allowed for the disruption from July 2009 until February 10, no such compensation was appropriate from the time the tenant moved into its new premises.
“Although it might be reasonable to assume that some impact occurred on customer enthusiasm because of the works been carried out,” observed Judge Porter “the evidence supports the conclusion that centre management were acutely concerned to minimise amenity impacts and they appear to have been largely successful in doing so”.
Ordinarily the disruption compensation would have been set off against the uncontested rental arrears of $77k but given Gold Tip who owed it was not a party to the action, that could not happen and the rental recovery claim was likely time-barred in any event.
Judge Porter nevertheless ruled that AMP entitled to an equitable set-off (which could not be subject to a limitation defence) against the disruption compensation payable.
The ultimate outcome was that the Goldsmith claim was dismissed as was AMP’s counterclaim for the arrears.
The plaintiffs also contended breaches of the covenants for quiet enjoyment in each lease and the effect of the construction disruption was a “derogation from the grant” under the leases. Those contentions were unnecessary to consider as – for these particular leases – the operation of RSLA s. 43 “would at the least equate with, and probably significantly exceed, the scope and efficacy of claims under these other heads”.