The Maroubra Cafe lease dispute

Lease disputes between commercial tenants and landlords can be complex, particularly when disagreements arise over the scope of leased premises, obligations under the lease, and termination rights. The case of Maroubra Pool Café Pty Ltd v Fedele [2017] NSWSC 1722 highlights these issues, with the Supreme Court of New South Wales examining a dispute over a café lease at 94 Marine Parade, Maroubra.

The case involved a disagreement between Maroubra Pool Café Pty Ltd (the lessee) and Antonio and Maria Fedele (the lessors). The key issues included:

• Whether the courtyard area formed part of the leased premises.
• The commencement date of the lease.
• Whether the termination of the lease by the lessors was valid.
• Whether the lessors were obliged to undertake certain building works.
• Whether the lessors had a duty to consent to an application to modify trading hours.
• A dispute over café equipment allegedly converted by the lessors.

The Court ultimately ruled in favour of the lessee on several issues, finding that the lessors wrongfully terminated the lease and were obliged to give consent to the trading hours modification.

Background

Maroubra Pool Café Pty Ltd, operated by Mr Louie Ajaka, leased the ground floor premises of 94 Marine Parade, Maroubra, from Mr and Mrs Fedele. The lease, executed on 8 May 2014, was for five years, with two five-year renewal options.

The dispute arose when the lessors attempted to terminate the lease on the basis that there had been an unauthorised transfer of shares in the lessee company—a claim the lessee disputed. Additionally, the lessee sought clarification on whether it had exclusive possession of the courtyard area, whether the lessors were required to perform certain building works, and whether the lessors were obliged to consent to a modification of trading hours.

Key Legal Issues Considered by the Court

1. Did the Courtyard Area Form Part of the Leased Premises?

The lessee argued that the courtyard area at the rear of the café was part of the leased premises, relying on:

• Historical use of the area by previous café operators.
• Architectural drawings referring to the space as the "Café Yard."
• The necessity of the space for operational use, including access to storage.

The lessors contended that the courtyard was a common area available for shared use by other tenants.

Justice Darke ruled that the courtyard area was part of the leased premises, stating:

"Reading the lease as a whole, and taking into account the surrounding circumstances, reasonable business persons would have understood that the Café Yard area would also form part of the Demised Premises."

The Court held that the lessee had exclusive possession of the courtyard area, except for sections designated for bin storage.

2. What Was the Commencement Date of the Lease?

The lease commencement date was disputed, with the lessee arguing it should be 1 May 2015, while the lessors contended it was 12 December 2014.

The dispute centred on construction delays caused by the lessors. The lessee argued that it was prevented from opening until awnings were installed in April 2015.  The lessee contended that these works were necessary for the premises to be fit for use as a café and that the delay in their completion meant that the lease should not have commenced earlier.

The Court ruled in favour of the lessors, determining that the lease commenced on 12 December 2014, stating:

"The expression 'still to carry out works' suggests that the operation of the proviso must be considered at the time the Commencement Date would otherwise be fixed, and can only operate if the Lessor at that time is still obliged under the lease to carry out works outside the Demised Premises."

Since the lessors were not contractually required to install the awnings, the lessee’s argument failed.

3. Was the Termination of the Lease Valid?

The lessors terminated the lease on 7 March 2016, claiming that the lessee had breached a prohibition on share transfers. They relied on ASIC records, which incorrectly showed that shares had been transferred from Mr Ajaka to Ms Varvaritis.

The lessee argued that no actual share transfers had occurred—rather, an administrative error by its accountant, Mr Illek, had resulted in incorrect ASIC filings.

The Court found that no share transfers had actually taken place, stating:

"Even though it was not unreasonable for the defendants, relying upon the ASIC register, to allege breach of clauses 5.01 and 5.02, there was actually no foundation for the allegation. The defendants’ purported termination of the lease was thus invalid."

As a result, the lease remained valid and enforceable.

4. Were the Lessors Required to Perform Certain Building Works?

The lessee sought orders compelling the lessors to:

• Construct ramps required under development approval.
• Install a drainage pipe from the garage to the grease trap.

The Court ruled that the lessors were not required to build the ramps, as these were not included in the lease obligations.  However, the drainage pipe was part of the agreed lessor’s works, and the Court ordered the lessors to install it.

5. Did the Lessors Have a Duty to Consent to a Modification of Trading Hours?

The lessee sought to extend its trading hours from 7am to 10pm for indoor dining. The lessors refused to consent to a modification application under the Environmental Planning and Assessment Act 1979 (NSW).

The Court found that the lessors had a duty to cooperate, stating:

"There is nothing in the lease to suggest that the Lessor is free to stymie the obtaining of a permission of that character. No such right is reserved."

The Court ordered the lessors to provide their consent to the application.

6. Did the Lessors Convert the Lessee’s Café Equipment?

The lessee alleged that the lessors had wrongfully disposed of café equipment stored in the garage before the lease began.

The Court dismissed the claim, finding that the lessee did not have legal title to the equipment, stating:

"The plaintiff has failed to establish that it had the requisite title or standing to sue for the alleged conversion."

The Court held that the equipment belonged to a previous entity and had been abandoned.

Key Takeaways for Commercial Tenants and Landlords

• Lease agreements should clearly define the demised premises – Disputes over common areas can lead to costly litigation.
• ASIC records are not conclusive evidence of share transfers – A company’s actual change in control must be proven.
• Landlords must cooperate with tenants when required – Unreasonably withholding consent can breach implied duties of good faith.
• Lease obligations must be explicit – If a lease does not require a landlord to complete specific works, a tenant cannot later demand them.
• Stored equipment should be properly documented – Tenants should establish clear ownership rights to avoid claims of abandonment.

Conclusion

The Supreme Court’s decision in Maroubra Pool Café Pty Ltd v Fedele reinforces the importance of clear lease terms and proper legal documentation. While the lessee succeeded in maintaining its lease and securing the right to use the courtyard, it failed in its claim for café equipment. The case highlights key lessons for both tenants and landlords in managing commercial lease disputes.