Gupta v Fordham Laboratories Pty Ltd

1. [1]

   HER HONOUR: This matter involves a dispute as to commercial premises in a neighbourhood shopping centre in South Camden (the premises) from which the plaintiff (Ranjan Gupta) has operated a pharmacy for a number of years (and from part of which, for at least part of that time, he was also involved in the running of a medical practice). The defendant (Fordham Laboratories Pty Ltd, to which I will refer as Fordham) is the owner of the premises.

2. [2]

   In essence, the dispute concerns whether (as Fordham contends) Fordham has validly terminated Mr Gupta’s tenancy of the premises and is now entitled to vacant possession of the premises or whether (as Mr Gupta contends) Mr Gupta is entitled to specific performance of an equitable lease that came into existence following the exercise by him in March 2015 of an option to renew the registered lease that he then held (and that expired in accordance with its terms on 29 June 2015). Fordham has also cross-claimed for damages in respect of alleged breaches by Mr Gupta of his obligations as tenant in relation to the premises.

3. [3]

   It is now not disputed by Fordham that Mr Gupta validly exercised the option to renew his lease in March 2015; nor that, following the exercise of that option, there came into existence a binding agreement for lease on the terms provided for in the initial lease (including that the commencement rent was to be the current market rent as agreed or determined in accordance with the procedure there set out or, if not so determined, the rent as at the expiry of the initial lease).

Summary

1. [4]

   For the reasons that follow, I am of the view that the subsequent course of negotiation between the parties in relation to the terms of the “new lease”, which departed in a number of not insignificant respects from the terms provided for under the equitable lease (to which I will refer, to avoid confusion arising from the varied terminology used in the correspondence and submissions, as the “option lease”) that came into existence following the exercise of the option, did not (lengthy as those negotiations were) amount to an abandonment by Mr Gupta of his rights to or under the option lease. Nor am I persuaded that Mr Gupta is now estopped from exercising those rights notwithstanding that he did not demur (until very late in the negotiations) from Fordham’s assertion in the course of the negotiations that he had forfeited the option (or had resiled from his rights under the option) and was occupying the premises as, or only as, a monthly tenant holding over after the expiry of the fixed term.

2. [5]

   As to the claim for specific performance, while I accept that there was a basis for complaint by Fordham as to Mr Gupta’s compliance from time to time with his obligations in respect of the tenancy, it appears to me that at least part of the problem was that there was an ongoing difficulty in the reconciliation of amounts due in respect of the tenancy. That difficulty started with a dispute over the characterisation of a payment made by Mr Gupta before entry into the original lease compounded by the practice from time to time of Mr Gupta to make payments by direct deposit in lump sums without any reference or description; and was then exacerbated by the fact that, although Fordham applied to the Department of Fair Trading for a security bond to be paid out to it in 2011, the moneys so drawn down were not then treated by Fordham as discharging the rent arrears. There is also now a dispute as to whether (as Fordham seems at the time to have accepted but now disputes was the case) Mr Gupta had satisfied the conditions of an offer by Fordham for there to be a waiver of the percentage increase in rental otherwise applicable in respect of the 2013/2014 lease year and a dispute as to the consequential effect of any such rent waiver for the rent then payable for the 2014/2015 year.

3. [6]

   Once there has been an up to date reconciliation of the position in relation to payments due in respect of the tenancy (and having regard to the unlikelihood that a tenant in Mr Gupta’s position would wish to expose himself to further litigation costs and risk of termination of his tenancy), I have no reason to think that Mr Gupta will not henceforth be astute to ensure that he honours his rental obligations under the option lease (and he would certainly be well advised to do so in a timely fashion). I have concluded that Mr Gupta is ready, willing and able to perform his obligations under the option lease and that, given the significance attached to rights in relation to real property and the value such a lease may be assumed to have for the conduct of Mr Gupta’s practice as a pharmacist in the area, the proper exercise of discretion (notwithstanding the obvious breakdown in the landlord/tenant relationship) is to order the specific performance of the option lease (but to impose conditions requiring Mr Gupta to make good extant breaches in relation to the tenancy, as determined in these reasons by way of orders in relation to the cross-claim).

4. [7]

   As to the cross-claim by Fordham for various breaches of the Lease and liquidated damages for rental arrears, to the extent that those breaches have been made out (and have not yet been remedied) orders will be made in relation thereto. As indicated above, the order for specific performance of the option lease will be made subject to the giving of an undertaking by Mr Gupta to rectify all extant breaches in relation to the tenancy as determined by these reasons and to indemnify Fordham in relation to any claims that may be made against it by other tenants in the shopping centre in relation to condensate discharge from certain air conditioning lines placed on the exterior of the building.

Background

1. [8]

   Mr Gupta first had contact with one of the directors of Fordham (Mr Peter Lubrano) in relation to entry into a proposed lease of the premises in or about November 2008, at which time Fordham was proposing to carry out building works or a building extension in relation to the shopping centre in question (see T 19.50; T 20.23-26).

2. [9]

   By December 2009, it appears that there had been discussions as to a “rental package” for both the premises the subject of this dispute (shop 4) and another shop in the centre (shop 3) – see letter dated 23 December 2009 from Fordham to Mr Gupta (Exhibit D). In that letter, Mr Lubrano refers to there having been “many meetings and a great deal of detail supplied in response to your [Mr Gupta’s] requests”. Mr Lubrano urged Mr Gupta “to be realistic and get on with the job of providing the information required in applying for a lease, instead of dancing around the edges”. (Complaint as to Mr Gupta’s dilatory behaviour in the negotiation of arrangements in relation to the premises has been a constant refrain over the period both before and during his occupancy of the premises.) That letter appears to have been in response to a 22 December 2009 letter from Mr Gupta (a copy of which was not in evidence).

3. [10]

   Relevantly, when it comes to considering how the subsequent payment of $6,167 was to be characterised (see [11] below) in response to whatever was contained in paragraph 4 of that 22 December 2009 letter, Mr Lubrano wrote:

4. [11]

   On 4 March 2010, Mr Gupta paid the sum of $6,167 to the real estate agents acting for Fordham (Ex A p 3-1A). There is a dispute between the parties as to the proper characterisation of that payment. Mr Gupta’s position is that it was a deposit on account of rent or other moneys due under the lease he later entered into in August 2010 (such that it should have been credited against moneys payable by him in relation to the tenancy). Fordham’s position (consistent with the explanation proffered in the 23 December 2009 letter) is that it was an “earnest” or payment to “qualify” Mr Gupta as a tenant – in other words that the payment was made so that Fordham would not lease the premises to any other potential lessee; and that it was not a payment of rent in advance nor is it to be credited as such. I consider this issue in due course.

5. [12]

   By 25 May 2010, negotiations were taking place through the respective parties’ solicitors as to the terms of a lease for the premises (shop 4 only) – see letter dated 25 May 2010 from Fordham’s former solicitors (Back Schwartz Vaughan) to Mr Gupta’s solicitors (Exhibit C). In that letter, apparently in response to a request from Mr Gupta in relation to payment of moneys due to a third party which had presumably been involved in some way in the discussions (it having earlier received a copy of the letter which is Exhibit D), Fordham’s solicitors stated “[w]e are instructed that your client [Mr Gupta] is required to pay the monies due to NU-ERA Homes Pty Limited separately and may not be deducted from any monies previously paid towards the rent and security deposit”. (The only evidence of any amount having been paid by Mr Gupta to Fordham at that stage seems to be the sum of $6,167 paid to the real estate agents.)

6. [13]

   As at 26 May 2010, Mr Lubrano was expressing the view that the dealings in relation to the proposed lease had been “excessively protracted” – see his letter of that date to Mr Gupta (Ex A p 4). In that letter, Mr Lubrano recorded that Mr Gupta had proposed a lease term making the lease conditional on both Pharmacy Board of NSW approval and Council consent to the proposed use of the premises as a pharmacy; and permitting either party to terminate the lease by written notice if for any reason any of the conditions had not been satisfied by a specified date. The proposed additional lease terms contemplated the payment of rent and outgoings for the period 1 May to 31 August 2010 if any of the conditions was not satisfied by 16 July 2010 and that, if all lease conditions (excluding a special condition relating to “PBS” approval) were satisfied, then the lessor would allow one month’s “credit rent”. There was no reference to any deposit. Mr Gupta initialled a copy of that letter on 28 May 2010 to confirm that it covered “all of the terms that [he] had agreed” at a meeting on 25 May 2010.

7. [14]

   On 16 July 2010, approval was given by Camden Council to a development application by Mr Gupta for the use of the premises as a pharmacy and medical practice (Ex A p8-1ff). Presumably approval was also received from the Pharmacy Board at some stage (since there is no suggestion that the operation of the pharmacy business was not compliant with any applicable Pharmacy Board requirements). As adverted to earlier, Mr Gupta’s evidence is that for part of the time during the course of his tenancy he was also running a medical practice “under [his] own ownership” from the premises but that he then sold his interest in the medical practice (see his evidence at T 8.35ff) (in this regard, I note there is evidence as to the purchase of the medical practice by an entity known as Cristorae Pty Limited (Cristorae) some time in 2015 – to which I refer in due course below – see [92] below).

8. [15]

   The initial lease in respect of the premises (the Lease) was executed by the parties in August 2010 (it was dated 18 August 2010 but the statutory declaration in relation to it was completed on 27 August 2010) (Ex A pp9-10). It appears that it was in the Law Society’s standard form as at November 2007.

9. [16]

   The Lease was for a term of 5 years commencing on 30 June 2010 and ending on 29 June 2015. Clause 4 of the Lease, headed “Lease Period”, included provision for the lessee (Mr Gupta) to have the option to renew the Lease if a further period, commencing when the Lease ended, was stated in item 12A in the schedule (Annexure A to the Lease) and for renewal more than once if so stated in item 12B in the schedule, but that the period of tenancy under the Lease and under any renewal(s) was, in total, not to be longer than the maximum period stated in item 12C in the schedule. Item 12A specified a further period of five years from 30 June 2015 to 29 June 2020. No further period was specified in item 12B and the maximum period of the tenancy under the Lease and permitted renewals, as stated in item 12C, was ten years. Therefore, as executed in August 2010, under the Lease there was only one option to renew, that being for a further 5 years.

10. [17]

    The initial rent specified under the Lease (as set out in item 13 of Annexure A to the Lease) for the period from the commencement date to the first rent review date (30 June 2011- see item 16) was $40,726.40 (inclusive of GST) a year payable by monthly instalments of $3,393.87 (inclusive of GST). Thereafter, from the first rent review date, rent was payable at the new yearly rent in monthly instalments of one twelfth of the new yearly rent beginning on each rent review date.

11. [18]

    Item 16 of Annexure A listed the rent review dates (for the initial term of the Lease as well as any further period of lease following exercise of the option to renew), the method of rent review, and (if Method 1 applied) the applicable increase, as set out below. For ease of reference, I have added to the far right column in square brackets the rental amounts for the relevant years of the first lease period (assuming no waiver of the percentage increase was applicable for the 2013/2014 lease year).

12. [19]

    As to the exercise of the option, cl 4.4 of the Lease provided that:

13. [20]

    The terms of the “new” lease (if the option were to be exercised) were set out in cl 4.6 of the Lease, which provided that:

14. [21]

    The methodology for calculating the new rent under Method 3 was set out in cl 5, commencing from cl 5.12:

15. [22]

    As to outgoings, the Lease provided that the lessee was to pay 34.3% of all Outgoings (as defined in item 14B of Annexure A to the Lease), such payment to be made on the next rent day after a request for payment is made by the lessor (see cll 5.1.2 and 5.3, read with item 14A of Annexure A to the Lease).

16. [23]

    The permitted use of the premises was specified in item 17 of Annexure A to the Lease as “Pharmacy and Medical Practice”.

17. [24]

    Clause 17 of the Lease, headed “Security Deposit”, read with item 20 of Annexure A to the Lease, made provision for delivery of a security deposit by the lessee to the lessor on or before the commencement date of the Lease. The amount required was four and a half months’ rent and the lessee’s proportion of outgoings increased by the rate of GST (expressed as a percentage) applicable from time to time. Clause 17.3 entitled the lessor to deduct from the security deposit “an amount equal to any monies due but unpaid by the lessee to the lessor under this lease”. Pursuant to cl 17.6, the lessee agreed to vary the amount of the security deposit “immediately upon each rent review” so that it “represents the equivalent of the number of months referred to in the schedule”. Other than insofar as cl 17.6 may have this effect, there was no express provision in the Lease requiring the lessee to “top up” or reinstate the security deposit if the deposit was called upon by the lessor during the course of the Lease.

18. [25]

    Clause 12.3.1 of the Lease (as amended by cl 28.1.5) provided that when the Lease ends “unless the lease becomes a lessee of the property under a new lease” the lessee was obliged, among other things, to return the property to the lessor “reinstated to its original open plan layout and condition”. If the lessor allowed the lessee to continue to occupy the property after the end of the lease period (“other than under a new lease” – my emphasis) then, pursuant to cl 12.4 as amended by cl 28.1.7, the lessee “becomes a monthly lessee and must pay at a monthly rent equal to one months [sic] proportion of the yearly rent multiplied by 105% of all other amounts payable by the Lessee to the Lessor hereby reserved and adjusted”. (I interpose to note that cl 12.4 will not apply if, as I have found, Mr Gupta was occupying the premises from 30 June 2015 under the option lease.)

19. [26]

    Pursuant to cl 5.1.5 of the Lease (and item 15 of Annexure A), interest was payable at the maximum overdraft rate applied by the Commonwealth Bank of Australia plus 2% p.a. calculated on a daily basis on any unpaid amounts (being rent, outgoings or the cost of remedying defaults) that were more than 14 days overdue.

20. [27]

    An issue that arose early during the term of the Lease was as to Mr Gupta’s failure to pay rent in a timely fashion (see Mr Lubrano’s affidavit sworn 7 April 2017 at [8]). Further, for at least some period Mr Gupta made direct deposits to Fordham’s bank account in round sums “without explanation or identification”. It appears that, among other things, this has contributed to the difficulty in reconciliation of amounts paid/outstanding by way of rent or other obligations to pay moneys under the Lease.

21. [28]

    Letters requesting payment of amounts claimed as outstanding rent were sent by Mr Lubrano on 7 October 2010, 26 October 2010, 26 November 2010, 6 December 2010, 10 February 2011 and 21 March 2011 (see Mr Lubrano’s affidavit at [8] and copies of letters exhibited thereto).

22. [29]

    Relevantly, in his letter of demand dated 26 November 2010 (Exhibit 1, PML-1 27), Mr Lubrano made reference to a telephone conversation earlier that day with Mr Gupta, saying:

23. [30]

    In that letter (and I note that the respective letters of demand appeared to follow a standard formula), it was noted that the rent payable for 30 June 2010 to 30 December 2010 was $3,393.87 (including GST) per month. Mr Lubrano asserted that, even (which he did not there agree to do) crediting towards the rental account the disputed $6,167, Mr Gupta was in arrears as at 26 November 2010 by $6,466.92 (including GST). (It may be noted here that the sum of $6,167 in fact represents less than 2 months’ rent at the rent specified for the first year of the Lease.)

24. [31]

    By email dated 6 December 2010, Mr Gupta acknowledged receipt of the 26 November letter (and an earlier letter of 12 November 2010). He asked for correspondence to be addressed to a particular address in Camden (that request was not always complied with – in particular, later correspondence was often addressed either to the premises or sent by email). Mr Gupta stated in this email that:

25. [32]

    Mr Lubrano did not accept the position asserted by Mr Gupta in relation to the $6,167 but advised by letter dated 6 December 2010 that, even setting that aside, there were arrears of $4,758.37 (including GST). A similar letter of demand was sent on 10 February 2011.

26. [33]

    An application for mediation under the Retail Leases Act 1994 (NSW) was then lodged by Fordham. By reference to a letter dated 21 March 2011 from Fordham it appears that Mr Gupta failed to attend a mediation on that date (Exhibit 1, PML-1 34); and Fordham then applied for a Certificate of Failed Mediation to be issued and notified Mr Gupta of its intention to apply to the Administrative Decisions Tribunal of New South Wales.

27. [34]

    On 21 March 2011, Fordham lodged a claim with NSW Fair Trading for a refund of Mr Gupta’s security bond of $16,847.25 (that being the total of the security deposit that had been paid by Mr Gupta in two tranches (Exhibit 1, PML-1 33)) (Exhibit 1, PML-1 35). As at 21 March 2011 (see Fordham’s letter of demand of that date at Exhibit 1, PML-1 33), Fordham calculated the total of all amounts outstanding under the Lease (including rent, the lessee’s proportion of outgoings, legal and mediation fees, and interest under cl 5.1.5) to be $20,146.12 (or, if the $6,167 “deposit” were not “taken into account” – i.e., as I understand it, that amount were to be treated as a credit towards rent – still to be more than $13,000). Fordham’s claim for a release of the security bond was in due course successful, leading to the receipt by Fordham of the amount of $16,847.25 on 7 April 2011 (Mr Lubrano’s affidavit sworn 7 April 2017 at [9]). (As already adverted to, Fordham’s treatment of the security deposit was the subject of contention during the course of the hearing – since that amount was released to Fordham but, it appears, never credited to the rental arrears. Mr Lubrano’s evidence is to the effect that this amount has been “held” by Fordham and that he considers that Fordham would be obliged to reinstate the bond with the rental bond board when Mr Gupta “paid up” the amount owing – see T 49.15-42. I will revert to this issue in due course.)

28. [35]

    Meanwhile, on 23 March 2011 (being a time when the security deposit had not yet been released to it), Fordham issued a Notice to Quit to Mr Gupta (Mr Lubrano’s affidavit at [10]; Exhibit 1, PML-1 36), notifying Mr Gupta that Fordham wished to bring the Lease to an end on 2 May 2011 and requiring vacant possession on that date. Fordham then commenced proceedings on about 31 March 2011 in the Administrative Decisions Tribunal seeking, in essence, orders for vacant possession of the premises (see Exhibit 1, PML-1 37).

29. [36]

    The first rent review date was 30 June 2011. In accordance with the terms of the Lease to which I have referred above, from that date the rent increased by 4% (to $3,529.62 per calendar month). By letter dated 1 July 2011, Mr Lubrano advised that Mr Gupta was in credit for $2,595.42 and that it held the $16,847.25 “as monies returned at our request”. The letter also noted an application by Mr Gupta application for mediation on 5 July 2011. A certificate of failed mediation dated 6 July 2011 was issued in relation to that mediation.

30. [37]

    The matter was listed for a hearing in the Administrative Decisions Tribunal on 25 July 2011. Two days prior to that hearing, Fordham forwarded an offer (Exhibit 1, PML-1 42) to Mr Gupta. The terms included that Mr Gupta was to carry out a fit out to the premises (acceptable to Council and to Fordham using insured, licensed tradesmen) and commence trading on or before 31 October 2011; and that Mr Gupta pay rent and outgoings for that period. (From this, it appears that Mr Gupta had not yet commenced trading from the premises.) Provided Mr Gupta complied with the foregoing, Fordham offered a “rent waiver from that 31 October 2011 date of compliance until 31st January 2012”. The offer also included the term that if, in the future Mr Gupta exercised the existing option, entered into a new lease, complied with all its terms and conditions and paid $11,500 plus interest at the default interest rate in the Lease, Fordham would grant a second 5 year option at Mr Gupta’s request. The stated logic for this was that Fordham would have foregone $11,500 rent and outgoings income but that that amount, plus interest, would be repayable if Mr Gupta took the additional 5 year option.

31. [38]

    The Tribunal made orders on 25 July 2011 (Exhibit 1, PML-1 44) noting that the parties had reached agreement to vary the Lease on the terms of the offer described at [37] above and noting that, if the Lease was not varied in accordance with that offer by 18 August 2011, Mr Gupta was to vacate the premises immediately.

32. [39]

    On 30 September 2011, in accordance with the agreement noted by the Tribunal though not within the time frame there specified, a variation of lease was executed between the parties to include an additional option to renew for a further period of 5 years from 30 June 2020 to 29 June 2025. The variation of lease also provided that, subject to a new cl 29, the permitted use included a convenience store and sub-newsagency. A new cl 31 provided for repayment of deferred rent (a reference it seems to the $11,500 amount the subject of the offer accepted by Mr Gupta), in the event that the second option was exercised.

33. [40]

    An interim occupation certificate was issued for the premises on 11 October 2011 (Annexure F to Mr Gupta’s affidavit affirmed 7 June 2017); the then remaining work being described as “complete fitout of pharmacy” and “complete all painting”. From about late 2011, according to Mr Lubrano (see his affidavit sworn 7 April 2017 at [17]), Mr Gupta commenced to operate a medical practice as well as his pharmacy from the premises. At around that time, Mr Lubrano says he was pressing for a final occupation certificate from Mr Gupta (see his affidavit sworn 7 April 2017 at [15]). A final occupation certificate was issued on 4 November 2011 (Annexure R to Mr Gupta’s affidavit affirmed 17 March 2017).

34. [41]

    On 3, and then 5, October 2011, respectively, Mr Gupta forwarded to Fordham first a quote and then a revised quote for air-conditioning units in respect of the premises and seeking approval for the nature and scope of works in relation thereto (see his email 3 October 2011 (Exhibit 1, PML-1 66, PML-1 68)). Also in evidence (Annexure E to Mr Gupta’s affidavit affirmed 7 June 2017) is an email from Mr Gupta to Mr Lubrano dated 3 October 2011 with a quote from an electrician with reference to an item “Install digital antenna includes this quote” ($450) (although the quote which is in the annexure is dated 6 June 2017; this was not explained). Mr Lubrano (who is a chartered builder with university degrees in the fields of building and architecture – see his affidavit sworn 7 April 2017 at [3]), complains that the air conditioning compressor units that were installed in 2011 were not installed “properly or at all” (see his affidavit sworn 7 April 2017 at [21]). He also made complaint later, when the compressors were relocated externally, that this was done without consultation with him (see [34] of his affidavit sworn 7 April 2017). There was some confusion during the course of the evidence at the hearing as to the issue of the air conditioning. As I understand the position, Fordham’s complaint is that three air-conditioning compressor units (and an aerial) were installed on the roof of the premises without Council approval and in so doing the roof deck or sheeting had been penetrated; and also that three plastic condensate drainage lines had been mounted on the external brick wall and, it is said, were discharging onto the right of way which gives access to the rear of the premises (see Mr Lubrano’s affidavit sworn 7 April 2017 at [54]; [55]).

35. [42]

    The second rent review date was 30 June 2012. In accordance with the Lease terms, the rent was to increase by another 4%. By letter dated 21 June 2012, Mr Lubrano notified Mr Gupta that, following the second anniversary of the Lease, rent was $3,670.81 (per calendar month).

36. [43]

    During the course of 2012, there was further correspondence in relation to outstanding rent from time to time (see Mr Lubrano’s affidavit sworn 7 April 2017 at [23]-[26]). Mr Lubrano subsequently provided Mr Gupta with a schedule calculating the outstanding rent as at 16 August 2012 at $16,680.70 (see Mr Lubrano’s affidavit sworn 7 April 2017 at [25]; Exhibit 1, PML-1 73). (Pausing here, it can be seen that, on Mr Lubrano’s calculations, if the security deposit that had been withdrawn by Fordham in 2011 were to have been applied to the then rental arrears there would have been no remaining arrears as at 16 August 2012, though then an issue as to whether there was an obligation to top-up or replace the security bond may have arisen. In these proceedings, Fordham concedes, however, that it did not then call for the $16,847.25 to be replaced by Mr Gupta – see T 51.42.)

37. [44]

    On 4 July 2013, Mr Lubrano sent a handwritten facsimile transmission to Mr Gupta, advising that the outstanding rent was $10,660.68 and requesting payment (Mr Lubrano’s affidavit sworn 7 April 2017 at [27]; Exhibit 1, PML-1 75). In that communication, Mr Lubrano confirmed an offer “not to apply the 4% rental increase for the 13-14 year” (my emphasis) “provided you are fully paid up not later than the end of August 2013 and provided you make all payments due under the lease for the whole year” (Exhibit 1, PML-1 75).

38. [45]

    The effect of that offer was in dispute in these proceedings (as was the question whether Mr Gupta had in fact satisfied both conditions of that offer). Relevantly, for present purposes, but for that offer, and in the absence of compliance with that offer, the rent payable under the Lease would have increased on 30 June 2013 to $3,817.64 per month. Hence, if both conditions attached to the offer were not satisfied, the rent would have been that amount.

39. [46]

    Mr Gupta maintains that he complied with the above conditions for the “waiver” of the 4% rental increase: by paying (by 22 July 2013) all amounts due under the Lease for the period ending 31 August 2013; and by paying (by 29 June 2014) all amounts due for the period 30 June 2013 to 29 June 2014 (referring to the schedule at Exhibit 1, PML-1 206). Fordham did not at the time dispute this but now does.

40. [47]

    Mr Lubrano emphasised in the witness box that this was a “conditional offer” (which Mr Gupta does not deny) and that the condition placed on the offer was not limited to the payment of all “rent” due, but applied to “all payments due”, which he says included the security bond (see T 47-50). While Mr Gupta did not, as I understand it, dispute that the conditions to which this offer was subject encompassed more than the payment of rent, his position is that he had made all payments due under the Lease for the 2013/2014 year and thus had satisfied the conditions for the “rent waiver”.

41. [48]

    Whatever the position as at 31 August 2013, Fordham contends that, in the period between then and 29 June 2014, Mr Gupta again fell into arrears. By letter dated 5 April 2014, Mr Lubrano advised Mr Gupta that he was in arrears of $3,337.08 and that “[t]his means that you have risked your $1,832.47 concession”. Again on 10 June 2014, demand was made by Fordham for outstanding rent ($2,472.36) with a similar statement that Mr Gupta had “risked” his $1,832.47 concession. The monthly rent figure there referred to, for the period 1 October 2013 to 30 June 2014, was $3,817.64. From this it can be discerned that Fordham was proceeding (at least for the purpose of the arrears calculations) on the basis that the 4% “rent waiver” did not apply for the 2013/2014 lease year (whereas if the concession or rent waiver did apply then there would presumably need to be a revised calculation). Of course one difficulty with the conditions attached to the rent waiver is that one would not know until the end of the 2013/2014 lease year whether or not the waiver was in fact to apply. Hence, logically, Mr Gupta might have ended that lease year in arrears even though during the course of the year Fordham may have had no difficulty with payment of the lesser amount for rent – pending the anticipated satisfaction of the conditions. It is not clear how Mr Lubrano envisaged the retrospective rent waiver would operate in practice.

42. [49]

    On about 2 June 2014, Fordham signed (by way of consent to the sub-lease) a sub-lease dated 30 May 2014 between Mr Gupta and Sonic Healthcare Ltd (Sonic), which operated a pathology collection room within the premises alongside the pharmacy business at the rear of the medical practice (see Mr Lubrano’s affidavit sworn 7 April 2017 at [30]; sub-lease at Exhibit 1, PML-1 81).

43. [50]

    The fourth rent review date was 30 June 2014.

44. [51]

    At this point the effect of the “non-application” of the 4% increase for the previous year becomes relevant – in other words, was the rent payable from 30 June 2014 for the 2014/2015 (final) year of the Lease $3,817.64 per calendar month (assuming both that the conditions of what Mr Gupta called the “rent waiver” were satisfied and that the 4% increase due on the 2014/2015 rent review date was to apply to the 2012/2013 rental amount) – i.e., $3,670.81 per calendar month plus 4%; or was the 4% increase to be applied to the $3,817.64 figure (which, but for the agreement not to apply the increase for the 2013/2014 year, would have been the monthly rent payable for that year and was the rent strictly payable under the Lease for 2013/2014), thus producing a rent for 2014/2015 of $3,970.35 per calendar month.

45. [52]

    Various of the calculations prepared for Mr Gupta in these proceedings were based on the lesser sum ($3,817.64 per calendar month) being payable for the 2014/2015 year; whereas Mr Lubrano maintains that the rent payable for 2014/2015 was the higher amount ($3,970.35 per calendar month). (That issue arises, of course, only if the conditions precedent to the non-applicant of the percentage rent increase – the so-called “rent waiver” – were in fact satisfied.) The issue is of relevance not only in determining what were the actual arrears of rent (if any) from that point onwards but also when one comes to consider the commencement rent payable on the option lease commencing on 30 June 2015 (assuming exercise of the option was valid and Mr Gupta’s rights in relation thereto were not abandoned), for reasons which I will explain in due course.

46. [53]

    By letter dated 13 August 2014, Fordham notified Mr Gupta that $6,640.11 (including GST) was payable for outgoings for the period 1 July 2012 to 30 June 2014. In accordance with the terms of the Lease referred to earlier, that outgoings amount was payable on the next rent day after the notice was given. It appears that this amount was duly paid.

47. [54]

    On 29 January 2015, Mr Lubrano sent a handwritten facsimile transmission to Mr Gupta, saying:

48. [55]

    Pursuant to the terms of the Lease, the first option to renew was required to be exercised between 29 December 2014 and 29 March 2015. Within that time period, on 12 March 2015, Mr Gupta exercised the first option to renew the Lease, by forwarding an email to the email address of the second director of Fordham, Ms Annette Fordham, stating: “[t]his is to confirm my verbal request to you that I’d like to exercise my option to renew the lease at [the premises]…” (Exhibit 1 PML-1 92). Mr Gupta also expressed a wish to sub-lease the space currently occupied by the surgery and pathology to some other business – “preferably a dentist”. He said that the surgery and pathology were expected “to move across the street in the next few months”. Mr Gupta maintains that at that time (12 March 2015) he was not in arrears of rent and points out that Fordham had not served any notice to remedy any alleged breach of the Lease at that stage.

49. [56]

    On 16 March 2015, Sonic forwarded to Mr Lubrano copies of notices of exercise of option under its sub-lease (see Mr Lubrano’s affidavit at [38]; Exhibit 1, PML-1 93).

50. [57]

    By letter dated 23 March 2015, Fordham wrote to Mr Gupta acknowledging receipt of the notice of exercise of the option dated 12 March 2015 (Exhibit 1, PML-1 96). In that letter, which was signed by Mr Lubrano, there appeared the following:

51. [58]

    As adverted to above, in his affidavit Mr Lubrano has deposed that he has since recalculated the amounts and that his statement that Mr Gupta was in credit at the time of exercise of the option was incorrect ([39]). Those subsequent calculations (to which I will refer in due course) “incorporate the forfeiture of the $16,847.25 bond” and include a further $6,640.11 “as a result of the separate treatment of outgoings payments in [Fordham’s] accounting”; also, Mr Lubrano says that interest payments due on unpaid amounts due under the Lease were not included in his earlier calculations.

52. [59]

    By reference to item 16 of Annexure A to the Lease, the new rent for the option lease (assuming a valid exercise of the option to renew for the further five year period) commencing on termination of the initial term of the Lease was to be determined using Method 3, i.e., current market rent.

53. [60]

    It should be noted in this regard that Fordham’s 23 March 2015 letter was sent more than 60 days before the next rent review date of 30 June 2015 – the significance of this being that the rent was to be reviewed on that date using “Method 3” (the current market rent methodology). Under that method, either party could notify the other more than 60 days before the rent review date of what that party thought to be the current market rent – see cl 5.13. That could either be accepted by the other party or, failing agreement, there was a process for its determination by an expert valuer; but if the parties could not agree, or if neither party asked for a valuer to be appointed, before (relevantly) the passing of the next rent review date, the rent was to remain unchanged.

54. [61]

    Although in Fordham’s letter of 23 March 2015, it was proposed that the new 5 year lease would be at the same “starting rate” of $51,144 p.a. including GST”, that figure was arrived at by treating the rent and outgoings as in effect a lump sum (i.e, rent of $47,644.13 p.a., plus outgoings of approximately $3,500). In fact the current rent as at 23 March 2015 was $47,644.13 p.a. Therefore, the figure proposed in the 23 March 2015 letter was not the rental figure that would strictly apply under the terms of the Lease if no new current market rent was agreed and no valuation had occurred by the next rent review date. (Of course, the terms there proposed also included that there be no contribution to outgoings and contemplated that additional rent would be payable if Sonic continued to occupy the premises or another sub-tenant was procured in relation to the premises, which, if applicable, would have increased the total rent payable. This seems to have been the nub of Fordham’s later complaint when it appeared that no sub-lease would be executed.) It also appears from this letter that Fordham was asserting that the rent payable for the final year of the Lease to be $3,970.35 per calendar month (which is consistent with there having been no rental waiver in the 2013-2014 year).

55. [62]

    There was apparently no reply for some months to the letter of 23 March 2015, which led to a series of communications from Mr Lubrano, copies of which were in evidence but the receipt of which was denied by Mr Gupta (it being in effect suggested that those letters had been concocted after the event – something denied by Mr Lubrano).

56. [63]

    By letter dated 27 May 2015 (Exhibit 1, PML-1 98), Mr Lubrano wrote to Mr Gupta (at the premises address) reminding him that the current lease would expire on 29 June 2015. On the copy of this letter there is a handwritten note at the foot of the letter, in what appears to be Mr Lubrano’s handwriting, stating “3/6/15 faxed … [with Mr Gupta’s fax number]”. Mr Gupta said in the witness box that he did not receive this letter (or indeed a number of the letters) at the time (T 31.21).

57. [64]

    Whether or not Mr Gupta in fact received the 27 May 2015 letter, the relevance of there being no agreement between the parties 30 days before the next rent review date (30 June 2015) as to the amount of the new rent was that, in the absence of either party taking steps to appoint a valuer to determine the current market rent, cl 5.21 would apply such that the rent payable under the option lease (i.e., the new lease commencing on 30 June 2015) (assuming Mr Gupta had validly exercised the option and did not later abandon his rights in relation thereto) for the first year of that lease (i.e., the 2015/2016 year) would remain unchanged from the rent payable for the 2014/2015 year ($3,970.35 per calendar month or $47,644.13 per annum).

58. [65]

    By letter dated 27 June 2015 (Exhibit 1, PML-1 99) addressed again to the premises and with a similar handwritten note at the foot (“29/6/15 & mailed”) (which Mr Gupta also denies receiving – T 31.47), Mr Lubrano noted that no reply had been received and stated:

59. [66]

    According to Mr Lubrano, between about 12 March 2015 and 30 June 2015 he had several conversations with Mr Gupta in which he told Mr Gupta, in effect, that if he wanted “to give effect to your exercise of your option, we will need to commit to a new lease by 29 June 2015” and Mr Gupta said he would talk to his solicitor (see Mr Lubrano’s affidavit sworn 7 April 2017 at [40]).

60. [67]

    I interpose to note that the assertion by Mr Lubrano in the 27 June 2015 letter (which Mr Gupta denies receiving) to the effect that “if there is no new lease” when the current lease expires then (subject to Fordham’s consent) the Lease continues as a monthly tenancy, appears to assume that it was necessary for there to have been an executed lease in place by 29 June 2015. That involves a misapprehension on Mr Lubrano’s part as to the legal effect of a valid exercise of the option to renew the Lease (in that it does not take into account that the valid exercise of the option would give rise to a binding agreement for a new lease and, since all essential terms were agreed as at 30 June 2015 such that the lease would have been able at that stage to be the subject of an order for specific performance, an equitable lease i.e., the option lease would have come into existence at that stage). I address that issue in due course.

61. [68]

    By letter dated 20 July 2015 (which, again, Mr Gupta says he did not receive and the copy of which, unlike most of the other correspondence, is not on Fordham letterhead – and which bears a handwritten note that Mr Lubrano says related to paragraph 1 of the letter and was to his solicitor saying “is this correct? OK 22/7”), Mr Lubrano stated: “[a]s you know, the current status of your tenure is only a continuation of occupancy under an expired lease because, while you gave Notice of Exercise of Option, you haven’t taken up the offer”. Fordham now accepts that, at least at that stage, the proposition that there was only a monthly tenancy in existence was incorrect.

62. [69]

    I interpose here to note, in terms of the chronology, that there is reference in the evidence to the completion of the sale of the medical practice as of 21 August 2015 – see [92] below – though it is not clear that Fordham was aware of this at the time. Nor is it clear at what point the purchaser of the medical practice (Cristorae or a Mr Mike Broesel) commenced in occupation of part of the premises. This is, however, as I understand it, the alleged unauthorised sub-tenant of which Fordham has made complaint.

63. [70]

    On 15 September 2015, Mr Gupta’s solicitors wrote to Fordham’s solicitors (Exhibit 1, PML-1 103), referring to a telephone discussion on 3 September 2015 and advising as to the former’s instructions. The letter set out six items, the first four of which were:

64. [71]

    The last two items in the letter (not extracted above) related to the position with the sublease (or proposed sublease).

65. [72]

    Compared with the 23 March 2015 letter (see [57] above), it is apparent that at this stage the instructions that had been conveyed by Mr Gupta’s solicitors (as set out in items 1 to 4 above) amounted to an acceptance of what had been offered by Fordham in those respects in relation to the new lease. What was not, however, agreed were the proposed provisions in relation to the sub-lease (i.e., the proposal that the rent increase depend on the sub-lease situation).

66. [73]

    The response from Fordham’s solicitors, dated 17 September 2015, was to note (as I have above) that the first four items were agreed. As to Item 1, it was also said:

67. [74]

    The letter went on to seek details of the intended additional sublease and to state the lessor’s requirement that if there was more than one health care professional involved in the sublease as at 30 June 2016 or subsequently, the lease payments under the head lease were to increase by 10%. The letter also noted other requirements as to direct payment by the sub-lessee if the head rental was in arrears.

68. [75]

    The Schedule of Lease payments said to be due as at 1 September 2015 (a copy of which was provided with the 17 September 2015 letter) showed amounts totalling $13,198.74, including amounts of $4,773.94 (referred to as “Total amount due – Old lease”) and $8,424.80 (“Total amount due – New lease”). The Schedule noted a $51,114 p.a. rental commencing 30 June 2015, being $4,259.50 per calendar month (Exhibit 1, PML-1 106). This is inconsistent with the 15 September 2015 letter, which referred to a rent commencing on 30 June 2015 of $51,144 p.a. ($4,262 per month). That was also the figure proposed in Fordham’s 23 March 2015 letter. The figure of $51,114 p.a. (which is $4,259.50 per month) seems likely therefore to be no more than a typographical error. As at 3 November 2015, Fordham advised that the rent for the current period was $4.259.50 (see below at [78]). Yet it appears that as at 11 July 2016, when Mr Gupta had been paying a monthly rent for 2015-2016 of $4,259.50, Fordham corrected him, saying that it was $4,262.00 (Exhibit 1, PML-1 159).

69. [76]

    In any event, the significance of the 17 September 2015 date is that, at least by reference to Mr Gupta’s summons, Mr Gupta’s contention when these proceedings were commenced was that a binding agreement had been reached as at that date on the terms of the option lease. Initially, in these proceedings, he sought specific performance of that agreement. That is no longer his position – he now accepts that no binding agreement was reached in relation to the different lease terms that had been proposed (see below).

70. [77]

    By letter dated 23 September 2015, Fordham’s solicitors wrote to Mr Gupta’s solicitors stating that their client (i.e., Fordham) had asked them to clarify one point relating to the increase by 10% – saying that this increase was to apply only to the portion of the premises occupied by the sub-tenant and that “It would appear that the parties will need to agree on the pro-rata relationship of the sub-tenancy to the whole” (Exhibit 1, PML-1 117). By this stage, it is not clear that any agreement (even in principle) had been reached between the parties as to the proposal that additional rent be payable by Mr Gupta by reference to any part of the premises sub-leased to another tenant.

71. [78]

    By letter dated 3 November 2015 (Exhibit 1, PML-1 118) Fordham sent Mr Gupta (again addressed to the premises) a rent reconciliation – noting the amount owing to 29 June 2015 including outgoings of $4,733.94 plus rent due for 5 months from 30 June 2015 to 29 November 2015 at $4,259.50 per month, being $21,297.50, less payments made, leaving the sum of $7,851.68 said to be outstanding. The letter stated that more than a month had passed since any contact from Mr Gupta’s solicitors regarding the new lease and sub-lease; and that Fordham had instructed its solicitors “not to do anything further on the Leases until the overdue amount is paid”. Fordham required the lease payments to be brought up to date on or before 29 November 2015. (It appears that the amount claimed in this letter was paid by Mr Gupta on 5 November 2015 – see [80] below.)

72. [79]

    By email dated 5 November 2015, Mr Gupta sent to Mr Lubrano (care of Ms Fordham’s email address) a request to allow inclusion of “pharmacist’s residence subject to Council approval” as a permitted use; and requesting, in relation to Fordham increasing rent “in case of number of Doctors increases”, that Mr Lubrano consider 31 December 2016 as the “trigger date for increase of rent to give the doctors [presumably a reference to the surgery and pathology that had been expected to leave the premises and move across the street – see [55] above] a reasonable time to build across the street and relocate” (Exhibit 1, PML-1 119). (This seems to signal an acceptance, at least in principle, at that stage of Fordham’s proposal that there be an increase in rent referable to a new sub-tenancy.)

73. [80]

    By letter dated 9 November 2015, Fordham’s solicitors advised Mr Gupta’s solicitors that they had been advised that the positon as regards to rental had been brought up to date and that they were now in a position further to consider any request that they might receive from Mr Gupta’s solicitors “reflecting Mr Gupta’s instructions herein” (subject to the bringing up to date of the firm’s costs). The letter (Exhibit 1, PML-1 120) further stated that:

74. [81]

    By facsimile transmission dated 23 December 2015, Mr Gupta’s solicitors responded to the 17 and 23 September 2015 letters, referring to further discussions between the respective clients and advising their instructions in relation to three items: first, that the permitted use was to be “Pharmacy and Medical Practice” but noting the lessor’s indication that, provided Mr Gupta obtained prior approval from the local Council, part of the premises may be used for the pharmacist’s residence; second, stating that Mr Gupta requested 2 x 5 year options following termination of the initial term; and, third, requesting “the date of effect of 10% extra rent from the Medical Practice” be changed to 31 December 2016 from 30 June 2016 (Exhibit 1, PML-1 126). There was no response to the suggestion by Fordham’s solicitors in the 17 September letter that the fact that the option had been “relinquished” needed to be recorded, nor to the assertion in the 23 September letter that the option had been forfeited.

75. [82]

    The response to this (Exhibit 1, PML-1 127) from Fordham’s solicitors was that they would refer this to their client when, in effect, the tax invoice for their costs (submitted in early November 2015) was paid. Following this, by letter dated 7 January 2016, Mr Gupta’s solicitors advised that the tax invoice had been paid and stated that they looked forward to a response to their 23 December 2015 letter (Exhibit 1, PML-1 128).

76. [83]

    Fordham’s solicitors’ response (by letter dated 12 January 2016) to the three items raised in the 23 December 2015 correspondence was to raise matters in relation to the first two (as to the first, pointing out an inconsistency between the proposed permitted use and the proposed application for a residence; as to the second, stating that the lessor was prepared to consider the requested options “upon the basis of your client’s advice that his bank is prepared to advance him a loan for the purpose of the dwelling provided these options are in place”). They advised that the third matter (the change to the date for the increased rent referable to the sub-lease) was not agreed (Exhibit 1, PML-1 129).

77. [84]

    By letter dated 18 January 2016 (Exhibit 1, PML-1 130) Fordham’s solicitors again wrote to Mr Gupta’s solicitors, this time referring to an application they understood Mr Gupta was making with respect to the installation of air-conditioning plant on the roof of the premises. They said that “[i]f this matter proceeds, we are awaiting your response to our prior correspondence, then the new documentation will require your client to accept responsibility for all roof penetrations and for ensuring that they do not create maintenance of water leakage difficulties”. The letter referred to what was to happen to the air-conditioners at the end of the occupancy (either that they were to be removed with proper reinstatement – “with particular reference to roof penetrations” – or, if they were to remain with the consent of the lessor, that the lessor must be satisfied that there had been no further deterioration which might create maintenance problems). The letter further stated:

78. [85]

    The response to this, and to the earlier 12 January 2016 letter, by letter dated 4 February 2016 (Exhibit 1, PML-1 135) from Mr Gupta’s solicitors was that: Mr Gupta did not intend to pursue use of the premises for the pharmacist’s residence; Fordham was asked that it “please confirm 2 x 5 options”; and the lessor’s response in relation to item 3 (the date for the increase of rent referable to the sub-lease) was noted.

79. [86]

    Fordham’s solicitors then responded (Exhibit 1, PML-1 136) by letter dated 10 February 2016, simply noting the first item, and stating in relation to the second and third items:

80. [87]

    By letter dated 22 February 2016 (Exhibit 1, PML-1 142), Fordham’s solicitors (finally, though I say this without criticism of either set of solicitors) forwarded “the new Lease” to Mr Gupta’s solicitors. In that letter they stated that: “[a]s you will recall your client initially purported to exercise the Option contained in the original Lease but subsequently resiled from having done so”. The letter referred to various changes, in that the lease “in fact provides for a longer term, because it itself contains an Option, subject to what follows”. It was noted that the lease generally followed the previous document although the form of expression as regards item 14 had been changed in some instances; the amount for insurance required had been increased “in line with contemporaneous Leases”; the amount of the security deposit had increased; and cl 27 had been altered. (In terms, therefore, this was not the option lease as provided for under cl 4.6 of the Lease.) There was reference to the separate correspondence in relation to a sub-lease. Reference was also made to the permission that Mr Gupta had sought to install air conditioning, which the solicitors said would be available, subject to the fulfilment of certain preconditions. Fordham’s solicitors stated:

81. [88]

    The letter then set out various matters in relation to the lease terms. That letter was apparently forwarded (in error) in draft because on 24 February 2016 a “correct version” of the letter (still dated 22 February) was sent to Mr Gupta’s solicitors.

82. [89]

    The response by Mr Gupta’s solicitors to those letters (by letter dated 15 March 2016: Exhibit 1, PML-1 145) expressed agreement to the form of proposed lease; indicated some amendments, including that Mr Gupta would not be liable for outgoings (consistent with the initial 23 March 2015 offer- see [57] above); and proposed a clause in relation to air-conditioning – providing for its removal at the end of the lease by the lessee and the repair of any damage caused by the removal. The letter also addressed various matters in relation to the sub-lease (including seeming instructions as to the surrender of the Sonic sub-lease with a single sublease with regard to the two areas in question and anticipating the need for a licence agreement between the medical practice and Sonic).

83. [90]

    The proposed clause in relation to the air conditioning was rejected by Fordham’s solicitors. By letter dated 21 March 2016 they clarified (Exhibit 1, PML-1 148) that the air conditioning installed “some time ago” was not permitted to be removed and that there was a different issue as to the penetration of the roof. A different clause was proposed in relation to that issue. In that letter, Fordham’s solicitors requested that Mr Gupta’s solicitors submit the proposed sub-lease for Fordham’s approval.

84. [91]

    By letter dated 31 March 2016, Fordham’s solicitors informed Mr Gupta’s solicitors that “the 28 days is up” (Exhibit 1, PML-1 150) (in its terms obviously a reference to the letter of 22 February 2016 with which the new lease had been forwarded to Mr Gupta’s solicitors – see [87] above). On the same day, there was a facsimile transmission from Mr Lubrano on Fordham letterhead to Mr Gupta stating that: “[t]he matter of whether there is or is not to be a new lease for Gupta has been going on for 11 months and is a fiasco”. (Mr Gupta did not, in the witness box, dispute that characterisation, accepting that it was a fiasco – T 30.50.)

85. [92]

    In April 2016, Fordham received a communication forwarded from Mr Gupta in which reference was made to the completion, as of 21 August 2015, of a sale of the medical practice at the premises to Cristorae (with a reference to Mr Mike Broesel) “with lease documents to be finalised in due course thereafter” (Exhibit A, RG 80).

86. [93]

    Fordham appears to have been on notice (if not from the April communication then at least as at May 2016) of Mr Broesel’s (or Cristorae’s) occupation of at least part of the premises – see Fordham’s letter dated 17 May 2016 (Exhibit 1, PML-1 155) addressed to Mr Broesel in which Mr Lubrano referred to “the long ongoing discussions” about the “unauthorised installation” of three air conditioning units, and to a suggestion having been made that Mr Gupta obtain retrospective development consent for those units (which, according to Mr Lubrano, Mr Gupta had not taken up). In that letter, Mr Lubrano proposed three options to address the air conditioning issue: that works be undertaken to the units and Fordham be indemnified against claims by another owner (apparently to address the a concern as to condensate discharges from the units); that Mr Gupta lodge a development application for the installation; and that the air conditioning units be removed and the building reinstated. (It appears that in due course the second option was taken, as Fordham later confirmed to the Council that it had consented to such an application (see Exhibit 1, PML-1 157A) and development consent was obtained on 23 August 2016 for the continued use of 3 air conditioning units located on the roof of the premises – see Notice of Determination subject to the condition there stated (Annexure P to Mr Gupta’s affidavit affirmed 17 March 2017) – but it is not clear if this approval encompassed the condensate lines on the extreme of the building.)

87. [94]

    By letter dated 1 July 2016 (Exhibit 1, PML-1 158), Fordham’s solicitors advised Mr Gupta’s solicitors that:

88. [95]

    By letter of 11 July 2016 (Exhibit 1, PML-1 159) Mr Lubrano advised Mr Gupta as to the rent payments from 30 June 2016, namely that the 4% annual increase was from $4,262.00 to $4,432.48 per month and that: “[a]s you know, if the area you sublet is occupied by more than one individual practising as a health care professional after 30.6.16 then the rental for that area under the Head Lease is to increase by 10% which will become the base figure for future increases”. Certification from Mr Gupta’s lawyer (or a satisfactory statutory declaration) was sought that the sublet area was not occupied by more than one health care professional or, if the clause was triggered, the lessor sought prompt payment of the extra rent due. (I interpose to note that this letter is clearly written on the assumption that there had been agreement reached that the terms of the new lease would include an additional 10% increase in the rent if the medical practice “clause” was triggered – something that featured in oral submissions at the hearing, though if there was no binding agreement on the proposed new lease terms then this clause cannot have applied.) The letter concluded with a complaint as to the lack of response to the head lease communications, Mr Lubrano then stating “[t]he future of your occupancy is in your own hands”.

89. [96]

    It appears that this correspondence may have precipitated some action on Mr Gupta’s part to finalise the lease arrangements, since, by letter dated 26 July 2016 (Exhibit 1, PML-1 160), Mr Gupta’s solicitors confirmed their client’s “request to proceed with execution of the lease notwithstanding the sublease arrangement has not been finalised”.

90. [97]

    Fordham’s solicitors’ response of 4 August 2016 (Exhibit 1, PML-1 162) was that “[n]otwithstanding your client’s dilatoriness and failure to meet undertakings our client has persevered” and that “[w]e are now advised that Mr Gupta does not intend to proceed with the Sub-Lease originally proposed and which was intended to provide additional income to our client”. (It is not clear if this was something that had been communicated to Mr Lubrano directly or if this was the interpretation placed by Fordham’s solicitors’ on the request that execution of the lease be finalised notwithstanding the sublease arrangement had not been finalised – see [96] above). The letter also noted Fordham’s solicitors’ instructions that Mr Gupta was in arrears of rent and that the arrears should be brought up to date within 14 days, stating that “[o]ur client will then further consider its position”.

91. [98]

    A handwritten note on a copy of the 11 July 2016 letter was apparently forwarded by facimile transmission by Mr Lubrano to Mr Gupta on 16 August 2016 (Exhibit 1, PML-1 163), with the statement that action for recovery might be taken without further notice if payments were not received within 21 days.

92. [99]

    By letter dated 1 September 2016 (Exhibit 1, PML-1 164), Fordham’s solicitors wrote to Mr Gupta’s solicitors noting that the rental arrears had not been brought up to date over a period in excess of 14 days; and referring to a conversation between their respective clients to the effect that Fordham would not grant a new lease of the premises, stating that:

93. [100]

    The letter went on to state that, as Mr Gupta had that day brought his rental payments up to date, Fordham was prepared to allow until 29 December 2016 for Mr Gupta to vacate the premises (including the part occupied by the medical practice) and referred to the lessee’s various obligations under the Lease to reinstate the premises.

94. [101]

    By letter dated 19 September 2016, Fordham’s solicitors wrote to Mr Gupta‘s solicitors (Exhibit 1, PML-1 167) to “re-stress” the contents of their 1 September 2016 letter; and seeking some indication of Mr Gupta’s “intentions” and a reasonable timetable “for implementation” (presumably there meaning for the premises to be vacated).

95. [102]

    By letter dated 26 September 2016, Mr Gupta’s solicitors wrote to Fordham’s solicitors (Exhibit 1, PML-1 168). They denied that Mr Gupta had relinquished or forfeited the option; denied that the option was never exercised; and said (at numbered paragraph 5):

96. [103]

    In that letter, Mr Gupta’s solicitors proposed that the matter be referred for mediation. It is not clear whether any such mediation eventuated at that point. It seems unlikely given the correspondence to which I refer below. It is also not clear from the letter whether the reference to the commencing rental was based on that amount having been agreed between the parties (following acceptance of that term after the 23 March 2015 letter – see [57] above) or was intended to refer to the unchanged rent following on from the final year of the Lease. Consistently with the stance now taken by Mr Gupta as to the rental amount payable for the final year of the Lease, it would seem that the former was the basis for this contention.

97. [104]

    By letter dated 27 September 2015 (Exhibit 1, PML-1 169), the response from Fordham’s solicitors was to reject the assertions made by Mr Gupta’s solicitors. They stated that at no previous stage, over the period of one year, had Mr Gupta ever taken issue “as regards our client’s repeatedly stated position that the Option was no longer on foot”. (To be precise, Fordham’s solicitors had made various assertions in this regard – ranging from the statements that the option had never been exercised or never been validly exercised to statements to the effect that the option had not been taken up, and that option had been forfeited or “forfeit” or that Mr Gupta had resiled therefrom. Moreover, at times the stated position seems to have been based on the fact that there was no executed Lease as at 30 June 2015.)

98. [105]

    By letter dated 4 October 2016 (Exhibit 1, PML-1 171) Fordham’s solicitors wrote again to Mr Gupta’s solicitors, referring to “extended discussions” between their respective clients on 31 October 2016 and stating that Mr Gupta had offered the equivalent of an amount owed by the “existing unauthorised” sub-tenant (presumably Cristorae) of $24,000 to compromise the position in relation to vacant possession and had also sought the lessor’s agreement to a lease of the premises with one of the recognised pharmaceutical suppliers provided Mr Gupta was employed by that company. Fordham’s solicitors referred to the making of those offers as, in effect, being consistent with the position taken in the correspondence from Mr Gupta’s solicitors – i.e., that this indicated that the instructions referred to in the 26 September 2016 letter from Mr Gupta’s solicitors were not correct. It was not, however, argued that there was any admission against interest by Mr Gupta in this regard (and on one view of things, though no objection was taken to this evidence, the communications would have been the subject of without prejudice privilege – if they were indeed a genuine attempt to resolve the dispute).

99. [106]

    By letter dated 29 November 2016 (Exhibit 1, PML-1 173) Mr Gupta’s solicitors advised that their client had received an offer for the sale of the pharmacy, subject to the grant of a new lease; and asked Fordham’s solicitors to obtain confirmation of the commencing annual rental under the new lease and the terms and conditions of the new lease. That does not appear to have produced a favourable (or any) response.

100. [107]

     On 21 February 2017, Fordham’s solicitors wrote to Mr Gupta outlining a number of alleged breaches of the Lease. On 2 March 2017, Fordham’s solicitors wrote to Mr Gupta enclosing a reconciliation of amounts received and outstanding under the Lease since its commencement, alleging that the amount of $24,460.66 was currently outstanding.

101. [108]

     Mr Lubrano has deposed to conducting negotiations with potential new tenants (see his affidavit sworn 2 May 2017 at [15]-[18]), having formed the view from at least June 2016 (i.e, before any decision not to grant the new lease had been communicated to Mr Gupta – see [94] above) that Mr Gupta was an “unreliable tenant, who was in significant breach of his obligations” and on the basis that Mr Gupta would be required to vacate the premises by 29 December 2016. Some of those potential tenants were pharmacists, with whom Mr Lubrano conducted negotiations on the basis that Mr Gupta would transfer his pharmacy licence as part of a sale of his business to the new tenant (see [19]). Mr Lubrano has deposed to the failure of those negotiations (see [20]).

Proceedings

1. [109]

   Mr Gupta commenced proceedings, by way of summons filed on 12 December 2016 (an amended summons was filed on 17 March 2017), seeking amongst other things, injunctive relief to restrain Fordham from treating the letters of 1 September 2016, 19 September 2016, 4 October 2016 and 21 February 2017 as valid notices to terminate the tenancy; and from taking any steps to re-enter the premises or to forfeit his leasehold interest in the premises. In that summons, Mr Gupta also sought specific performance of the equitable lease he claims came into existence in respect of the premises “no later than 17 September 2015” (the significance of which date, as already noted, being the assertion – not ultimately pressed at the hearing – that as at that date an agreement had come into existence as to the terms of the further lease. At the hearing, it was accepted by Mr Gupta that the relevant date should be 30 June 2015 – see T 60.37).

2. [110]

   Fordham, by statement of cross-claim filed 3 May 2017 (and amended on 26 October 2017), has cross-claimed seeking a declaration that it has validly terminated the tenancy in respect of the premises and seeking damages (as particularised in the amended statement of cross-claim, in the order of around $112,000) for various alleged breaches of lease (including for the costs of redecoration and reinstatement of the premises following termination of the tenancy), together with liquidated damages in the sum of $22,366.61 (being the amount claimed to be owing since 29 December 2016 in respect of Mr Gupta’s continued occupation of the premises). At about the same time, Fordham’s solicitors served Mr Gupta with notices dated 2 May 2017 pursuant to s 129 and s 133E of the Conveyancing Act 1919 (NSW) in respect of breaches of the option lease, expressed to be without prejudice to Fordham’s claims in the proceedings.

3. [111]

   Inconsistently with the position now accepted by Fordham (see Fordham’s written submissions (at [26])), in its amended statement of cross-claim Fordham appears not to concede that the exercise of option was valid. Rather, the allegation (at [8]) that notice of exercise of the option was given by Mr Gupta appears under a heading “[p]urported exercise of the option and subsequent abandonment”; and the existence of the “equitable lease” is expressly denied in the particulars to [20] of the amended statement of cross-claim.

4. [112]

   Fordham alleges that, as at 12 March 2015, Mr Gupta was in breach of various obligations under the Lease, including the rental obligation (see [59]-[60] of the amended statement of cross-claim) and that at all material times he was and continues to be in breach of his obligations under the Lease (see [16] of the amended statement of cross-claim).

5. [113]

   Further, Fordham alleges that Mr Gupta “abandoned any agreement to enter into a further lease that came into existence as a result of the purported exercise” of the option (see [15] of the amended statement of cross-claim) by reason of the matters pleaded at [10]-[14] of the amended statement of cross-claim. Those matters, in essence, are that: between 12 March 2015 and about 15 March 2016 the parties “were in negotiations for a fresh lease for the Premises” ([10]); that the negotiations were for a fresh lease that was on different terms to the lease to which Mr Gupta was entitled following exercise of the option contained in the Lease ([11]); that from about 21 March 2016 Mr Gupta abandoned those negotiations ([12]); and that, on 17 September 2015 and subsequently Fordham stated its position that Mr Gupta had abandoned its option through the negotiations for a fresh lease on different terms ([13]) and Mr Gupta did not contest that position until 26 September 2016 ([14]).

6. [114]

   Fordham alleges that following expiry of the Lease on 29 June 2015 (see [17] of the amended statement of cross-claim), or from 30 June 2015 “and at least following the abandonment of the negotiations for a fresh lease” (see [62] of the amended statement of cross-claim), Mr Gupta has occupied the premises upon a monthly tenancy terminable by either party at any time on one month’s written notice; and that Fordham has validly terminated that tenancy ([63]-[64]).

7. [115]

   Further, Fordham alleges that Mr Gupta is estopped from asserting that there is an equitable lease or an entitlement to rely on “the abandoned Notice of Exercise of the Lease of 12 March 2015”, by application of the principles of common law conventional estoppel “or otherwise” ([21]). It is alleged that Mr Gupta represented to Fordham that any further lease would be the subject of negotiation and would be on different terms that that contained in the Lease ([18], referring to the letter dated 15 September 2015 from Mr Gupta’s solicitors); that between 29 June 2015 and 26 September 2016 both parties conducted their relationship on the basis of the assumption that, following the expiry of the Lease, the negotiations for a fresh lease on different terms, and the abandonment of those negotiations, Mr Gupta was occupying the premises pursuant to a monthly tenancy ([19]); and that, if Mr Gupta were now to assert that he was entitled to specific performance of an equitable lease, Fordham will suffer detriment (see [20]).

8. [116]

   The alleged detriment is particularised as being that, had Mr Gupta asserted an entitlement to an equitable lease from 29 June 2015, then from at least June 2016, Fordham would have served notice under s 129 of the Conveyancing Act in respect of the breaches of the equitable lease (the existence of which is denied); and that Fordham did not pursue negotiations with other potential tenants from 29 June 2015 and would have done so from at least June 2016 if Mr Gupta had made any claim based on the “purported” exercise of the option (see particulars to [20] of the amended statement of cross-claim).

9. [117]

   Mr Gupta, in his defence filed 31 October 2017 to the amended cross-claim, pleads that the negotiations between 12 March 2015 and about 15 March 2016 were for a variation of the terms of the “renewed lease” that he says commenced on 30 June 2015; denies Fordham’s allegation that he abandoned any agreement to enter into a further lease that came into existence as a result of the (purported) exercise of the option; and denies the estoppel allegations (see [10]; [15]; [18]-[21] of the defence to amended cross-claim). Mr Gupta says that he has, since 30 June 2015, occupied the premises pursuant to either the option lease, or “a month to month tenancy pursuant to s 127 of the Conveyancing Act 1919 (NSW)”.

10. [118]

    In relation to the allegation of breach of the obligation to pay rent and outgoings, apart from the fact that Mr Gupta says that he was in credit at the time of exercise of the option (see [22]), it is alleged (see [22](a)) that if (which is denied), he has failed to pay the rent, outgoings, interest and to reinstate the security bond then Fordham, in continuing to accept rent, has irrevocably elected to affirm the Lease and the “Renewed Lease”; and/or the equitable lease; and/or the monthly tenancy. It is alleged that any cause of action for recovery of any alleged interest for late payment of rent for the period from 30 June 2010 to 29 June 2011 has been extinguished ([22(b)]; that Fordham has waived any entitlement for any interest due on any late payment of rent for the period from 30 June 2010 to 23 March 2015; and that Fordham agreed to waive the 4% rental increase for the period from 30 June 2013 to 29 June 2014 (see [22](d) of the defence to amended cross-claim).

11. [119]

    Mr Gupta also alleges that Fordham is estopped from alleging that the contractual rent due under the Lease and the “equitable lease/Renewed Lease” has not been paid in full and that he is in arrears; the detriment particularised in this regard being that he has “exposed himself to not being entitled to specific enforcement of the equitable lease” (see [22](o)). He puts in issue the allegations of breach of other terms of the Lease (see [24]-[58]).

Issues

1. [120]

   The primary issue between the parties as noted at the outset is as to the status of Mr Gupta’s present occupation of the premises: namely whether Mr Gupta is presently occupying the premises pursuant to both an equitable lease that arose following his exercise of the option provided for under the Lease (what I have referred to as the option lease) and a monthly tenancy by holding over (on the terms provided for by cl 12.4 of the Lease) (which, if validly terminated by Fordham, would nevertheless not affect his rights under the option lease); or whether Mr Gupta was from March 2016 occupying the premises pursuant to no more than a monthly tenancy (having abandoned or relinquished any rights consequent upon the exercise by him of the option contained in the Lease), which tenancy has been validly terminated by Fordham (following service of the various notices on 1 September 2016, 19 September 2016, 4 October 2016 and 21 February 2017), such that Fordham is presently entitled to possession of the premises.

2. [121]

   In determining that primary issue, it is necessary to consider whether, as Fordham contends, Mr Gupta abandoned or waived any entitlement to the option lease or is estopped from asserting or relying upon the option lease by application of the principles of conventional or promissory estoppel (see amended statement of cross-claim at [18]-[21]; Fordham’s submissions from [39]-[47]); whether (assuming no estoppel is established) specific performance should be granted in the exercise of the discretion as to the relief to be granted; and whether (assuming Mr Gupta is now occupying the premises only under a monthly tenancy that was validly terminated) relief against forfeiture should be granted.

3. [122]

   The further issues that arise are as to whether Mr Gupta has breached various provisions of the Lease and his obligations in relation to the occupancy of the premises following the expiry of the Lease. Those breaches are relied upon by Fordham as matters that would disentitle Mr Gupta to an order for specific performance or to relief against forfeiture; and also as entitling Fordham to liquidated and unliquidated damages pursuant to its cross-claim.

4. [123]

   Before turning to those issues, it is convenient at this point to set out my findings on the disputes that have arisen between the parties as to the reconciliation of amounts paid and/or outstanding at material times (since those inform matters relevant to the commencement rent of any option lease that is presently in existence and as to the discretion to order specific performance of the option lease if it has not been abandoned by Mr Gupta).

Findings as to disputes in relation to reconciliation of amounts paid or outstanding in respect of the tenancy

1. [124]

   Four issues have arisen in this regard.

2. [125]

   First, there is the dispute as to the proper characterisation of the payment of $6,167 in March 2010.

3. [126]

   Second, there is the dispute as to the treatment by Fordham of the security bond released to it in 2011 by the Department of Fair Trading.

4. [127]

   Third, there is the dispute as to whether Mr Gupta complied with the conditions applicable for the rent waiver of the 4% increase for the 2013/2014 lease year.

5. [128]

   Fourth, there is the dispute as to the consequence of the rent waiver (if applicable) when calculating the amount payable by way of rent as at the commencement of the 2014/2015 year of the Lease.

6. [129]

   Those disputes largely emerged in the course of the hearing by reference to competing calculations as to the rent owing at particular times during the course of the Lease. Fordham had annexed calculations by way of schedule to its cross-claim and amended cross-claim. Mr Gupta disputed those calculations and had prepared for the hearing various schedules of what he says is the proper reconciliation of the amounts paid or outstanding at various times in respect of the tenancy (on varying assumptions).

7. [130]

   As to those four matters, I find as follows.

8. [131]

   As to the first, I do not accept that it has been established that the sum paid in March 2010 was an advance payment of rent or that it was a deposit that was to be credited against rent. The correspondence before the payment was made indicates that Fordham was treating this as a payment to “qualify” Mr Gupta as a prospective tenant (though the quantum is in excess of what was there being given as an example of such a payment – reference there being to a deposit “of $1,000” per shop to “qualify” each tenant – and Mr Lubrano also appears to have understood that such payments might be held as security for costs). Mr Gupta, in subsequent correspondence, appeared to accept that the purpose of the payment was to “qualify” him as a prospective tenant – see [31] above – though he still maintained that it should have been credited to rent.

9. [132]

   At one stage in the correspondence between the parties, (see [29] above), Mr Lubrano referred to that payment as having been made in relation to another “deal” which did not proceed and to the payment thus having been forfeited. Such a characterisation would arguably be consistent with the payment having been made in relation to the proposal apparently being considered in late 2009 (relating to two shops in the centre: see letter dated 23 December 2009, referred to above at [9]), which did not ultimately proceed.

10. [133]

    On the other hand, Mr Gupta’s email of 4 March 2010 to Elders Real Estate, confirming that the $6,167 payment had been made, referred in the “subject” field of the email to “Deposit made”. Similarly, there is reference in an invoice dated 27 May 2010 (Ex A p1-3D) from Back Schwartz Vaughan to a “deposit” held by Elders. However, the weight to be placed on those descriptions seems moot, since the former could simply be a reference to the amount having been deposited in the real estate agents’ account without indicating what it represented; and the latter shows no more than the solicitors’ apparent understanding that a deposit was being held by the real estate agents.

11. [134]

    The amount of the payment is about $600 less than what amounted to two months’ rent in the Lease as finally executed.

12. [135]

    There is simply insufficient evidence for me to conclude that it was the parties’ common intention (objectively ascertained) either in March 2010 (or for that matter, when the Lease was executed) that the sum paid in March 2010 was to be credited against rent if and when a lease was subsequently entered into between them. The correspondence at that time is consistent with it being a payment made to “qualify” Mr Gupta as a serious potential tenant (and, in effect, to secure his position as potential tenant against other potential tenants while negotiations were continuing).

13. [136]

    Therefore, insofar as Mr Gupta’s calculations are based on that sum being a deposit to be credited against rent or other moneys later payable under the Lease, I have concluded that those calculations are incorrect.

14. [137]

    As to the second issue, Fordham’s treatment of the security deposit is inconsistent. Fordham’s position appears to be that, having sought the release of the sum of $16,847.25 in respect of the then rental arrears, it was entitled to retain (or “hold”) those moneys (but not treat the rental arrears as discharged) until payment of the arrears was made whereupon it would “reinstate” the bond. In effect, it appears to have taken on to itself the role of a rental bond authority in that regard. Fordham also complains that not all payments were up to date at the end of 2014 by reference to the bond not having been reinstated.

15. [138]

    The position can thus be summarised as follows. Fordham admits that it is holding an amount of $16,847.25, that being the original security deposit for the tenancy (deposited, as then required by s 16C(2) of the Retail Leases Act, with the Director-General of the Department of State and Regional Development). Fordham applied for the entire amount to be returned to it on 21 March 2011 by lodging the prescribed form with the Director-General. Under the Retail Leases Act, such an application may be made by a lessor “at any time”, and, after giving fourteen days’ notice to the lessee, the Director-General must pay out the bond in accordance with the application (ss 16G(2); 16H(4)). As noted earlier, under cl 17.3 of the Lease, Fordham was entitled to deduct from the security deposit an amount equal to any monies “due but unpaid by the lessee to the lessor”.

16. [139]

    At the time of the application for release of the bond (21 March 2011), even if Mr Gupta’s contention in relation to the initial March 2010 deposit were to have been correct (which I have found it was not), Mr Gupta was about four months behind in his rent. There is no evidence that Mr Gupta objected to the payment out of the bond (assuming he received the notification required to be given by the Director General) or that any dispute came to the Director-General’s attention regarding Fordham’s entitlement to the bond. Therefore, this is not a case where there could be a dispute as to whether Fordham was entitled to draw down on the security deposit. That question has arisen in the context of applications for an injunction restraining the lessor from calling on security (often, a bank guarantee) (see, e.g., Vanworld Pty Ltd v Perpetual Trustees Australia Ltd [2002] QSC 249; Elite Promotion and Management Pty Ltd v 5A Investments Pty Limited [2009] NSWSC 556).

17. [140]

    However, in this instance, Fordham’s position is that the amount drawn out of the security deposit was never applied to reduce the arrears of rent because, between 21 March 2011 and 22 June 2011, Mr Gupta paid all outstanding rental and outgoings. At a very basic level, Fordham cannot have it both ways in relation to the moneys released to it in 2011. If the release of those moneys did not discharge the arrears (and they were being held or retained by it as some kind of de facto security bond – something for which there is no provision in the Lease), then there can have been no default by Mr Gupta in compliance with the security deposit obligation under the Lease (other than the need to top it up on rent review dates – though it is not apparent that this was demanded at the relevant times); whereas if the release of the security deposit was treated as discharging the then rental arrears, then Fordham cannot later rely on those (discharged) arrears as amounting to a subsisting default in payment of rent.

18. [141]

    Moreover, there is no evidence that these moneys were retained in trust or in a separate account. In reality, it would seem that Fordham has had the benefit of those moneys but has also maintained that Mr Gupta was in arrears of rent in that amount. That cannot be correct.

19. [142]

    In my view, the amount released to Fordham in 2011 should be treated as discharging the arrears then owing by Mr Gupta at the time it was received by Fordham. It is clear that Fordham was entitled to deduct from the bond moneys due but unpaid (cl 17.3); but, otherwise, it had no entitlement to the money. It is possible that, as at 2011, although the time allowed by s 16H(4) for objection to the lessor’s application (14 days) had expired, Mr Gupta could have taken proceedings in the Tribunal for an order (which could have been made under s 72(1)(b) of the Retail Leases Act) that certain amounts were not owing by it – i.e., forcing an account to be taken of the effect of Fordham’s receipt of the security bond.

20. [143]

    Fordham submitted that, if the security deposit were indeed to be credited towards rent in 2011, then Mr Gupta became obliged to reinstate the security deposit (see T 51.23-51.24). Fordham pointed to Mr Gupta’s own accounting of the rent, which included the security bond as a credit towards moneys payable in the 2010-2011 year.

21. [144]

    As indicated above, given that Fordham admits it is holding this amount, it should be treated as if it had been applied as a credit applied towards the then rent arrears in 2011. I therefore find that release of the security bond operated to discharge the then rent arrears. In the absence of an express obligation to reinstate the security bond if called upon by Fordham (beyond the obligation to “vary” the amount of the security deposit to reflect the annual percentage increase of rent on the rent review dates – which was not called on by Fordham until some time later), I do not consider that Mr Gupta was in breach of the Lease by failing to make any payment to reinstate the security deposit as at the end of 2014. Certainly, Fordham did not call for Mr Gupta to do so at that time.

22. [145]

    As to the third issue, as at 31 August 2013, by reference to Mr Gupta’s schedule(s) (but treating the $6,167 as not to be credited against rent and the release of the security deposit as discharging the arrears in 2011) and on the basis that there was no express obligation at that stage to reinstate the amount withdrawn in respect of the security bond, the position on my calculations is that Mr Gupta satisfied the first of the two conditions of the offer made on or about 4 July 2013 because he was in credit at that time.

23. [146]

    As at 29 June 2014, the amount required by way of security bond was to increase and, at least implicitly, there was an obligation to pay that increased amount. However, there does not seem to have been any demand for that amount. On my calculations (on the same assumptions as those applicable as at 31 August 2013) as at the end of 2014 Mr Gupta had also satisfied the second of the conditions for the rent waiver.

24. [147]

    On that basis, Mr Gupta did satisfy the conditions for the rent waiver in 2013/2014 and hence the 4% rental increase did not apply for that year. The rent payable in 2013/2014 was $3,670.81 per month.

25. [148]

    As to the fourth issue, I have concluded that, whether or not Mr Gupta was entitled to the rent concession for the 2013/2014 lease year (though I have found that he was), the rent for 2014/2015 was the amount calculated by applying a 4% increase to the amount of rent payable under the Lease for the 2013/2014 year without taking into account the rent waiver. That is because there was no variation of the Lease, as such – simply a waiver or concession for the 2013/2014 year.

26. [149]

    Method 1, applicable to determine the rent as at the fourth rent review date (30 June 2014) requires percentage increase to the rent “payable” at the end of the preceding rent year. The rent “payable” under the Lease for that year was the unreduced amount (Fordham had simply offered (subject to the stated conditions) not to apply the increase for that year). For Mr Gupta’s argument to be correct, in my opinion, it would be necessary for the rental waiver or the non-application of the increase to have been effected by way of amendment or variation to the Lease (as opposed to a concession or abatement of rent). Mr Gupta’s complaint in substance is that this means in effect an 8% increase from the rent payable for the 2012/2013 year be that in the 2014/2015 year. However, that ignores the fact that, if the concession applied, he had had the benefit of the 4% rent waiver in 2013/2014.

27. [150]

    Accordingly, I find that rent payable for the 2014/2015 year of the Lease was $3,970.35 per calendar month.

Determination of issues in dispute

1. [151]

   I turn then to the substantive issues in dispute.

2. [152]

   As adverted to above, Fordham does not now contend that there was not a valid exercise of option by Mr Gupta on 12 March 2015 (see Fordham’s submissions at [26]). It should be noted that, even if Mr Gupta was then in breach of the Lease, absent service of a s 133E notice specifying the breaches within 14 days of the 12 March 2015 email, s 133E(2) of the Conveyancing Act would prevent Fordham from relying on Mr Gupta’s breaches as precluding his entitlement to the option.

3. [153]

   Fordham accepts that if there is currently on foot a renewed equitable lease (what I have referred to as the option lease) then the circumstances in which Fordham is entitled to terminate the lease are limited (submissions at [22]). Its argument, however, is that in the course of the negotiations that took place as to the terms of the “new lease” (to use the language in the correspondence at the time) Mr Gupta abandoned or relinquished his rights under the option lease, with the consequence that Mr Gupta was thereafter occupying the premises on no more than a monthly tenancy and Fordham was entitled, and has exercised its right, to terminate that monthly tenancy by giving sufficient written notice.

4. [154]

   The time at which Fordham submits that Mr Gupta abandoned or relinquished his rights under his option lease is said to be “after 15 March 2016” (I note that its cross-claim puts the date at about 21 March 2016: amended statement of cross-claim at [12]), that being when Fordham says Mr Gupta abandoned the negotiations for a fresh lease. The significance of the 15 March 2016 date is that this is when Mr Gupta’s solicitors wrote to Fordham’s solicitors (Exhibit 1, PML-1 145), responding to Fordham’s proposals and proposing an additional lease clause, which was followed by Fordham’s solicitors’ response on 21 March 2016, agreeing to several of Mr Gupta’s proposed amendments and inviting his solicitors to submit the draft sub-lease (Exhibit 1, PML-1 148). Fordham says that there was no substantive communication from Mr Gupta or his solicitors after the 21 March 2016 letter from Fordham’s solicitors.

5. [155]

   Fordham characterises its letters of 23 March 2015, 27 May 2015 and 27 June 2015 (Exhibit 1, PML-1 96, PML-1 98, PML-1 99) as being offers to enter into a fresh lease on different terms to the lease to which Mr Gupta was entitled following his exercise of option; and says that subsequent negotiations between the parties contemplated significantly different terms to the Lease (those different terms including: proposed changes to the permitted use (Exhibit 1, PML-1 119); to exclude contributions to outgoings (Exhibit 1, PML-1 103; PML-1 104); for the rental under the head lease in respect of the sublet area to increase by 10% if more than one health professional was practising in the premises (Exhibit 1, PML-1 104; PML-1 117; PML-1 119; PML-1 126); and the proposed further 2 five year renewal options (Exhibit 1 PML-1 126; PML-1 135).

6. [156]

   Fordham says that, at that point, it was open to Mr Gupta either to accept the offers of a fresh lease on different terms or to insist upon the execution of the lease to which he was entitled following his valid exercise of option; but that instead Mr Gupta entered into negotiation as to the terms of the fresh lease (referring to the 15 September 2015 letter from Mr Gupta’s solicitors as a counter-offer and charactering the negotiations thereafter as proceeding de novo).

7. [157]

   Fordham’s position is that the new arrangements that were the subject of the negotiations were not consistent with Mr Gupta’s exercise of his option, and that Mr Gupta had therefore relinquished it (as asserted at Ex A p 129). It argues that this position is consistent with the analysis of Austin J in Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312; [2003] NSWSC 851 at [23]-[33] (though in that case the parties in fact reached agreement as to the terms of the replacement lease).

8. [158]

   Fordham places reliance not only on the fact that the negotiations for a “new lease” contemplated a lease on significantly different terms to that provided for under the option; but also on the fact that those negotiations involved persistent delay by Mr Gupta; and that during the period from September 2015 to March 2016, Fordham continued to assert through its solicitors that Mr Gupta was occupying the premises pursuant to a monthly tenancy (referring to Exhibit 1, PML-1 104, PML-1 120, PML-1 136, PML-1 144B) and at no point did Mr Gupta contest that position (nor, it is said, did he supply the lease to which he was entitled under the option for execution). Fordham points out in this regard that Mr Gupta did not seek to correct that position until 26 September 2016.

9. [159]

   Fordham argues that it relied on Mr Gupta’s acquiescence (of the proposition that he was only occupying the premises on a monthly tenancy) by entering into negotiations with other potential tenants and by forbearing from taking other steps to remove Mr Gupta as a tenant at an earlier time (referring to Exhibit 1, PML-1 148 by way of example).

10. [160]

    Fordham submits that whether the contract formed from the exercise of the option has been abandoned may be inferred from the acts and conduct of the parties, viewed as a matter of commercial practicality in the light of surrounding circumstances (referring by way of analogy to Jiwunda v Trustees of the Travel Compensation Fund [2006] NSWSC 741 at [54]-[57]).

11. [161]

    Fordham refers to DTR Nominees Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 423 at 434; [1978] HCA 12 for the proposition that where it is plain from the conduct of parties to a contract that neither intends that the contract should be further performed the parties will be regarded as having so conducted themselves as to abandon or abrogate the contract. It accepts that abandonment is a matter of fact to be inferred from an objective assessment of the conduct of the parties (referring to Ryder v Frohlich [2004] NSWCA 472 at [136] per McColl JA, with whom Hodgson and Ipp JJA agreed, her Honour there citing CIC Insurance Limited v Bankstown Football Club Limited (1995) 8 ANZ Ins Cas 61-232; Wallera Pty Limited v CGM Investments Pty Limited [2003] FCAFC 279; Marminta Pty Limited v French [2003] QCA 541); and is not a matter of subjective intention (citing Cedar Meats Pty Ltd v Five Star Lamb Pty Ltd [2013] VSC 164 at [44])).

12. [162]

    In the present case, Fordham argues that the inference of abandonment should be drawn from the length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform the contract (pointing out that in DTR Nominees Pty Limited the High Court inferred abandonment after a period of less than five months had elapsed during which neither party took any steps to perform the contract). (By contrast, as noted by McColl JA in Ryder, in Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53, a period of 26 years had elapsed without it being held that a contract for sale had been abandoned.)

13. [163]

    Fordham also submits (though this was not expressly pleaded as such in the amended statement of cross-claim) that Mr Gupta, by his conduct in actively continuing to negotiate for a fresh lease on terms that were different to the lease to which he would have been entitled had he pressed his entitlement following his exercise of option, “acted in a manner inconsistent with” his rights under the contract arising from the exercise of his option and thereby waived his rights under that contract. It relies on the proposition that a waiver by election occurs where there is “an intentional act, done with knowledge, whereby a person abandons a right by acting in a manner inconsistent with that right” (see Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at [56]; [2008] HCA 57).

14. [164]

    Thus Fordham argues that, as at the time of the service of notices terminating the tenancy, Mr Gupta’s occupation was only as a monthly tenant (and that relief against forfeiture would not be given in respect of the termination of that monthly tenancy).

15. [165]

    In written submissions, Mr Gupta argues that on 1 July 2015 (inconsistently with the declaratory relief sought in prayer 5 of the amended summons which puts the date at 17 September 2015), Mr Gupta became the beneficiary of both an equitable lease on the terms set out in cl 4.6 of the Lease and a common law tenancy at will pursuant to s 127 of the Conveyancing Act (referring to Palermo Seafoods Pty Ltd v Lunapas Pty Ltd [2014] NSWSC 792 at [37] and [39] and Pozetu Pty Ltd v Alexander James Pty Ltd [2016] NSWCA 208 at [53]). Mr Gupta disputes the proposition that he abandoned his rights under the option lease.

16. [166]

    It is not disputed that an option to renew a lease is a right to call for a new lease (Gerraty v McGavin (1914) 18 CLR 152 at 163; [1914] HCA 23), the terms of which are to be determined by reference to the terms of the option (see Quadling v Robinson (1976) 137 CLR 192 per Gibbs J at 201; [1976] HCA 31); nor that an option to renew a lease creates an equitable interest to a new term and that, where a new lease is not in fact executed after the proper exercise of an option to renew, then the parties are regarded as having an enforceable agreement for lease between them (citing Re Eastdoro Pty Ltd [1989] 2 Qd R 182 at 184). The nub of the dispute between the parties is as to whether there has been an abandonment of the option lease.

17. [167]

    In Fitzgerald v Masters, Dixon CJ and Fullagar J said that the inference of abandonment will be drawn where an “inordinate” length of time has been allowed to elapse during which neither party has attempted to perform or called on the other to perform and that (see 432):

18. [168]

    In Ryder v Frohlich, McColl JA (with whom Hodgson and Ipp JJA agreed) said, as to abandonment, at [135]-[137]:

19. [169]

    In the present case, the lapse of time to which Fordham points is some 18 months (from about 21 March 2015 to 26 September 2016). During that time it cannot be said that the parties were not proceeding in contemplation of a further lease of the premises; rather, what the parties were clearly doing (albeit with delay from time to time in the response to communications and seemingly with misapprehension on both sides as to the legal characterisation to be placed on Mr Gupta’s occupancy in the interim) was attempting to negotiate the terms of the new lease pursuant to which Mr Gupta would lease the premises with effect from the expiry of the Lease. Both parties seem to have seen this as an opportunity to agree new terms of the further lease beyond, or varying, those provided for under cl 4.6 of the Lease.

20. [170]

    I say misapprehension on both sides because Fordham seems to have proceeded for some time on the basis that until the new lease was executed there was no more than a monthly tenancy (a position Fordham no longer maintains) and because both Fordham and Mr Gupta seem to have understood, at varying times, that an agreement had been reached on at least some of the lease terms (the tenor of Mr Gupta’s initial claim for relief by way of specific performance in the amended summons was that there had been an agreement by 17 September 2016 – a position he no longer maintains – whereas Fordham seems to have understood that there was an agreement in relation to the proposed rent increase clause, insofar as it called for a statutory declaration as to the occupancy of the medical practice – something which would only arise under the proposed new lease arrangements, not under the option lease as such).

21. [171]

    However, the fact that during the period from March 2015 to September 2016 both parties were negotiating for different lease terms than those provided for under the Lease itself on the exercise of that option is not inconsistent with Mr Gupta relying on his entitlements to the option lease. That is because there is nothing to stop the parties agreeing to vary or add to the terms of the lease for which the option clause in the Lease provided. The fact that they sought to do so does not to my mind evince an unequivocal abandonment by Mr Gupta of the rights and obligations under the option lease (that is, the binding agreement for lease that came into existence on exercise of his option).

22. [172]

    True it is that Mr Gupta did not proffer, through his solicitors or otherwise, a draft lease in the terms of the option lease but ordinarily one might expect the lessor to have assumed responsibility for preparation of such documents.

23. [173]

    Nor does the lack of response to the (now conceded to be incorrect) assertion by Fordham that there had not been a valid exercise of option take the matter much further, since Fordham accepts that it was not able to rely upon any existing breach of the Lease in order to deny the validity of the exercise of option. Similarly, the (uncorrected or unchallenged – at least until September 2016) assertions made by Fordham to Mr Gupta that Mr Gupta was occupying the premises on a monthly tenancy do not in my mind lead to the conclusion that Mr Gupta had unequivocally abandoned the option lease – not least because of the fact that a monthly tenancy (arising from the holding over by consent by the tenant after the expiry of the Lease) can subsist at the same time as an enforceable agreement to lease that may be the subject of equitable relief (see, e.g., Lolly Pops (Harbourside) Pty Ltd v Werncog Pty Ltd (1998) 9 BPR 16,361 at 16,383). The lessee’s non-contradiction of the assertion of a month to month holding over tenancy says nothing as to the abandonment of the contract that arose on exercise of the option for a renewed lease. The failure to respond to assertions that the option had been forfeited or relinquished is more problematic but, considered in the context of the correspondence as a whole, I do not consider that it unequivocally evinces an abandonment of Mr Gupta’s rights under the option lease. Certainly it would have been prudent for Mr Gupta expressly to reserve his position in relation to the existing option lease while negotiating for amendments to its terms, but his failure to do so does not in my opinion manifest an intention not to perform the option lease if called upon to do so (nor an intention to abandon his rights thereunder).

24. [174]

    The fact that there were negotiations for what was described as a “new” lease does not point in unequivocal terms to an abandonment of the option lease as such; because in a sense an option lease is a new (i.e. renewed) lease following the expiry of the lease under which the option was granted.

25. [175]

    Nor do I accept that the delay in finalisation of the terms of the option lease (or “renewed/equitable” lease), when considered against the background of the history of the parties’ relationship and their conduct over that period, gives rise to an inference that Mr Gupta had abandoned the “option lease” (or perhaps more precisely his rights under the agreement for lease that came into existence on exercise of the option). Indeed, there had been not dissimilar delay in finalisation of the terms of the initial Lease; and it is clear that the landlord/tenant relationship had been marked by considerable “ups” and “downs”, which might well have explained delays and/or difficulties in communication during the period in which the lease terms were the subject of negotiation (rather than the explanation being an abandonment of the option lease).

26. [176]

    Given the import of the abandonment of rights under an equitable lease, I consider that more was needed objectively to establish an unequivocal abandonment by Mr Gupta of what I have referred to as the option lease (referred to in Mr Gupta’s submissions as the Renewed/Equitable Lease).

27. [177]

    As noted above, Fordham submits that Mr Gupta effected a waiver by election of his rights under the exercised option “by actively continuing to negotiate for a fresh lease, on terms that were different to the lease to which he would have been entitled” under the exercised option. This argument was put in relation to Mr Gupta’s entitlement to specific performance, but it is convenient to address it here in relation to what I consider to be the erroneous premise of the argument that the exercised option and the monthly tenancy were alternatives. Fordham’s case was put on the basis that Mr Gupta was holding under either a monthly tenancy by holding over by consent or his rights under the exercised option.

28. [178]

    In circumstances where it is not now disputed that the option was validly exercised properly and that a binding agreement arose out of it, I do not consider that Fordham’s election argument can be accepted. In numerous cases where a lessee or lessor has obtained a decree for specific performance of an agreement to grant a lease, a proper legal lease was either on foot or, for some reason, had failed (for example, for non-registration: see, e.g., Chan v Cresdon Pty Ltd (1989) 168 CLR 242; [1989] HCA 63; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14). It is also clear from the case law that a lessee may simultaneously hold under a common law tenancy at will by reason of entry into possession and payment of rent (Chan v Cresdon; Williams v Frayne (1937) 58 CLR 710; [1937] HCA 16) and have rights in equity arising out of an agreement to lease (the latter being described in Williams v Frayne as an “additional” or “superadded” right: at 721 per Latham CJ) (cf Fordham’s written submissions, [4], [21(a)]).

29. [179]

    Certainly, it is necessary that the agreement to grant the lease meet the elements of a binding contract. And the agreement to grant the lease could be terminated by, for example, the acceptance of a repudiation (e.g. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23; Fullers’ Theatres Ltd v Musgrove (1923) 31 CLR 524 at 546; [1923] HCA 12), bringing the agreement to an end, with the result that there would be nothing of which to grant specific performance. Yet the foundation for equity’s intervention is both the agreement and the fact that equity regards as done that which ought to be done (Progressive Mailing House Pty Ltd v Tabali Pty Ltd at 27 per Mason J, as his Honour then was; Chan v Cresdon Pty Ltd at 252).

30. [180]

    It would be inconsistent with the foundations of equity’s intervention in this class of case to hold that the fact that parties have negotiated for – or even agreed upon – a legal lease necessarily removed or cancelled their equitable rights. In my opinion, this wrongly conflates the conduct associated with the initiation and negotiation of a new legal lease (on the one hand) with the conduct which might indicate an abandonment or rescission of the exercised option agreement (on the other).

31. [181]

    As far as the doctrine of waiver by election is concerned, I am not persuaded that the conduct of seeking agreement to additional or different terms of the lease or a possible new lease is inconsistent with an intention ultimately to rely on the rights to an option lease on the terms specified in the Lease if those additional or different terms could not be agreed. Certainly Fordham was not bound to agree to additional or different terms (neither was Mr Gupta) but the willingness of the parties to entertain amendment to the terms of the contemplated lease is not of itself inconsistent with the maintenance of their rights under the option lease if those negotiations (as ultimately transpired) did not produce a final and binding agreement to vary the option lease.

32. [182]

    Separate again is the question whether the intervening conduct which occurred here disentitles the plaintiff from equitable relief in respect of the exercised option (see, for example, Martin v Kelly [2009] NSWCA 105 at [79]).

33. [183]

    I accept that, in considering whether to grant or withhold the remedy of specific performance, it may be relevant to consider the effect of the conduct constituting what the defendant characterises as the “abandonment” of the legal lease negotiations – see, for example, Dimond v Moore (1931) 45 CLR 159; [1931] HCA 12; Williams v Frayne).

34. [184]

    Subject to consideration of the arguments invoking the principles of estoppel, my conclusion on this issue is that, at the time the notices of termination were issued, Mr Gupta was occupying the premises under an equitable lease on the terms of the new lease provided for under the option clause in the Lease (without amendment, addition or variation in the absence of a final and binding agreement as to the complete ambit of the additional terms that had been requested by one or other of the respective parties in the course of negotiation). The fact that the parties did not speak in terms of a “variation” to the option lease terms does not change my conclusion on this issue because it is by no means apparent that the parties were focussing, in the period from March to September 2016, on what their strict legal rights were in this regard; rather than engaging in commercial negotiations against the background that Mr Gupta had exercised the option contained in the Lease and wanted to renew his lease.

35. [185]

    The next issue raised by the amended statement of cross-claim in this regard is whether Mr Gupta’s course of conduct following the exercise of his option gives rise to an estoppel which precludes him from insisting on specific performance of the contract created by the exercise of the option. Fordham relies on two related estoppels in this regard: equitable promissory estoppel and common law conventional estoppel.

36. [186]

    The first way in which Fordham puts its estoppel argument in its submissions is based on the doctrine of equitable promissory estoppel as articulated in Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 at 404 per Mason CJ and Wilson J, namely that it has acted to its detriment on the basis of a fundamental assumption in the adoption of which Mr Gupta has played such a part that it would be unfair or unjust if he were left free to ignore it, it being said that it would be unconscionable for Mr Gupta to now deny the assumption. The unconscionability attracting the intervention of equity is identified as the failure of Mr Gupta, having induced or acquiesced in the adoption of the assumption or expectation, with knowledge that it would be relied on, to fulfil the assumption or expectation or otherwise to avoid the detriment which that failure would occasion (see Waltons v Maher at 423 per Brennan J (as his Honour then was)).

37. [187]

    As to the elements identified by Brennan J in Waltons v Maher (at 429), which summary is generally regarded as a statement of the circumstances which may give rise to equitable promissory estoppel, Fordham makes the following submissions. Fordham says that it informed Mr Gupta that he was occupying the premises under a monthly tenancy from at least 27 June 2015; that Mr Gupta acquiesced in that assumption, in that he did not seek to contest it until 26 September 2016; and that Fordham acted in reliance on its assumption. Fordham says that it was conducting its negotiations with Mr Gupta for a fresh lease on the basis that he was holding under a monthly tenancy only; that it “took an attitude of forbearance” towards some of Mr Gupta’s breaches, on the basis that these might be rectified by the negotiation of a fresh lease, with different terms to that in the old lease (referring to Exhibit 1, PML-1 148); and that it conducted its negotiations with prospective alternative tenants on the basis that Mr Gupta was occupying on a monthly tenancy.

38. [188]

    The alternative basis on which Fordham invokes the principles of estoppel (and the only basis expressly identified in the amended statement of cross-claim) is by way of conventional estoppel – founded on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying (see Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226; [1986] HCA 14; Moratic Pty Ltd v Gordon [2007] NSWSC 5 at [32] per Brereton J).

39. [189]

    It is submitted that in the present case the parties conducted their relationship on the basis of the mutual assumption that Mr Gupta was occupying the premises pursuant to a monthly tenancy. Fordham argues that this is the only explanation of the way in which Mr Gupta and his solicitors conducted the negotiations for a fresh lease, without seeking to connect the negotiations for a fresh lease to Mr Gupta’s earlier exercise of his option and without refutation of the position consistently put by Fordham that the earlier exercise of the option had ceased to be effective to give rise to an equitable lease. (Pausing here, an alternative and in my opinion more likely explanation for the continued conduct of negotiations without reference to the option lease itself was that neither party had focussed squarely on what was the legal position after the exercise of the option and both were engaging in the process of negotiation of the “new” lease terms without giving much thought to what would happen if agreement could not be reached on those additional or different terms.)

40. [190]

    Fordham notes that in Miller Heiman Pty Ltd v Sales Principles Pty Ltd (2017) 94 NSWLR 500; [2017] NSWCA 106 at [49], Macfarlan JA (with whom McColl JA and Sackville AJA agreed) held that it is necessary to demonstrate that the claimant would have acted differently but for the agreed assumption. As I understand it, the argument for Fordham is that, but for the agreed assumption that Mr Gupta was occupying only on a monthly tenancy, it would have taken other steps in relation to the lease of the premises. (See Sidhu v Van Dyke [2014] HCA 19 at [73]; (2014) 251 CLR 505 where the plurality in the High Court, albeit in a proprietary estoppel case, referred to the test for reliance being that the induced expectation was a “contributing cause” to the representee’s conduct.)

41. [191]

    First, as to promissory estoppel, it is well known that this form of equitable estoppel (often referred to as High Trees estoppel – by reference to the decision in Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130) is traditionally concerned with non-contractual promises relating to the enforcement of existing legal rights. As adverted to above, in Waltons v Maher (at 428-429), Brennan J, as his Honour then was, articulated six propositions as to what a plaintiff must prove to establish a cause of action in equitable estoppel. Of this articulation, Meagher JA said in DHJPM Pty Limited v Blackthorn Resources Limited (2011) 83 NSWLR 728; [2011] NSWCA 348 (a case of proprietary estoppel) at [47] that:

42. [192]

    Those six propositions provide a useful guide when considering whether an equitable estoppel case (be it one of promissory or proprietary estoppel) is made out (see Doueihi v Construction Technologies Australia Ltd (2016) 92 NSWLR 247; [2016] NSWCA 105 per Gleeson JA, with whom Beazley P and Leeming JA agreed, at [154]).

43. [193]

    The question of the proper scope of promissory estoppel (and the potential difficulty of using the generalised label “equitable estoppel”) was the subject of some consideration in Saleh v Romanous (2010) 79 NSWLR 453; [2010] NSWCA 274 at [73]-[74]. There, Handley AJA (with whom Giles JA and Sackville AJA agreed) said that a promissory estoppel was “not the equitable equivalent of a contract”; that it operated as “a restraint on the enforcement of rights”; and that it “must be negative in substance”. (See also the observations of Handley AJA in DHJPM Ltd v Blackthorn Resources Ltd at [93]; Hammond v JP Morgan Trust Australia Ltd [2012] NSWCA 295 at [26] (per Meagher JA, Basten JA and Bergin CJ in Eq agreeing); Van Dyke v Sidhu [2013] NSWCA 198 at [38]-[39]; 301 ALR 769 (Barrett JA, Tobias AJA and Basten JA agreeing); and Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12 at [102]-[140]; [263] (Bathurst CJ, McColl and Meagher JJA agreeing), where the controversy as to this issue was noted but not resolved).

44. [194]

    The authors of Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (JD Heydon, MJ Leeming, PG Turner) (LexisNexis, 5th ed, 2015 at [17-270]) suggest that the import of the reasoning in cases such as Saleh v Romanous and DHJPM v Blackthorn is that promissory estoppel is preclusionary in nature – it creates “no legal relationship or cause of action where none previously could arise” but it may, in certain circumstances, preclude a party from denying that such a relationship has arisen. The result is that the parties are bound to certain legal relations, such as an intended contract, by a court of equity and their obligations are then governed by reference to that postulated relationship.

45. [195]

    Addressing the propositions articulated in Waltons v Maher as a useful starting point in the present case, the case put forward by Fordham was that Mr Gupta had represented to it that any further lease would be the subject of negotiation and would be on different terms than that contained under the option lease as provided for in the Lease. That allegation seemingly rests on the letter dated 15 September 2015 from Mr Gupta’s solicitors (see [18] of the amended statement of cross-claim). I do not, however, read that letter as containing such a representation made with the degree of certainty required to found a claim based on promissory estoppel. (I address below the case put forward based on conventional estoppel.)

46. [196]

    The 15 September 2015 letter refers to instructions received from Mr Gupta, including that there was to be a “new 5 year Lease”, there setting out terms that differed from the option lease provided for by reference to cl 4.6 of the Lease, but that is not inconsistent with this being the outcome of negotiations to vary or add to the terms of the option lease (rather than an unequivocal relinquishment of rights under that option lease or proposal to enter into a fresh lease intended to supersede the option lease).

47. [197]

    I do not accept that the 15 September 2015 letter in its terms was sufficiently clear to amount to a representation that Mr Gupta was proceeding on the basis that the option lease had been in any way abandoned or relinquished. Mr Gupta’s conduct seems to be consistent with a focus on reaching agreement on lease terms that would achieve his objectives in relation to the proposed sub-lease arrangements (perhaps on the assumption that they were interrelated) and nothing, in my view, indicates that he had any real appreciation of what Fordham understood to be the position. Therefore, the promissory estoppel claim based on a representation to that effect by Mr Gupta fails at this point.

48. [198]

    Insofar as the promissory estoppel claim were to be framed as a case of estoppel by acquiescence rather than representation or encouragement – which I did not understand to be the position put for Fordham – what would be necessary would be for there to be a standing by on the part of Mr Gupta with knowledge of the relevant assumption. On one view of the authorities, this assumption would have to be a mistake of present fact, as distinct from a belief as to the future or a misprediction. Again, the difficulty is that I am not persuaded that it has been established on the balance of probabilities that there was knowledge (or appreciation) on Mr Gupta’s part of any such mistaken assumption.

49. [199]

    In essence, the difficulty I have with the arguments put by Fordham on its estoppel case is that which has been adverted to in issue (i) above: namely, that the assertion of occupation under a monthly tenancy is not of itself inconsistent with Mr Gupta having rights under an option lease (i.e., under the agreement that came into existence on the exercise of the option). In those circumstances the fact that Mr Gupta did not (through his solicitors once they became aware of it) correct or challenge the assertion that he was occupying the premises on a monthly tenancy, while at the same time negotiating the terms of the lease to be executed following exercise of the option (albeit with additional or different terms to those applicable to the option lease), does not in my opinion amount to acquiescence in the adoption by Fordham of an assumption that (absent agreement on the additional or different terms) there would be no option lease (which is in effect the premise of the assumption on which Fordham relies). True it is that Mr Gupta did not (himself or through his lawyers) correct Fordham’s assertion from time to time that he had forfeited or resiled from the option lease until the letter of 26 September 2016; but it is relevant to note in this context that Fordham had expressed its position in many and varying ways on that issue.

50. [200]

    As to the claim based on conventional estoppel, the elements of such a claim were articulated in Moratic Pty Ltd v Gordon by Brereton J at [32] as follows:

51. [201]

    The formulation of those elements has been approved by the Court of Appeal on many occasions (see, for example: Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65 at [200] per Tobias JA (Mason P and Campbell JA agreeing); Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [573] per Campbell JA (Allsop P and Giles JA agreeing); TMA Australia Pty Ltd v Indect Electronics & Distribution GmbH [2015] NSWCA 343 at [115] per Meagher JA (Macfarlan JA and Bergin CJ in Eq agreeing)); most recently in Miller Heiman Pty Ltd v Sales Principles Pty Ltd (at [42]-[44], per Macfarlan JA, McColl JA and Sackville AJA agreeing).

52. [202]

    As noted above, I am not persuaded that the evidence establishes that both parties proceeded over the period from 2015/2016 on the basis of a mutual assumption that the negotiations following Fordham’s proposal of the new lease terms in its letter of 23 March 2015 were to supersede any entitlements under the then existing agreement for lease that had come into existence on the exercise of the option contained in the Lease. Fordham was proceeding, at least for part of the time, on the misapprehension that the lack of a signed option lease as at 29 June 2015 meant that the option was “forfeit”; and Mr Gupta seems not to have focussed with any precision on the question whether what was being negotiated were amended or varied terms of the option lease or a new lease altogether. The correspondence throughout the period suggests that the parties were to an extent at cross-purposes as to what was actually being negotiated (the terms of the option lease or the terms of a fresh lease to supersede the option lease).

53. [203]

    In any event, even if I were to have found that the necessary foundation for a promissory estoppel/conventional estoppel claim was here made out by reason of the failure of Mr Gupta to challenge the proposition (put in various ways) that he had forfeited or relinquished his option, I am not persuaded that there has been sufficient detrimental reliance by Fordham to make it unconscionable now for Mr Gupta to assert his entitlements under the option lease. The claimed detriment is that Fordham would have taken other steps in relation to the tenancy (i.e., other than conducting negotiations with an “attitude of forbearance”) and in conducting negotiations with alternative prospective tenants. If the counterfactual is posed as to what Fordham would have done had it been told at an earlier stage that Mr Gupta would (if the then negotiations as to the different lease terms were to fail) rely upon his reply under the option lease (and no such counterfactual was put to Mr Lubrano), Fordham would have had at least the following options: to issue breach notices at that stage and seek to bring matters to a head at that point; or alternatively to continue negotiations. Had it taken the former step (as it seems now to be suggested it would have done), that does not mean that the option lease would then validly have been terminated – the likelihood must be that Mr Gupta would have taken action at that stage to agitate the matters raised in the current proceedings in relation to the alleged breaches and/or to move to remedy any accepted breaches with a view to preserving his rights under the option lease.

54. [204]

    The fact that Fordham did not ever proffer a lease on the option lease terms means that it did not put Mr Gupta to the test. (The new lease negotiations, it must be remembered also involved an upside for Fordham in the additional rent sought to be agreed in relation to the status of any sub-lease(s).) The steps Fordham would be likely to have taken had it appreciated what the true position was in relation to the option lease at an earlier stage are not clear.

55. [205]

    As to the negotiations with other prospective tenants, one might well think that those must necessarily have been undertaken in the context of there being uncertainty as to when vacant possession (if any) would be obtained (even if, as Fordham contended, there was only a monthly tenancy in existence). All that Fordham has lost by continuing to negotiate the proposed additional lease terms rather than bringing the matter to a head at an earlier time is the prospect that it might have been able to resolve the uncertainty as to Mr Gupta’s tenancy before now. It has not been shown that substantial costs or expenses were incurred in negotiation with other prospective tenants (and if that were the case, such that those expenses would be thrown away if Mr Gupta were now permitted to invoke his rights under the option lease, it would be a simple matter for any relief to be conditioned on reimbursement of such costs or expenses).

56. [206]

    Therefore, even if Fordham could be said to have acted (to its detriment) on a mistaken belief (induced or acquiesced in by Mr Gupta) that from 15 September 2015 Mr Gupta had no rights under the option lease, I am not persuaded that there would have been any unconscionability in Mr Gupta now seeking to enforce his rights under the option lease as provided for under the option clause in the Lease (in effect as if there had been no attempt at negotiation of additional or different terms in the interim).

57. [207]

    On the basis that the agreement for lease that came into existence on exercise of the option (giving rise to the option lease) has not been abandoned, the question then arises as to whether specific performance ought be ordered of that agreement so as to compel Fordham to execute a lease on the terms provided for in cl 4.6 of the Lease.

58. [208]

    In considering whether to grant specific performance, Mr Gupta submits that, on the relevant question as to whether he has shown that he is ready willing and able to fulfil the agreement for lease on his part (referring to Palermo Seafoods Pty Ltd v Lunapas Pty Ltd at [47]), the answer is that he has done so.

59. [209]

    Mr Gupta maintains that, as at the date of the hearing, he has not only paid all of the rent payable pursuant to the terms of the option lease but that he has also paid a monthly rent in excess of what is due under that lease (referring to Annexure A to the Submissions which sets out his reconciliation of the amounts he says were due under the option lease and the amounts he has paid to date). He maintains that, as at the date of the hearing, he is in credit in the amount of $16,500. On a revised rent recalculation, bearing in mind the conclusions I have reached earlier, I have concluded that Mr Gupta’s rental account under the option lease was in credit at the time of the hearing.

60. [210]

    Mr Gupta maintains that Fordham is estopped from claiming the additional rent and interest for the period in which Fordham agreed to waive the rental increase (referring to Central London Property Trust Ltd v High Trees House Ltd and noting what was said in New South Wales Land and Housing Corporation v Diab [2015] NSWCA 133 at [29]). The detriment to which Mr Gupta points in this regard is his exposure to the risk of not being entitled to specific performance of the equitable lease that was created upon exercise of the option.

61. [211]

    As to the other alleged breaches, which Mr Gupta denies, Mr Gupta says that the Conveyancing Act notices (and the service of the cross claim) serve as proof of Fordham’s knowledge of these alleged breaches, despite which knowledge, Fordham has continued to accept the rent and outgoings proffered by Mr Gupta. Mr Gupta maintains that Fordham has waived any entitlement to rely upon any other alleged breaches set out in the amended statement of cross-claim (which are denied) by its continued acceptance of rent and outgoings that Mr Gupta has proffered (referring to Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 655-656; [1974] HCA 40; Owendale Pty Ltd v Anthony (1967) 117 CLR 539 at 557 per Windeyer J; [1967] HCA 20; Byron Bay Retirement Villages Pty Ltd v Zandata Pty Ltd [2008] NSWSC 1123 at [32]).

62. [212]

    Fordham invokes the doctrine of laches in this regard, noting that in Lamshed v Lamshed (1963) 109 CLR 440 at 452-453; [1963] HCA 60, Kitto J referred to the “typical case” for refusing specific performance by reason of a delay of even a few months as being where the defendant is denying that he or she is bound by the contract.

63. [213]

    Fordham argues that the failure of Mr Gupta to assert his rights and to take any steps “to enforce his option” between 27 June 2015 and 26 September 2016, in the face of repeated assertions by Fordham that his exercise of the option was no longer effective, constitutes laches, disentitling him to a claim for specific performance.

64. [214]

    Fordham accepts that there are a number of factual similarities between the present case and that decided in Martin v Kelly. There, following the exercise of an option, substantial correspondence was exchanged between lessor and lessee as to the terms of the new lease but no agreement was reached and the negotiations terminated. On an application for judicial review of a decision by the Liquor Administration Board that the lessee continued to occupy the premises under the holding over provisions, Johnson J held that the conduct of the parties, over an extended period of time, would constitute “an impenetrable barrier to any claim for specific performance” of any agreement for lease constituted by the exercise of option. The Court of Appeal allowed an appeal from his Honour’s decision.

65. [215]

    However, Fordham argues that Martin v Kelly is distinguishable for three reasons. First, because in that case the parties were asserting that there were two alternatives: either a lease in accordance with the terms of the option or a new lease on terms which were suitable to both parties; and at all times both parties, whilst seeking to negotiate the terms of a new lease, reserved their rights to enforce the agreement for lease constituted by the exercise of the option (see [91(d)] per Tobias JA). Second, because the lessee continued to assert that he had exercised the option and was entitled to a lease in accordance therewith, including threatening proceedings for specific performance ([91(h), (i)]). Third, because neither party was asserting that either had abandoned their or his rights arising out of the exercise of the option ([92]).

66. [216]

    Finally, on this issue, Fordham argues that Mr Gupta has breached the terms of his occupancy “in numerous respects, with varying degrees of seriousness and flagrancy” since he exercised his option on 12 March 2015 and that those are matters that would weigh strongly against the grant of an order for specific performance (referring to Williams v Frayne).

67. [217]

    It is necessary first briefly to restate my conclusion as to the position in respect of the reconciliation of moneys paid and payable under the Lease as at the time of the exercise of the option. As set out above, I have concluded that the security bond which Fordham claimed in March 2011 ought to be treated as a credit of rent as at that date. I have also concluded that the sum of $6,167 paid before entry into the Lease was not intended to be credited towards rent. Having regard to these conclusions, it has been necessary to adjust the accounting between the parties. Having regard to what I consider to be the correct accounting between the parties, I have concluded that Mr Gupta met the two conditions of the offer to waive the rent increase made by Mr Lubrano on 4 July 2013, because he was in credit in relation to payments due under the Lease both as at 31 August 2013 and 29 June 2014.

68. [218]

    I therefore conclude that the percentage rent increase otherwise applicable under the Lease commencing from the 30 June 2013 rent review date did not apply and Fordham was bound by its offer to accept the same rent that year as was payable for the preceding year, that is, $44,049.72 p.a. However, I do not consider that the concession applied going forward. Thus, commencing from the 30 June 2014 rent review date, the rent payable was that stipulated for under the Lease ($47,644.13 p.a.) (that is, applying the 4% increase to the amount of rent applicable for the 2013/2014 year as if the percentage increase had applied at that time). On every other rent review date, the rent has increased by 4% (except the 30 June 2015 rent review date, when the rent stayed the same, in accordance with cl 5.21, in circumstances where the parties did not agree on the current market rent and no valuer was appointed).

69. [219]

    Based on the accounting I have just outlined, I conclude that the lessee was not in arrears as at 12 March 2015 (the date of service of the notice of exercise of the option). Rather, he was in substantial credit (on my calculations, in the amount of $14,113.58). Therefore, it is not necessary to consider cl 4.4.2 of the Lease, which provides that the lessee can exercise the option only if there is at the time of service of the notice of exercise no rent or outgoing that is overdue for payment. (I note that, according to the schedule annexed to the statement of cross-claim, outgoings had last been invoiced on 20 March 2012, and the next invoice was not issued until 13 August 2014.) The Lease also provides that the lessee can exercise the option only if the lessee has complied with all of its other obligations (cl 4.4.3). However, no notice under s 133E(2) of the Conveyancing Act was served by Fordham within 14 days after the service of the notice of exercise of the option. Therefore, even if other breaches existed as at 12 March 2015, the effect of s 133E(2) is that cl 4.4.2 does not preclude Mr Gupta from relying on the notice of exercise of the option; although those breaches which existed at the time of the exercise of the option (and subsequently) are still relevant to the exercise of the discretion whether to grant specific performance (Lolly Pops (Harbourside) Pty Ltd v Werncog Pty Ltd at 16,375).

70. [220]

    Fordham now admits that the exercise of the option was valid (written submissions at [26]). The exercise of the option gave rise to an agreement to enter into a new lease for the term of 5 years. It is now necessary to turn to the availability of, and the discretion to grant, specific performance.

71. [221]

    There is of course more than one form of equitable relief which may be obtained in relation to an agreement to grant a lease. Where a binding agreement to grant a lease exists, equity may decree specific performance by ordering the parties to execute “a proper lease under seal” (Dockrill v Cavanagh (1944) 45 SR (NSW) 78, 83; Chan v Cresdon, 252-253); it may also grant an injunction “restraining the landowner from acting on the footing that the other party was merely a tenant at will or a tenant from year to year” (Dockrill v Cavanagh, 83), as was done in Walsh v Lonsdale (1882) 21 Ch D 9).

72. [222]

    I am satisfied that a binding agreement to enter into a new lease existed; and it was not disputed before me that damages would be an inadequate remedy in respect of the contract with which I am here concerned. However, the parties addressed submissions to two issues. First, as to whether Mr Gupta is ready and willing to perform the contract. Second, as to discretionary factors (see Hexter v Pearce [1900] 1 Ch 341 at 346).

73. [223]

    A plaintiff for specific performance must show “that he has performed or been ready and willing to perform the terms of the contract on his part” (Mehmet v Benson (1965) 113 CLR 295 at 314-315; [1965] HCA 18 (Windeyer J)). This threshold question arises because Mr Gupta has committed a number of breaches of his obligations as a lessee in the past. It is important to observe that specific performance has been granted in cases where inessential breaches have already taken place on the part of the plaintiff (see ICF Spry, The Principles of Equitable Remedies (9th ed, Lawbook Co, 2014) 225). For this reason, Spry suggests that past breaches are “merely relevant considerations in the exercise by the court of its discretion, especially where questions of hardship arise”. Although his past breaches of obligations in relation to the tenancy have not been inessential breaches, I do not consider it can be said that Mr Gupta is not ready and willing to perform his obligations in future.

74. [224]

    Applying what I consider to be the correct accounting between the parties (that is, not crediting the $6,167 deposited in March 2010 as against rent but applying the $16,847.25 towards rent owing as at March 2011), Mr Gupta has in fact been in credit of rent for most of his tenancy. The exception is the period from the commencement of the Lease on 29 June 2010 until 21 March 2011, when very irregular payments of rent were made. The arrears amounted, at the end of that period, to as much as $12,479.60. As I have outlined above, this precipitated the lessor’s application to the Administrative Decisions Tribunal and application for the security bond. I consider below the allegations in relation to the other particular breaches of the Lessee’s obligations in relation to the tenancy. Taking the circumstances as a whole, while I accept that there have been issues in the landlord/tenant relationship between these parties and that Mr Gupta was, in 2011, in significant arrears of rent, I would not infer from this that Mr Gupta is not now ready willing and able to honour his obligations under the option lease going forward. As to the other claimed breaches, I am not persuaded that even those that are made out should disentitle Mr Gupta to relief by way of specific performance.

75. [225]

    First, I should note that I am not satisfied that there has been such delay in the enforcement of the option lease as to amount to laches. Mr Gupta was not denying that there was an agreement for lease (or option lease); he was, albeit with notable delay from time to time, responding to and proposing additional terms of the new lease under which he was to occupy the premises from 30 June 2015.

76. [226]

    I have considered the issue of abandonment already. As for the remaining points of distinction sought to be drawn by Fordham, this is a case where, although for a time Mr Gupta was asserting that agreement had been reached as to the terms of the “new” lease, by the time of the hearing it was accepted that there was no binding agreement reached as to the additional/different terms. I accept that Mr Gupta did not expressly reserve his right to enforce the option lease as such. Nevertheless, I consider that the proper characterisation to be placed on the negotiations is that the parties were seeking to agree additional terms of their lease going forward. The negotiations were premised on there having been a valid exercise of the option. In those circumstances I do not consider that the second of the factual distinctions drawn by Fordham to be of significance.

77. [227]

    True it is that it would have been a simple matter (and far more prudent) for Mr Gupta to have made clear that what he was seeking to negotiate were additional or different terms of the option lease but that, absent agreement as to those terms, he would rely on the option lease as provided for under the Lease. By the same token, it would have been a simple matter for Fordham (and likewise more prudent) to make clear what Mr Gupta’s position was in the event that agreement could not be reached on the last iteration of the proposed terms before terminating the tenancy (and risking being said to have repudiated the option lease). Neither, however, took such a course.

78. [228]

    Insofar as Mr Gupta has alleged that Fordham “has waived any entitlement to rely upon any of the other alleged breaches of the Renewed Lease set out in the amended cross-claim which are denied, by its continued acceptance of rent and outgoings that Mr Gupta has proffered pursuant to the Renewed Lease and Equitable Lease” (see his submissions at [34]), I accept Fordham’s submissions that there has been no such waiver for the following reasons.

79. [229]

    First, that any election would disentitle Fordham only from exercising a right to terminate, not to rely on breaches as giving rise to damages or relevant to equitable relief. Fordham submits, and I accept, that the doctrine of election precludes the alternative course of action when some conclusive step securing one outcome is taken in a way that is incompatible with attainment of the alternative outcome (Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 29 at [361]). In the Tim Barr case it was not the breach that was held to be waived; it was the lessor’s right to forfeit and re-enter (Tim Barr at [373]). Fordham also points to cl 19 of the Lease in this regard.

80. [230]

    Second, as Fordham submits, acknowledgment of a monthly lease does not constitute an election to waive any rights to terminate. Fordham refers to Baby Zone (Aust) Pty Ltd (Administrators Appointed) v Keira Street Ventures Pty Ltd [2016] NSWSC 528 at [75]-[77], where Robb J held that a lessor which agreed to allow its tenant to continue in occupation of the property on a monthly tenancy had not waived any rights to terminate.

81. [231]

    Third, as Fordham submits, (on the assumption that Mr Gupta in fact holds an equitable lease, which I have in fact found to be the case), any acceptance of rent before Fordham issued its s 129 notice cannot effect a waiver because before that point Fordham did not have an unconditional right to forfeit and re-enter; and that no waiver can occur after Fordham issued its s 129 notice, because by that point it was already prosecuting its claim to be entitled to terminate in these proceedings. (Fordham refers in this regard to McDrury v Luporini [2000] 1 NZLR 652, and to what was said by Barrett J (as his Honour then was) in Tim Barr at [374]-[379]; and in South Australia in Hemer Pty Ltd v Benni [2011] SASCFC 35 by Doyle CJ (Sulan J agreeing) at [58]-[60]).

82. [232]

    Fordham also argues that such a result also follows by reference to cl 12.2 of the Lease (which gives a right of termination for failure to comply with a s 129 notice (cl 12.2.3) as an alternative to the right to termination for repudiation or failure to pay rent (cl 12.2.1 or 12.2.2)). In that context, Fordham refers to Byron Bay Retirement Villages Pty Ltd v Zandata Pty Ltd at [32] where it was recognised that the lease itself can provide that acceptance of rent after knowledge of a breach does not constitute an election (though Palmer J did not consider that to be the case on the facts before him). It is not necessary here to determine that issue – suffice to note that Palmer J’s obiter dicta referred to an “express contract between the parties”, and cl 12.2 does not in terms make provision of that kind as referred to in the Byron Bay case.

83. [233]

    A relevant discretionary consideration would be the question of any hardship to the lessor (Spry, The Principles of Equitable Remedies, 227):

84. [234]

    This question must be approached on the basis that, if damages are inadequate, an applicant is prima facie entitled to specific performance of a valid and enforceable contract (The Principles of Equitable Remedies, 204; Fullers’ Theatres Ltd v Musgrove at 548-549). Fullers’ Theatres was a case where “both parties [had] adopted inconsistent attitudes” (550). A question of hardship arose because the plaintiff lessor (who sought specific performance) had acted with particular inconsistency, pursuing a damages action, then an ejectment action, and then a specific performance suit. The High Court held that specific performance ought to be refused. Isaacs and Rich JJ observed that, both parties being at fault, they should be left “to whatever remedy they have at law” (see at 551). The present is not such a case. Although both the lessor and the lessee have been to blame, in my opinion, at various times for the difficulties between them, there is no particular reason why responsibility should be attributed primarily to Mr Gupta; and I am of the view that the impact of a refusal of specific performance upon him would be far more severe than the corresponding impact of imposing an order for specific performance upon Fordham.

85. [235]

    As to Fordham’s other arguments in relation to discretionary considerations, I do not accept that Mr Gupta should here be precluded from the relief he seeks by having followed the exercise of the option with negotiations for a new lease, which presupposed a lease on different terms, and which negotiations were conducted with delay. I consider later in these reasons the conditions that should be attached to the order for specific performance.

86. [236]

    This issue does not arise in view of the conclusions reached above. I have concluded that after 30 June 2015 Mr Gupta continued to occupy the premises under the terms of the option lease, by reason of the exercise of the option. That option lease could have been terminated by the service of a demand for possession under cl 12.2 of the Lease. A notice under s 129 of the Conveyancing Act, dated 2 May 2017, was served on Mr Gupta, outlining, in essence, the breaches which are the subject of the cross-claim in these proceedings, and requiring him to remedy those breaches. However, as at the date of hearing the matter, no notice demanding possession under cl 12.2 of the Lease had been served. Therefore, it is not necessary for me now to address Mr Gupta’s claim for relief against forfeiture. In any event, it will be apparent from my conclusions on the cross-claim (to which I shall turn shortly) that all Mr Gupta’s breaches can be addressed by the payment of damages and the other orders which I propose to make. Fordham’s submission was that if it succeeded in its contention that Mr Gupta was occupying the premises only pursuant to a monthly tenancy, then concepts of relief against forfeiture would have little, if any, relevance (referring to New Dragon Investments Pty Ltd v Morgan & Banks Development Pty Ltd [2006] NSWSC 1139 at [5]; Bettervale v Warehouse Solutions International (No 3) [2015] NSWSC 1356 at [324]-[330]). I agree, but I have concluded that Mr Gupta did not abandon his rights under the agreement for lease that came into existence on exercise of the option and hence he is occupying under the option lease.

87. [237]

    On the assumption (as I have found) that Mr Gupta is occupying the premises pursuant to the option lease, the terms of which mirror the terms of the original Lease, the question is whether Fordham ought to be restrained from terminating the option lease. Fordham argues that Mr Gupta’s breach of the terms of the option lease is again relevant. Fordham accepts that where there has been a breach or breaches by a lessee that have been or can be cured, and if the lessee can make up arrears (if any) and continues paying rent, then a court of equity has a discretion to grant relief against forfeiture; and that, in this context, “forfeiture” includes a lessor’s entitlement to terminate, as well as an actual attempt to do so (referring to Mineaplenty Pty Ltd v Trek 31 Pty Ltd [2006] NSWSC 1203 at [66]). Fordham also accepts that, in resisting a claim for relief against forfeiture, the lessor is not entitled to rely on any ground that could have been the subject of a s 129 notice but in respect of which no such notice was given (Mineaplenty Pty Ltd v Trek 31 Pty Ltd at [68]) other than where the breach is non-payment of the rent. In that context it notes that it has issued a s 129 notice in respect of the alleged breaches.

88. [238]

    Fordham notes that factors relevant to the exercise of the discretion include: whether the breaches have been wilful and repeated (Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 97,145); whether the relationship between the landlord and lessee has been combative (Batiste v Lenin [2002] NSWCA 316 at [63]); whether the tenant admits the alleged breaches (see Mineaplenty Pty Ltd v Trek 31 Pty Ltd at [69]); and notes that, where the lessee’s breach is other than failure to pay rent, then final relief will generally only be granted if that failure is made good (Wilkinson v S & S Gikas Pty Ltd [2006] NSWSC 1314 at [30] per Campbell J).

89. [239]

    Fordham points to the fact that Mr Gupta has not sought to offer any positive defence or explanations to the various allegations put by Fordham; and has not undertaken to remedy his default if established (see Mineaplenty Pty Ltd v Trek 31 Pty Ltd at [69]); but has simply denied the various breaches.

90. [240]

    Insofar as Mr Gupta has alleged that Fordham, in continuing to accept rent, has irrevocably elected to affirm the lease (in his defence to cross-claim at [22(a)], [24(a)], [31(a)], [40(a)], [43(a)], [45(a)], [47(a)], [49(a)], [56(a)]), Fordham submits that there is an incongruity in Mr Gupta arguing that the Court should exercise its discretion to relieve against forfeiture on the basis that Fordham’s resort to its strict legal right of re-entry would be unconscionable; and at the same time arguing that Fordham, in not taking steps earlier to terminate Mr Gupta’s lease, has now irrevocably elected to affirm the lease.

91. [241]

    Fordham submits that it has at various points throughout the dispute complained of Mr Gupta’s conduct as lessee and, since September 2016, has taken steps to terminate Mr Gupta’s occupancy of the premises. In those circumstances it submits that its past forbearance in not taking steps to remove Mr Gupta earlier is a matter that should count against the exercise of a discretion to relieve against forfeiture in Mr Gupta’s favour.

92. [242]

    Mr Gupta submits that the option lease arising from the specifically enforceable exercise of the option continues even if the monthly tenancy has been determined (referring to Lolly Pops (Harbourside) Pty Ltd v Werncog Pty Ltd at 16,383). Mr Gupta argues that the notices of termination were not effective to terminate the equitable lease and hence there is no forfeiture against which a claim for relief would arise.

93. [243]

    Had the issue of relief against forfeiture been necessary to determine in the context of a monthly tenancy only, I would have considered it futile to grant relief against forfeiture in circumstances where the tenancy could be determined (without any question of breach) on a month’s notice. As to whether relief against forfeiture ought be granted against termination of the option lease, if it were necessary to decide I would grant relief against Fordham. The background against which the rent reconciliation was disputed between the parties is a relevant factor to take into account as is the fact that any relief would be conditioned on the making good of any default. The arguments raised in this regard do not, however, need to be determined in light of the conclusions reached earlier to the effect that Mr Gupta is no longer in arrears in relation to his tenancy of the premises (and any other existing breaches will be required to be made good).

94. [244]

    Fordham has alleged that Mr Gupta is in breach of a number of obligations under the Lease and option lease. It relies upon all of them to establish a pattern of Mr Gupta breaching his obligations under the Lease and option lease.

95. [245]

    First, Fordham alleges that Mr Gupta is in breach of his obligations to pay rent and outgoings, and to reinstate the security deposit. It relies in this regard on the table that was prepared by a chartered accountant (Ms Montgomery), on the instructions of Mr Lubrano (which is attached as a schedule to the amended cross-claim). The methodology of preparation of the table was explained in affidavits of both Ms Montgomery and Mr Lubrano (see his September affidavit). Mr Gupta denies that he is in breach. I have addressed above the assumptions on which any rent reconciliation should be carried out. The effect of my findings in relation to the $6,167 and the $16,847.25 amounts is that Mr Gupta was in credit on his rental account from March 2011 onwards up to the time of the hearing.

96. [246]

    As to the complaint made in the course of proceedings about the failure of Mr Gupta to pay the 10% uplift in relation to the medical practice, there is no basis for this in circumstances where final agreement was not reached on that term of the proposed new lease.

97. [247]

    In light of the conclusions I have reached, it is not necessary for me to consider the plaintiff’s obligation to pay interest on outstanding amounts; nor the estoppel or waiver arguments raised by Mr Gupta in this regard.

98. [248]

    Had that issue been necessary to determine, I would have concluded that this is not a case where Fordham waived its right to charge interest. In March 2011, shortly before lodging its application to the Administrative Decisions Tribunal, Fordham claimed interest (see letter dated 21 March 2011 at Exhibit 1, PML-1 33). It is true that, since that time, though there has been regular correspondence relating to rent arrears, Fordham has not claimed interest from Mr Gupta. For example, there was correspondence on 5 April 2014 at Exhibit 1, PML-1 77 (stating the arrears to be $3,337.08); on 10 June 2014 at Exhibit 1, PM,L-1 87 (stating the arrears to be $2,472.36); on 17 September 2015 at Exhibit 1 PML-1 104 (stating the arrears to be $4,773.94) and on 3 November 2015 at PML-1 118 (stating the arrears to be $7,851.58). None of those communications referred to interest.

99. [249]

    Further, even if, as a matter of principle, the right to pursue arrears without interest is capable of being characterised as inconsistent with the right to pursue arrears with interest, I do not consider that there is "clear evidence" (see JW Carter, Carter on Contract (LexisNexis, 2017), [7.190]) that Fordham elected, purely by its conduct, the right not to charge interest in favour of the right to pursue Mr Gupta for arrears with interest.

100. [250]

     Fordham argues that there does not appear to be any real dispute that Mr Gupta subleased part of the premises to Cristorae without the necessary approval from Fordham. Fordham points to evidence that it repeatedly sought that the sub-lease be submitted for its approval, in accordance with Mr Gupta’s obligations under the head lease (Exhibit 1, PML-1 149; PML-1 153).

101. [251]

     Fordham points to Mr Gupta’s response (in his defence) that Fordham was aware that he had entered into the sub-lease (defence to cross-claim at [24](a), (b); affidavit of Mr Gupta affirmed 7 June 2017 at [2]). In oral submissions (T 54.35), it was said:

102. [252]

     Since it is accepted by Fordham that there was no binding agreement as to the different terms proposed for the new lease (i.e., no binding agreement for a variation of the terms of the option lease), there was no obligation on the part of Mr Gupta to pay the 10% uplift. As such, the only relevance of the occupation of part of the premises by the sub-lessee is the breach of an obligation for approval to be obtained for any sub-lessee. That point is now moot if, as Counsel for Fordham appeared to accept, Cristorae has already vacated the premises. If there is any doubt about that, or if the premises are presently occupied by any (unapproved) sub-tenant, then Mr Gupta should seek Fordham’s approval and submit any intended sub-lease for approval without delay.

103. [253]

     As noted earlier, there are three complaints made in relation to this topic. First, Fordham alleges that in around February 2015, Mr Gupta relocated air-conditioning compressor units onto an external wall without Fordham’s consent or relevant development approval (see Mr Lubrano’s affidavit sworn 7 April 2017 at [19]-[22], [34]; contemporaneous photographs at Exhibit 1, PML-1 123 – PML-1 125). Second, that in around November 2015, Mr Gupta (or Cristorae) installed three air conditioning compressor units on the roof of the premises, the installation of which is said to have penetrated the roof sheeting of the premises. Those units are said to be causing discharge of condensate onto a neighbour’s premises by reason of the condensate lines having been placed on the exterior walls of the premises (see Mr Lubrano’s April affidavit at [54]-[55], [59], [65]; Exhibit 1, PML-1 123 – PML-1 125; and evidence of complaints at Exhibit 1, PML-1 130, PML-1 132; PML-1 148; PML-1 155). Third, there is complaint that Mr Gupta installed an aerial on the roof of the premises, the installation of which also penetrated the roof sheeting of the premises. Fordham notes that Mr Gupta’s response to this is that he sent Mr Lubrano a copy of a quote for the installation (see Annexure E to Mr Gupta’s affidavit sworn 7 June 2017 and see [41] above).

104. [254]

     Insofar as the complaint is that development approval was not obtained, and it has now been obtained, the issue has been resolved. As to any penetration to the roof sheeting, Mr Gupta should be required to pay for its rectification. If Fordham maintains its opposition to the installation of the roof aerial then that should be removed by Mr Gupta and the roof rectified. It is not clear whether Fordham maintains its complaint as to the existence of the three air-conditioning units on the roof (for which Council approval seems not to have bene obtained). The estimated cost of those items (according to the cross-claim) seems to total $10,000 – see prayers 2(d)-(f). (A separate claim for the rectification of condensate lines, at a cost $1,000, had been removed from the amended statement of cross-claim.) Mr Gupta should be required to rectify those matters (or, at Fordham’s election, to pay the sum of $10,000 in damages to permit Fordham to rectify the problems) and should indemnify Fordham for any claims by neighbours in relation to the condensation discharge.

105. [255]

     Fordham alleges that Mr Gupta has failed to maintain a compliant fire extinguisher on the premises (see Mr Lubrano’s affidavit sworn 7 April 2017 at [89]-[96]). Fordham says that, insofar as Mr Gupta’s response is that he does not recall that being an issue for Fordham over the years (see Mr Gupta’s affidavit affirmed 17 March 2017 at [21]), this misses the point: it is Mr Gupta’s responsibility to maintain the fire extinguishers on the premises and he failed to do so. Mr Gupta should be directed to rectify this breach.

106. [256]

     Fordham alleges that Mr Gupta has failed to provide for a disabled car space within the parking area, and maintain the line-markings for the parking area so as clearly to delineate the car space (see Mr Lubrano’s affidavit sworn 2 May 2017 at [11]-[14]). Fordham estimates that the cost of rectification of the disabled car park space and line markings in the car park area is $2,000. Again, if this breach has not been remedied then Mr Gupta should now be required to rectify it or, at Fordham’s election, pay the sum of $2,000 in damages for the breach.

107. [257]

     The complaint in this regard is that Mr Gupta has not redecorated or reinstated the premises to its original open-plan layout since (respectively) March 2015 and June 2015 (see the amended statement of cross-claim at [50], [57]). Fordham accepts that whether the obligation to reinstate has been triggered is largely dependent on whether Mr Gupta is currently entitled to an equitable lease, by virtue of his exercise of option (referring to cl 28.1.5 of Annexure A of the Lease) but says that Mr Gupta’s obligation to redecorate is in a different category to the reinstatement obligation, as it does not have a proviso for occupation under a new lease, and is expressed to arise at the end of “the lease period (however it ends)” (see cl 7.3.3 of the Lease).

108. [258]

     Fordham notes that the lease period of the Lease has ended (cl 12.1) and that, even on Mr Gupta’s case, he is occupying the premises pursuant to a new lease arising as a result of the exercise of the option, not an extension of the original lease.

109. [259]

     The cost of redecoration is estimated to be $4,300. Mr Gupta should either comply with the obligation to redecorate or, at Fordham’s election, pay the amount claimed by way of damages for the breach of that obligation. However, I conclude that the obligation to reinstate the premises to open plan layout has not yet arisen given the conclusions I have reached in relation to the option lease.

110. [260]

     Fordham alleges that Mr Gupta placed signage on the premises without Fordham’s consent and without providing Fordham with a signage plan as required under the Lease. Mr Gupta’s response is that Fordham did not raise the need for a signage plan (see Mr Gupta’s affidavit affirmed 17 March 2017 at [10]). If this remains in issue, Mr Gupta should provide Fordham with the necessary signage plan for its approval.

111. [261]

     Fordham notes that it was a requirement under the Lease that Mr Gupta provide Fordham with an occupation certificate from Camden Council and that Fordham requested that Mr Gupta do so (see Mr Lubrano’s affidavit affirmed 7 April 2017 affidavit at [15], Exhibit 1, PML-1 59). This breach appears to have been remedied.

112. [262]

     Finally, complaint is made that Mr Gupta has provided no evidence of insurance coverage. Fordham points to the requirement under the Lease for Mr Gupta to maintain required insurance coverage and to provide Fordham with the certificates of currency and, on request, the policies of insurance. Mr Lubrano’s evidence is that he has made requests for such documents (see his affidavit sworn 2 May 2017 at [9]-[10]; Exhibit 1, PML-1 90A). Mr Gupta should be ordered to produce such documents.

Conclusions

1. [263]

   For the reasons set out above, I am of the opinion that Mr Gupta, by engaging in negotiations as to varied terms for the lease to be entered into following exercise of the option did not abandon his entitlement to take a lease on the terms of the option lease and that, as at the time of issue of the notices of termination, he occupied the premises on the terms of an equitable lease (the “option lease”) arising as a consequence of the exercise of the option.

2. [264]

   Notwithstanding the various disputes between the parties as to the outstanding rental and the other breaches of lease of which Fordham has complained, I accept that Mr Gupta is now ready, willing and able to perform the option lease (i.e., a lease on the terms provided for under the option clause in the expired Lease, cl 4.6; not a lease on the terms that were the subject of negotiation between the parties during the course of 2015 and 2016). The commencement rent for that lease was, in light of the failure of the parties to seek a market review at the relevant time, the rent payable at the expiry of the Lease (i.e., $3,970.35 per calendar month). However, given the lapse of time there will have been a 4% increase of rent applicable on the subsequent rent review dates.

3. [265]

   Fordham will be required to execute the option lease within 28 days.

4. [266]

   As to the damages claim, I find that the payment prior to the entry into of the Lease was an earnest for performance and not a payment on account of rent and thus should not be taken into account when determining any arrears of rent. As to the security bond, it must be treated as a credit towards rent in March 2011. Fordham could not both call upon the rental bond by reference to the rental arrears and then treat those arrears as not having been discharged by the security bond. Its position has been both to call upon the bond and maintain its claim to the rental arrears (at the same time arguing that there is a requirement to top up the security bond). It cannot maintain that there is an obligation to top up the security bond in the absence of a clause in the Lease requiring that to be done and when the bond is still being treated as being held as security. Conversely, it cannot have the benefit of calling upon the bond and treat the arrears as not having been discharged. Therefore, as noted earlier, I have concluded that accounting between the parties should be adjusted by crediting towards rent as at March 2011 the amount of $16,847.25.

5. [267]

   As to the effect of the waiver of rent, I have found that the conditions for that waiver of rent to operate were satisfied, meaning that the rent percentage increase otherwise applicable from 30 June 2013 to 29 June 2014 did not apply and rent for that year should be calculated at $44,049.67 p.a. However, from 30 June 2014, the rent payable was that which was provided for under the Lease, without reference to the rental waiver, i.e., $3,970.35 per calendar month or $47,644.13 p.a.

6. [268]

   As to the other claims made in the cross-claim, on my rough calculations there is an amount of about $10,000 payable in relation to the air-conditioning issue (depending on whether Fordham now requires the removal of any of the air-conditioning units or aerial); $2,000 for disable car park space signage, and $5,000 for redecoration costs. This amount should be finally quantified and (at Fordham’s election) either those defaults should be remedied or the amounts claimed in relation thereto should be paid. So far as possible the parties should move forward with a clean state and a clear understanding of their respective rights and obligations under the option lease now to be specifically performed.

7. [269]

   As to costs, I am inclined to the view that Fordham should pay Mr Gupta’s costs of the proceedings, given that Mr Gupta has had a large measure of success on this claim, without which he would not have been able to retain his occupancy of the premises. However, if the parties wish to make brief written submissions on that issue I will fix a timetable for that to occur when these reasons are published, with a view to determining the issue on the papers.

Orders

1. [270]

   For the above reasons I make the following orders:

   1. (1)

      Declare that the binding agreement for lease that came into existence on 30 June 2015 following the valid exercise by the plaintiff on 12 March 2015 of the option contained in registered lease No AF722335 (“the Lease”) of premises known as Shop 4, 54-60 Flinders Avenue, South Camden (“the Premises”), has not been abandoned or relinquished by the plaintiff.

   2. (2)

      Order that the defendant specifically perform the said agreement for lease in relation to the Premises, by providing to the plaintiff within 28 days a lease, for execution by the plaintiff, on the terms provided for under the option clause in the Lease (cl 4.6) with a commencement date of 30 June 2015 and at a commencing rental of $47,644.13 per annum.

   3. (3)

      Order (2) is subject to the provision by the plaintiff to the defendant, within 21 days of a written undertaking by the plaintiff to rectify the breaches of lease referred to in these reasons and the subject of order (4) below; and to indemnify the defendant for any claim by any other tenant in the shopping centre of which the Premises form part in relation to condensate discharge from the lines on the external walls of the building.

   4. (4)

      On the cross-claim, order as follows:

   5. (5)

      Reserve the question of costs to be dealt with on the papers.