Jurisdiction

Parties/legal representation/ type of dispute

Description of dispute

How settled

Four recent disputes settled on the basis of one expert’s report, i.e. one report relied on by both parties.        

Matter referred from Queensland Tribunal to District Court

Landlord/tenant both legally represented.

Instruction: from large landlord and medium sized law firm to provide forensic analysis and expert’s report for outgoings.

• Complex forensic report for outgoings dispute

Quantum not significant but, if not settled, consequences could have been further possible claims from other parties.

Settled before hearing by the parties’ legal representatives.

Expert’s report was the sole opinion used by the parties as a reference point and to settle dispute.

Did not go to court (potential Tribunal/Supreme Court)

Major A-REIT/high profile former Olympian, both represented by major law firms.

Instruction: from major law firm, for tenant, to assist in calculating quantum, i.e. forensic accounting exercise from business records.

• Unintended misrepresentation;
• Consequential breach of quiet use;
• Plus potential damage to personal “brand”, beyond lease term plus damage to passive income, i.e. product endorsements, etc.

Potential for major claim by one party against the other with adverse publicity, etc.

Expert’s report was the sole opinion used by the parties who have settled the dispute without legal representatives. Legal representatives have been used to draw up “settlement contracts”. Confidentially the Respondents national representative complimented the single expert’s report for being extremely through and clear. Losses within lease term $220,000, with loss to personal brand $950,000 outside lease term.

Did not go to court (potential Tribunal jurisdiction)

Major superfund and interstate based retail chain. One represented by medium sized Brisbane law firm and small inter-state law firm.

Instruction: calculate quantum, i.e. forensic accounting exercise from business records.

• Loss of derogation of grant;
• Early termination of lease;
• Failure to maintain traffic, etc.

Settled by the parties’ legal representatives. Expert’s report was the sole basis used by the parties to settle dispute.

Did not go to Tribunal

Retail landlord and retail anchor tenant

Instruction: calculate quantum for the purposes of mediation, i.e. forensic accounting exercise from business records.

A second report was prepared with regard to maintenance issues.

• As above, including failure to maintain premises.

Settled at mediation by the parties including their legal representatives. At mediation the parties considered that there would be a further claim arising out of the requirement to resume the lease for the purposes of redeveloping the centre and that there would be further claims.

Both matters were settled.

Other examples of disputes and how settled or advice provided and a party or parties not taking it into account

Tribunal matter

Major government landlord and retail newsagency. Tenant represented themselves (and was capable of doing so).

Telephone inquiry: volunteer advice in regard to loss.

Breach of quiet use and enjoyment due to landlord works.

During a 45 minute telephone conversation, the expert advised the proprietor that he had a probable claim, that his losses were $60,000. He used methodology suggested, backed it up with his financial records and a decision was made in his favour for the amount claimed using the advice and methodology.

Retail lease matter – read Schnitzel World Pty Ltd.

I have been invited to and will raise a complaint about the QCAT Decision in this matter.

This QCAT (‘Queensland Civil and Administrative Tribunal’) Decision is disappointing.

It is significantly at odds with an ACT Supreme Court matter in which I was the retail expert for both causation and quantum and to overview the Plaintiff & Defendant’s Expert’s calculations.

In D & M Pelle Holdings Pty Ltd v Cottrell Pty Ltd (No 2) [2005] ACTSC 82 (29 August 2005). 

Experienced Canberra retailer’s lease breached which would significantly damage Intangible Asset Value of good flexible lease.  The lease would have added value to both the landlord and the tenants assets i.e. principles of AASB 138, which in my opinion was not adequately covered.

Instructions:

• Provide detailed report to consider “wider market influences on the business” i.e. isolate causation factors back to the alleged dispute; and
• Review Plaintiff and Defendants expert’s figures in regard to the calculation of losses and damages for the terms of the lease available to the Plaintiff.

Alleged that landlord had breached exclusivity provision that in my opinion significantly added value to the landlord and tenant’s “businesses”; the delicatessen business paid double the rent the supermarket traded at, with multiple options at current market rent, that adds value to property and business assets under AASB 138.

Immediately after the supermarket was allowed to trade across exclusive lines the business went into decline.

Losses would continue to accrue the longer D & M Pelle Holdings continued to trade.

To conduct a “forensic” analysis of causation one needed to:

• Analyse economic factors;
• Consider local factors within catchment (demographic factors);
• Review factors within the industry;
• Analyse the centre, traffic flows, turnover levels, etc;
• Detailed analysis of key anchor (before and after); other businesses within the category;
• Detailed analysis of the Plaintiff’s business; and
• The operator.

Involved significant modelling, use of best benchmark sources, “cause effect” modelling and calculation of loss flowing.

In my report I state “I am a Specialist Retail Valuer & Land Economist and have been a member of the Australian Property Institute since 1991. The API NZPI Professional Practice 2004 requires that we “practice their (our) vocation with integrity, honour and professionalism, to act impartially and objectively when providing independent advice, and to respect the public interest.” I abide by that Code as well. In carrying out my research and preparation of this report I have applied my knowledge and experience as an expert (specialist retail valuer and land economist), incorporating property economics, business economics, marketing and my knowledge and application of commercial law, tenancy and contract law. I am not an accountant, but I am able to analyse both the Plaintiff and Defendant’s accountants calculations of losses and damages. I have considered case law precedent in my calculations. The practical knowledge and experience having specialised in retail tenancy matters for 12 years, has enabled me to consider matters within the business, the centre, lease terms and conditions and wider catchment which would impact on Deli Planet. This would naturally assist in assessing sales and profit projections, risk profiles and thus applying discount rates.  Queensland Lease Consultants have had no prior involvement with the Plaintiff and I have no conflict of interest in this matter. The preparation of an Experts Report and calculating losses and damages are within the scope of the services offered by QLC.”

My calculation of losses was $911,398 excluding interest. Damages of $799,000 were awarded, plus costs (see below the Appeal); the damages in my view did not properly consider future losses for a business which had good tenure, flexible lease terms and mixed two methodologies up; the tenant not a “willing seller” and one would pay a premium to acquire the cash-flow of the business (more traffic growth “but for breach of the lease”).

The Plaintiff in that matter then informed me that the matter went to appeal. In front of three Appeal Court Judges, they literally threw the matter out of court and said if they proceeded, the Claim would be higher i.e. assuming future loss would be reviewed.

Schnitzel World complaint to be raised very reluctantly, it is not for the expert to do. It is for QCAT to manage its own staff. QCAT’s Decision and the calculation of quantum in Schnitzel World is roughly 2/10ths as difficult as the D & M Pelle matter. Allegations by the Chair that the expert’s fees are too high is a symptom of  poor interlocutory process and orders of Tribunal and the irrelevant material that was in the Respondent’s expert’s report and having to reply to and negotiate with an advocate over 12 months. But unless there are two experts “How does one keep the bastards honest” to quote Don Chip former leader and founder of The Australian Democrats.

It is our Public Money. It must work for us. That is what we pay for. The case sees this Chair again avoiding making a decision to award damages. Damages for misrepresentation flow immediately if awarded in favour of the Applicant according to case law. The Queensland Tribunal appear to exclude themselves from higher court jurisdictions. Or are seeking to rewrite the law. This matter in my opinion is a “Miss-Trial” and should be heard again at the public’s expense.

WA Supreme Court matter (matter unlikely to go to hearing due to illness of Plaintiff’s family member)

Both parties legally represented by established law firms. Reasonably large retail chain store and major A-REIT.

Instructions:

1. Peer review Plaintiff’s expert (a PhD qualified accountant) and provide back-up calculations, i.e. forensic accounting exercise from business records;
2. Respond to Defendant’s expert (an economist with substantial experience in shopping centre reporting);
3. Link causation to alleged losses.

Alleged breach of quiet use and enjoyment in major shopping centre when a juice bar was allowed to open in front of a clothing shop. There was a clash of “cultures” between the client base and mall access to the shop which significantly curtailed due to custom of the juice bar which “crowded” access and egress to the shop.

It should be noted this could easily have been avoided “but for” poor management decisions of Defendant and subsequent failure to rectify.

An ongoing failure by management to manage overall situation, i.e. planning, organisation, management & control and beach of quiet use and enjoyment, which caused lease to become “frustrated”.

Seek to link “reasonableness” to other stores in group, industry benchmarks, the local environment, and local economy back to the operation of shop within the centre.

Services were engaged after a 45 minute call, when the Plaintiff’s representative was provided with almost the same calculations of loss it had taken the Ph.D accountant, many thousands of dollars and a 50 page report to do.

Modelling and proving matter far more complex, including “reasonableness” of losses., i.e. one needed to:

1. Establish that the Plaintiff’s expert’s calculations were sound and reasonable, backed up with simpler methodology;
2. Isolate the Defendant’s expert’s responses which included flawed modelling which included complex graphs with causation figures and modelling embedded into his argument and then to demonstrate an alternative and why it was relevant;
3. Isolate many other variables, including the alleged effect of other centres opening, named by the Defendant’s expert in these matters and highlight flawed assumptions and why not relevant.

Include analysis of 38,000 figures used by the Plaintiff to support its case. This was reduced to a single table on less than half a page.

Causation was linked to the alleged loss and the quantum calculated support the Plaintiff’s expert. This was done on a one page table.

The overall matter involved having a sound knowledge in: businesses and business economics (accounts and accounting principles); property and property economics and general economics and modelling same.

Queensland Tribunal matter

Major Queensland Government Superannuation fund and clothing outlet. Parties legally represented for quiet use dispute

Instructions: experts report for calculating loss; experts report of current market rent for new “take-it-or-leave-it” lease terms; further report as parties failed to act on either of above reports

Expert’s report & forensic analysis of challenging business model (including lay-bye sales). Landlord had relocated business from L1 of Brisbane CBD property (by overzealous young property development manager, lacked “people skills”, who should not have also been negotiating leases), to C-minus location with no traffic. Calc loss during disruption. Direct competitor introduced to natural flow of traffic immediately ahead of Applicants business; provide expert’s report of current market rent for new site; further report as “take it or leave it” lease terms causing significant stress to business

Applicant pressured into accepting “settlement” at Conciliation Conference, well below actual loss.

Respondent’s solicitors played “delaying tactics” and forced Applicant to accept compensation. This caused legal fees to escalate.

“Take it or leave it” lease terms & comprehensive analysis of proposed rent more than double what it should have been ($180,000 per annum v $80,000). Due to economic uncertainties (Nov 2008) report also suggests cap on maximum rents charged as percentage of turnover.

A large proportion of purported “incentives” (wide spread practice) covered “first fit” costs of landlord & used as excuse to leverage up rent. Other portion of incentives (and higher rent) likely to damage cash-flow of business at a latter stage in lease.

Expert’s third report simply summarises above, suggests further solutions to modify lease. Queensland Government Landlord’s preference is to do “nothing”.

Arbitration matter

Both parties legally represented by established law firms.

Instruction: establish current market rent for highly specific use (sporting facility).

Current rent was approximately $215,000. On exercising option proposed, rent was over $220,000.

Both Landlord’s and Tenant’s experts agreed on current market rent without going to hearing.

New rent being charged, just over $120,000, based on evidence relative to permitted use, location of premises, etc. Over five years the dispute is worth $530,000 + with escalation clauses. If one was an investor without due diligence one might have paid more than double the market value for the property.

Expert determination

Joint appointment by parties’ legal representatives.

Dispute about the “market rent” for 5-year option.

Entered into joint agreement with landlord and tenant to settle dispute. Settled other disputes within the lease on a poorly drafted document which required consensus before rental dispute could be settled (lease will require some redrafting).

The previous rent was around $140,000. The rent was determined at just over $150,000 based on the facts and evidence, however it was qualified as the tenant withheld information and data considered important from the expert.

The difference between the landlord and the tenant’s position was over $400,000 over 5 years.

Tribunal matter

Both parties legally represented.

Instruction: provide expert’s report about losses sustained for breach of quiet use and enjoyment, i.e. forensic accounting exercise.

Landlord allegedly breached quiet use and enjoyment over sustained period.

Dispute “settled” at Conciliation Conference.

In my opinion this was not in equity. The Queensland Tribunal is described as a “landlord’s” Tribunal by its own mediators.
 

Submission to determining valuer

New South Wales rental dispute under S 19 of NSW Retail Shop Leases Act

Evolution of “Gilbert evaluation method” or GEM method of calculating current market rent.

Reduces chance of “engineered” rents & inflated valuations eg. Gosford Shopping Centre valuation

Instruction: prepare submission to determining valuer for Tenant.

Excellent example of NSW and Administrative Decisions Tribunal (‘ADT’) appointment of expert Specialist Retail Valuer working to settle dispute.

In the process, the operation of the market between willing Landlords and Tenants starts working better.

If parties pay current market rent, supply better matches demand.

It has to be a more “environmentally” friendly than developing 10s of 1,000 of M2, dumping it on to the market, “plugging” it full of businesses who invest direct and indirect capital (time, effort, staff, branding, etc), when it was not viable in the first place.

Tenant paying $220,000 for supermarket in dysfunctional centre. Landlord sought $245,000 i.e. $240 to $260 /M2.

Submitted “untested” evidence on $/M2 basis for 299 M2, 1500 M2 & 1000 M2 stores. i.e. “pick a number”.

Rental range $280.00 to $465.00 /M2; no link back to subject. Equivalent rents would equate to 7.5% to 12.4% of turnover.

During process 23 determining valuers names submitted by ADT. After asking:

• Do they have experience in determining supermarket rents?
• Did valuer understand KPIs of supermarket operation?
• Was the valuer independent and/or did they have conflicts of interest?

Landlord said they would accept any of 23 names if nominated.

All but three valuers including valuers who did original feasibility studies for centre development were prepared to be nominated. One firm subsequently withdrew, for sake of firm who did original feasibility studies, Tenant withdrew their nomination. Landlord then opted to reject the last firm.

ADT appointed valuer from Sydney.

Tenant director forced to “protect” interest in valuable 10+5+5+5+5 year lease. Country area freight costs are prohibitive.

Forensic analysis of Financial Statements KPIs suggested operation of business to reasonable standards. Operator had track record of operating other similar businesses to reasonable standards. dysfunctional centre was trading at 1/3 of level of other supermarket based centres.

Necessary to:

1. Benchmark performance of centre and business;
2. Estimating parameters of “reasonable” vs “unreasonable” rent under S 19 of the NSW Act;
3. Linking recent leasing evidence of other similar “permitted” uses to business in question;
4. Making adjustments (up or down) for same;
5. Including or eliminating evidence and why;
6. Suggesting to the determining valuer what might be the “reasonable” rent and why;
7. Considering future events over 5-year lease term that might prevent on from entering a lease eg. opening of new Woolworths shopping centre.

Valuer determined reasonable rent at $140,000 per annum.

This is not a “win” for either party. This is a win for:

1. The ADT of NSW;
2. The process of independent expert determination working as it ought to with no/limited  interference in market other than “process”;
3. The NSW legislation (who protect their valuers) working.

The GEM method works for both high and low performing sites and centres. It is unique methodology. It uses current established valuation principles and practices. Better.  There is nothing like it world-wide.

This benefits all stakeholders including: superannuants, landlords, tenants, the franchise industry, financiers, investors, potential investors, etc. It assists the market to operate as a market should, with less Government interference.

The GEM method will also “add value” to leases & satisfy key criteria under AASB 138 for Landlord and Tenant leases.

Submission to determining valuer

Tenant legally represented.

Instruction: prepare submission to determining valuer for Tenant.

Tenant paying $145,000. Landlord sought $220,000 + on exercise of option but was willing to “settle” at $195,000.

There was no evidence exceeding $110,000 under the permitted use, nor would financiers support business finance at more than 6% occupancy cost for highly specific permitted use.

An agency based valuer determined the current market rent at almost 8.5% of turnover.

This is an example of “rent control” upheld by the Queensland Government, noting agency fees being percentage of rent collected.

The consumer is paying higher prices and, although the business is managed to above average standards, it cannot compete in a highly competitive trading area. The business will lose market share. The behaviour must change and the Queensland Government must support the experts it appoints.

Submission to determining valuer

Instruction: prepare submission to determining valuer for Tenant.

Tenant paying $610,000 per annum. Landlord sought to maintain the status quo.

A significant amount of evidence was obtained including industry benchmarks, which supported a maximum gross rent of $260,000.

Agency based valuer obtained consensus from Landlord that a gross occupancy cost of 8% was and is relevant. The Tenant was and is able to demonstrate its ability to operate a business to reasonable standards i.e. a reasonable hypothetical operator.

The rent was determined at around $350,000 per annum gross including outgoings for the next five years.

Dispute resolution with (Australian Asset and Property Consultants) AAAPC co-operative members – see www.aaapc.net.au  (link)

Tribunal matter

Both parties legally represented.

Instruction: provide expert’s report about losses sustained for breach of quiet use and enjoyment, i.e. forensic accounting exercise from business records.

Another expert’s report is required from an AAAPC member with regard to causation.

The matter was settled at mediation, negotiated between the parties and their legal advisors.

The claim was in regard to an alleged breach of quiet use and enjoyment. Losses were calculated at or about the Tribunal limit.

Owing to the nature of the dispute, a second claim would have been inevitable.

The parties foreshadowed that there would be a further claim, and possibly a third one during mediation.

I am told all three were settled, at above the limit of the Tribunal (subject to confidentiality). In effect it was a reasonable outcome for all the parties and was a mature way to handle and settle the dispute.

The AAAPC team and co-operative members have already settled numerous matters and or have gone to hearing and decisions have been decided for clients (landlord and tenant matters). There are a number of others.

Other matters

Due diligence

The inquiry was with regard to the selling price of a shopping centre.

The purchaser wanted to know what one might offer as “fair value” on the property.

The asking price was over $20 million.

Analysis of leases, and the quality of income streams warranted offering between $13 and $15 million.

There is some interest regarding the offer that has been made by the potential buyer (the client).

Without further instruction to carry out proper due diligence, it has not been possible to fully verify whether the proposed offer is realistic. The current owners (who invested further capital on renovating/refurbishing): could have paid too much because they did not carry out their due diligence and are seeking to recoup their “sunk cost” plus additional capital outlaid.

Financiers, potential investors and other related parties (shareholders for example) need to know about these matters, in order to assess risk on income streams.