[2025] NSWSC 261

Crosato v Pro Evolution Sports Pty Limited

Purported determination of market rental not in accordance with the lease, and therefore ineffective.

Catchwords

CONTRACT – LANDLORD AND TENANT – Lease of commercial premises under which the lessor pays all outgoings – Where option for extension of the lease provides for the determination of market rental by a valuer – Where valuer makes the following determination “$195,000 p.a. exclusive of GST with outgoings paid by the tenant” – Whether the determination is in accordance with the terms of the lease – HELD – Determination not in accordance with the lease because the amount it assesses takes into account non-defined outgoings to which is attributed a non-disclosed amount, on the assumption that outgoings are paid by the Lessee, which under the Lease they are not; and the Valuer has not determined current market value of the rent if, as is the case, outgoings are not paid by the Lessee.

Cases cited

Holt v Cox(1997) 23 ACSR 590
Legal & General Life of Australia Ltd v A Hudson Pty Ltd(1985) 1 NSWLR 314

Judgment

[1]
The plaintiff (Lessor) and the first defendant company (Lessee) entered into a commercial lease (the Lease) on 2 March 2016 of premises at 23 Chicago Avenue, Blacktown NSW for the period 21 January 2016 to 20 January 2023 with an option to renew for seven years. The second defendant is the Lessee’s guarantor.
[2]
On 11 May 2022, the Lessee exercised the option.
[3]
It is common cause that both for the original Lease period and for the option period the Lessee does not pay any outgoings. This is the burden of the Lessor.
[4]
Section 7 of the Lease is entitled Option Review – Market Review. Clause 7.1.0 provides machinery for the determination of the rent to be paid during the option period. If the parties do not agree upon the rental, then by clause 7.1.0(d):
[5]
The parties did not agree upon the rental for the new lease and they jointly instructed a valuer, Mr Paul Waterhouse, the first cross-defendant (the Valuer) to determine it. He has filed a submitting appearance, save as to costs.
[6]
Purporting to act under the Lease, the Valuer made the following purported determination (the Determination):
[7]
The reference to “tenant” is to the Lessee.
[8]
When the matter was called on this morning, Counsel for both protagonists agreed that the only issue for decision is whether the Determination is binding on the parties. This depends on whether it was made in accordance with the contract between the parties, that is, the Lease: Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 at 335-6; Holt v Cox (1997) 23 ACSR 590 at 596-7, 603-4.
[9]
The Determination does not determine the market rent for the term of the new lease, because:
1. (1)
  the amount it assesses takes into account (no doubt by way of reduction) non-defined outgoings to which is attributed a non-disclosed amount, on the assumption that outgoings are paid by the Lessee, which under the Lease they are not; and
2. (2)
  the Valuer has not determined current market value of the rent if, as is the case, outgoings are not paid by the Lessee.
[10]
The Determination is not in accordance with the Lease and is of no effect.
[11]
After hearing from the parties, the Court made the following orders.
[12]
Subject to hearing from the parties, I propose to make the following orders:
1. (1)
  The Court declares that the determination dated 23 November 2022 by the first cross-defendant that the current market rental value of the property located at 23 Chicago Avenue, Blacktown, NSW 2148 is:
2. (2)
  All claims and cross-claims otherwise dismissed.
[13]
Any party wishing to make a submission with respect to costs is to do so in writing to the other parties and my Associate within 7 days. The submissions must not exceed two pages. Any party who wishes to respond must do so within 7 days after receipt. The submissions must not exceed two pages. Costs will be determined on the papers unless a party indicates in their submissions that they wish to be heard orally.