VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
BUILDING AND PROPERTY LIST	
vcat reference No. BP347/2021	
CATCHWORDS	
RETAIL LEASES - Section 37 Retail Leases Act 2003 (Vic) – Rental determination – adequacy of reasons – failure to disclose reasoning behind analysis of comparables - expert’s determination set aside for failure to comply with statutory obligation	

APPLICANT	AJ Moussi Pty Ltd (ACN: 151 243 613)	
RESPONDENT	Luxor Corporation Pty Ltd (ACN: 098 235 566)	
WHERE HELD	Melbourne	
BEFORE	H. Nash, Member	
HEARING TYPE	Hearing	
DATE OF HEARING	4 February 2022	
DATE OF ORDER	20 April 2022	
CITATION	AJ Moussi Pty Ltd v Luxor Corporation Pty Ltd (Building and Property) [2022] VCAT 434	

Order
1	I declare that the rental determination of David Tunbridge of Property Dynamics dated 9 August 2017 in respect of premises located at 503 Melton Highway in Sydenham in the state of Victoria is vitiated by error and is of no effect
2	I declare that the rental determination of David Tunbridge of Property Dynamics dated 9 August 2017 in respect of premises located at 503 Melton Highway in Sydenham in the state of Victoria, fails to comply with s 37 of the Retail Leases Act 2003 (Vic) and is set aside.
3	I declare that the parties are not bound by the rental determination of David Tunbridge of Property Dynamics dated 9 August 2017 in respect of premises located at 503 Melton Highway in Sydenham in the state of Victoria.
4	Costs are reserved. Any Application for costs must be made no later than 31 May 2022. 
5	The principal registrar is directed to refer any application for costs to Member Nash for further directions.

H. Nash
Member			

APPEARANCES:		
For Applicant	Mr S Hopper of Counsel 	
For Respondent	Mr R Hay QC together with Mr M Dean of counsel	

Reasons
1	This dispute arises between A J Moussi Pty Ltd (the tenant) and Luxor Corporation Pty Ltd (the landlord) of premises located at 503 Melton Highway in Sydenham in the state of Victoria (the premises) over a market rent determination undertaken by David Tunbridge (Valuer) of Property Dynamics dated 9 August 2017 (Determination).  The premises are a freestanding function centre known as the ‘Luxor Function Centre’.
2	The applicant seeks a declaration that the Determination is vitiated by mistake or does not set out adequate reasons for reaching the conclusion about market rent and is therefore not binding on the landlord and tenant.
3	The premises are retail premises, and it is not disputed that the Retail Leases Act 2003 (Vic) (the Act) applies.  
Background
4	The lease commenced on 2 August 2011 between the landlord and the tenant for an initial period of 5 years expiring on 1 August 2016 with options for 5 further terms of 5 years (the Lease). 
5	The option for a further term of 5 years commencing on 1 August 2016 was exercised by the tenant and accepted by the landlord.
6	The rent was to be reviewed to market rent to determine the commencing rent for the new Lease term.
7	Neither party could agree on the commencing rent for the first year of the term of the Lease. Therefore, they engaged the Valuer to determine the rent. 
8	Both the tenant and the landlord made submissions to the Valuer. Mr Castran of Castran made submissions on behalf of the tenant and Mr Georgevski of CBRE made submissions on behalf of the landlord.
9	On 9 August 2017 the Valuer published the Determination and found that the market rent for the premises commencing on 1 August 2016 was in his opinion $345,000 plus GST per annum.
The dispute
10	The primary question for resolution by the Tribunal is whether the Determination is valid.
11	It is claimed that the Determination fails in two respects: 
i	it is vitiated by error; and 
ii	it does not provide detailed reasons in accordance with s 37(6) of the Act. 
Section 37 of the RLA 
12	Section 37 of the RLA provides as follows:
(1)	A retail premises lease that provides for a rent review to be made  on the basis of the current market rent of the premises is taken to provide as set out in subsections (2) to (6).
(2) 	The current market rent is taken to be the rent obtainable at the time of the review in a free and open market between a willing landlord and willing tenant in an arm's length transaction having regard to these matters—
(a)		the provisions of the lease;
(b)	the rent that would reasonably be expected to be paid for the premises if they were unoccupied and offered for lease for the same, or a substantially similar, use to which the premises may be put under the lease;
(c)	the landlord's outgoings to the extent to which the tenant is liable to contribute to those outgoings;
(d)	rent concessions and other benefits offered to prospective tenants of unoccupied retail premises—
but the current market rent is not to take into account the value of goodwill created by the tenant's occupation or the value of the tenant's fixtures and fittings.
(3)		If the landlord and tenant do not agree on what the amount of that rent is to be, it is to be determined by a valuation carried out by a specialist retail Valuer appointed by—
		(a)	agreement between the landlord and tenant; or
(b)	if there is no agreement, the Small Business Commission—
and the landlord and tenant are to pay the costs of the valuation in equal shares.
(4)	The landlord must, within 14 days after a request by the specialist retail Valuer, supply the Valuer with relevant information about leases for retail premises located in the same building or retail shopping centre to assist the Valuer to determine the current market rent.
Penalty: 		50 penalty units.
(5)	In determining the amount of the rent, the specialist retail Valuer must take into account the matters set out in subsection (2).
	(6)	The valuation must—
	(a)	be in writing; and
(b)		contain detailed reasons for the specialist retail Valuer's determination; and
(c)		specify the matters to which the Valuer had regard in making the determination.
	(7)	The specialist retail Valuer—
(a)		must carry out the valuation within 45 days after accepting the appointment, or within such longer period as may be agreed between the landlord and tenant, or if there is no agreement, as determined in writing by the Small Business Commission; and
(b)	may seek to enforce under Part 10 (Dispute Resolution) an obligation of the landlord under subsection (4).
Is the rent determination valid?
When can an expert determination be set aside?
13	The law as to when an expert determination can be reviewed by the courts and tribunals is clear.  It is only when there has been fraud, collusion or a mistake arising from the failure of a valuer to carry out the task in accordance with the contract between the parties.
14	In this case, there is no suggestion of fraud or collusion, therefore it must be considered whether the landlord has a basis to claim that the Determination is vitiated by a mistake because the Valuer has failed to consider the matters set out in s 37 of the Act or the terms of the Lease.
15	In Legal and General Life of Australia Ltd v A Hudson Pty Ltd McHugh JA (as his Honour was then) (Legal & General) made the following pivotal statement: 
In my opinion the question whether a valuation is binding upon the parties depends in the first instance upon the terms of the contract, express or implied. This was pointed out by Sir David Cairns in the Court of Appeal in Baber v Kenwood Manufacturing Co Ltd. A valuation obtained by fraud or collusion can usually be disregarded even in an action at law. For in a case of fraud or collusion the correct conclusion to be drawn will almost certainly be that there has been no valuation in accordance with the terms of the contract. As Sir David Cairns pointed out, it is easy to imply a term that a valuation must be made honestly and impartially. It will be difficult, and usually impossible, however, to imply a term that a valuation can be set aside on the ground of the valuer's mistake or because the valuation is unreasonable. The terms of the contract usually provide, as the lease in the present case does, that the decision of the valuer is "final and binding on the parties". By referring the decision to a valuer, the parties agree to accept his honest and impartial decision as to the appropriate amount of the valuation. They rely on his skill and judgment and agree to be bound by his decision. It is now settled that an action for damages for negligence will lie against a valuer to whom the parties have referred the question of valuation if one of them suffers loss as the result of his negligent valuation: Sutcliffe v Thackrah; Arenson v Arenson.  But as between the parties to the main agreement the valuation can stand even though it was made negligently. While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract.
16	The authorities establish that the mistake must be of a kind which demonstrates that the valuer did not perform the task as required by the contract, making allowance for the fact that the valuer in construing the agreement, where necessary, is a valuer not a lawyer.
17	In Commonwealth of Australia v Wawbe Pty Ltd & Pinebark Park Pty Ltd  Gillard J set out the three questions to be considered by a court [or tribunal] in considering whether an expert determination is vitiated by mistake:
(i)	What did the parties agree to remit to the expert?
(ii)	Did the valuer make a mistake, and if so, what was the nature of the mistake?
(iii)	Is the mistake of such a kind which demonstrates that the valuation was not made in accordance with the terms of the contract and accordingly does not bind the parties?
18	Nettle JA (as his Honour was then) in AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd & Anor stated: 
[51]	I agree with the judge that the question of whether it is open to review an expert determination on the ground of error is in the first place to be decided according to whether the determination answers the contractual description of what the expert was required to determine. I also agree with the judge that the question of whether an error in determination deprives the determination of compliance with the contractual description of what the expert was required to determine is in the first place to be answered according to whether the error occurred in respect of a task which the contract entrusted to the expert. As Mason, P. explained in Holt v. Cox,  although mistake is not itself a ground for vitiation of a final and binding expert determination, a mistake may still be of such a nature that the resultant determination is beyond the realm of contractual contemplation – beyond anything which the parties may be supposed to have intended to be final and binding – and therefore susceptible to review. 
[52] 	The situation is analogous to that which faces a court in a cases [sic] of judicial review of administrative error. Just as an administrative decision maker has an area within which he or she may make mistakes without relevant consequence, so too an expert appointed under contract has an area within which the contract contemplates that he or she may make mistakes without relevant consequence. Similarly, just as there are some administrative mistakes which amount to jurisdictional error, and so expose a decision to judicial review, those appointed under contracts to make determinations may make errors which are beyond the area of tolerance which it is to be supposed the contract had in view. 
[53] 	Therein lies the distinction drawn in some of the authorities, and observed by the judge in this case,  between an error in the exercise of a judgment, opinion or discretion entrusted to an expert, and an error which involves objective facts or a mere mechanical or arithmetical exercise. Subject to the contract in question, it is easier to suppose that parties to a contract contemplate that an error of the former kind be beyond the realm of review than it is to think that they intend to be fixed with errors of objective fact or in processes of mechanical calculation. 
[54] 	As this case demonstrates, however, matters are likely to be more complex where error occurs in the course of an exercise which is partly comprised of discretion, judgment or opinion and partly constituted of objective fact or mechanical calculation. In some such cases, the overriding discretionary or judgmental character of the exercise may so inform each step in the determination as to put even those steps which are matters of objective fact or mere mechanical calculation beyond the scope of permissible review. In other instances it may appear that, despite the overall character of the exercise, the various steps in the determination are severable, according to whether they are essentially discretionary or judgmental or simply matters of objective fact or mechanical calculation, and that those steps which are of the latter kind are within the scope of permissible review. The question in each case is what the parties should be presumed to have intended, and that is to be determined objectively from the terms of the contract, bearing in mind the context in which it was created. 
19	The Valuer must determine the rent pursuant to  s 37 of the Act and clause 11.1.4 of the Lease which requires the Valuer to determine the market rent in accordance with the criteria set out in s 37(2) of the Act. This scope of the contract is often referred to as the “Valuer’s Charter”. 
What was remitted to the Valuer?
20	The Valuer was appointed by the parties in accordance with the terms of the Lease.  His authority derives from the agreement between the parties and the scope of his retainer is set out in the Lease.
21	For the tenant to succeed in having the Determination set aside, it must satisfy the Tribunal that the Valuer did not undertake the task of determining the market rent as he was required to do.  Simply being unhappy with the result is not sufficient.  The parties have, through the terms of the Lease, agreed to be bound by the Determination unless it is vitiated by a fundamental error. 
Were there mistakes by the Valuer? 
22	The tenant complains that there are erroneous or ambiguous statements in the Determination which vitiate the Determination.  
23	Some of the errors complained of are admitted by the landlord, but it says none of the errors are of such a nature that vitiate the Determination. 
24	The tenant argues that the Valuer made a factual error about the number of patrons permitted at the premises which is so fundamental to the Determination that it vitiates the Determination.
25	There is an agreement dated 30 September 1997 made under s 173 of the Planning and Environment Act 1987 (Vic) between Brimbank City Council and D V Brookwood Pty Ltd (the then owner of the land) which governed aspects of the development of the premises (the s 173 agreement). 
26	Relevantly, the s 173 agreement provided:
i	That it binds successors in title to the land;
ii	The owners must do everything  required to be one under Schedule 1; and
iii	The premises were to be used as Reception Rooms for a maximum number of persons of 504 (not including staff).  This maximum number of patrons requirement could not be varied unless agreed in writing by the Council as the responsible authority.
27	The liquor licence for the premises records the maximum number of patrons for the premises as 1150.
28	The Valuer notes that the submissions to the Valuer on behalf of the tenant suggest that the total capacity for the premises is 792 persons and the submissions on behalf of the landlord suggest the total capacity for the premises is 800 persons.
29	The Valuer then goes on to state in the Determination
I consider the most reliable method to adopt in formulating my determination of market rental value is by direct comparison whereby I have assessed a rental factor on a rate per seat or patron capacity basis. I consider this approach to be more relevant than applying a rental rate on a floor area basis. In doing so, I am satisfied that both function rooms trade at full capacity and have applied the following seating configuration for assessment purposes:
Function Room		    Capacity (Patrons)
Ballroom					500
Alexandria					300
Total Seats						800    
…..
Based on the available evidence, I have based my determination of market rent as calculated below:
Direct Comparison –		 (Seated with dance floor basis)				
Seating capacity (Dining with dance floor)					     800 seats
Adopt $Rate/seat									$430
Indicated Market Rent						 	      $344,000
Adopt										       $345,000

Direct Comparison – (Licensed Maximum Capacity Basis) – Check Approach  		
Maximum Licensed Capacity						  1150 patrons
Adopt $Rate/patron									    $300
Indicated rent 								         $345,000
Adopt 										          $345,000

30	However, as noted above, the s 173 agreement limits the total number of patrons to 504 in total.  While the liquor licence entitles the holder to have up to 1150 patrons at the premises, it is the limit on the number of patrons set out in the s 173 agreement that prevails.  This is because the s 173 agreement forms a binding contract between the local authority and the landowner, is registered on the title of the land, binds all future owners of the land and imposes enforceable constraints on the use of the land. It can also only be varied or ended by consent or by order of the Tribunal. 
31	In adopting the method of direct comparison as the most appropriate method for determining the market rental for the premises, the Valuer adopted the figures presented by the landlord as the full capacity of the premises.  This failed to reflect the limit imposed by the s 173 Agreement.  As such the Valuer when using the figure of 800 seats or the figure of 1150 patrons under the liquor licence inflated the total number of patrons allowed on the premises.  Neither figure reflects the limit imposed by the s 173 agreement. 
32	I find, and it is conceded by the landlord, this is an error by the Valuer.
If there were mistakes made by the Valuer, are they sufficient to vitiate the Determination? 
33	The tenant argues that by failing to adopt the maximum capacity of 504 under the terms of the s 173 agreement, the Valuer has made a fundamental error about the number of patrons that could attend the premises in support of his determination of the current market rental. 
34	The tenant relies on the decision in Bevendale Pty Ltd v Lucky Eights Pty Ltd in support of its argument that the error made by the Valuer is a fundamental error that has resulted in the Valuer assessing the market rent of a premises which is commercially, very different to that which the tenant operates. The premises for which the Valuer has assessed the market rent has somewhere between approximately 50% to 100% more patrons than the tenant is legally allowed to have on the premises.
35	The landlord argues that the factual error is not sufficient to set aside the Determination.  Rather, it is an error which shows no more than the Valuer was 
“muddle headed” or “negligent” the risk of which the parties agreed to accept.
36	I do not accept that landlord’s argument that the error is merely an error the risk of which the parties agreed accept.  
37	If the Valuer determines that the appropriate method for assessing the market rent of the premises is directly referable to the maximum number of patrons allowed at the premises, then any significant error in that number will result in the valuation being of a fundamentally different premises.  To assess rent based on a maximum number of patrons which is more than 50% greater than the maximum allowed results in a significant difference.
38	The error is further compounded when those figures are used as the basis for determining the market rent by reference to the maximum number of patrons allowed and using a dollar per seat figure as the basis for the calculation, as the Valuer has done here. 
39	I therefore find that the error made by the Valuer in determining the maximum number of patrons permitted at the premises which in turn formed the basis of the calculation of the rent is an error which is sufficient to vitiate the Determination.  
Detailed Reasons
40	The tenant also argues that the Determination is not binding due to the Valuer having failed to provide detailed reasons for the Determination contrary to s 37(6) of the Act.
41	The authorities establish that a failure to give sufficiently detailed reasons may render a determination invalid if the scope of the valuer’s retainer required detailed reasons to be given.
42	Pursuant to s 37(6) of the Act the Valuer is required to give detailed reasons and specify the matters to which the Valuer had regard in arriving at his determination.
43	The relevant principle as to what constitutes detailed reasons is that the reasons for a decision or determination are not required to be elaborate, but they are required to set out the thread of reasoning undertaken by the decision maker; such as to allow the parties reading the determination to understand the basis for the decision, and what matters were, and were not, taken into account, and why. 
44	Merely referring to the provisions of the Valuer’s Charter and no more is not sufficient. 
45	The requirement to provide detailed reasons is a requirement to provide more than sufficient reasons.  It is the adequacy or the degree of detail in the reasons given for a determination that supports a finding of whether or not the determination includes detailed reasons in accordance with the obligation in s 37(6) of the Act.
46	In Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd Croft J held: 
[38] 	In 756 Glenferrie Road Pty Ltd v Mountford Shoes Ltd, Senior Member Riegler said that s 37(6)(b) requires that there “are sufficient reasons that enable the parties to understand the basis on which the determination has been made”. Other authorities are to similar effect, some of which are helpfully the subject of some more particular reference and discussion. 
[39] 	In Adwell Holdings Pty Ltd v Bourne, Young CJ in Eq considered the requirement for evaluation to contain detailed reasons in the context of s 19 of the Retail Leases Act 1994 of New South Wales, as it was in force as at 1 August 2005. That provision was then in the following terms: 
(1) A retail shop lease that provides for rent to be changed to current market rent is taken to include provision to the following effect: 
… 
(e) A valuation for the purposes of paragraph (b) is to be in writing, to contain detailed reasons for the specialist retail valuer’s determination and to specify the matters to which the valuer had regard for the purposes of making his or her determination. 
In relation to these provisions, his Honour said: 
However, I would agree with Mr Sharpe that the contract required the valuer to give “detailed” reasons; this goes further than merely requiring “sufficient” reasons and requires the valuer to set out details as to how he or she arrived at the determination. Further, when it says that it is to specify the matters to which the valuer had regard, that does not just mean setting out by rote what is in the Act, but actually dealing with how those matters were considered in the process of making the valuation. 
[40] 	It is clear that it is not sufficient for a valuer to “leap to a judgment”: the valuation must disclose the steps of reasoning. This position is, in my view, reinforced by the provisions of s 37(6) of the Retail Leases Act. Not only does para (b) of this sub-section require “detailed reasons” for the valuer’s determination, but in para (c), adds the requirement that the valuer “specify the matters to which the valuer had regard”. These provisions are relevantly the same as the New South Wales equivalent provisions considered in Adwell. Clearly, both the Victorian and New South Wales provisions eschew and do not entertain any “blinding flash of light” as satisfying their “requirements”. 
47	The requirement to provide detailed reasons in s 37(6) of the Act was also considered by Member Kincaid in Dalmatino Pty Ltd v Creative Laser Pty Ltd 
[74] 	Further, having identified “the most relevant data range of $500 to $570 [psm] per annum net”, there are no particulars provided by the valuer of how he then arrives at a current market rental of $525 per square metre. Having expressly informed the reader about his use of the Direct Comparison Technique which, he states, involves the making of “inevitable adjustments for all factors which influence market rental value”, no particulars are provided as to the adjustments that were presumably applied to the rents payable for other relevant premises to take into account factors applicable to the premises that may “influence the market rental value” of the premises, even at a very general level of description. 
[75]	Section 37(6)(b) of the Act requires the valuer to give “detailed reasons”. Section 37(6)(c) of the Act requires the valuer to “specify the matters to which the valuer had regard in making the determination” including, I consider, the matters to which the valuer is required to have regard in section 37(2) of the Act. For the reasons set out above, one is largely left to speculate as to how the valuer formed his opinion. This does not, in my view, sufficiently comply with section 37(6) of the Act. 
[76]	I therefore consider that the reasons of the valuer do not have sufficient detail as to determine from the terms of the rental determination the extent to which: 
(a) 	if at all, the valuer had regard to the rent that would be reasonably expected to be paid for premises if they were unoccupied and offered for lease for the same, or a substantially similar, use to which the premises may be put under the lease; and 
(b) 	that if he did, the reasons (even in general terms) for the “inevitable adjustments” that the valuer would have made using the Direct Comparison Technique as described by him. 
Has the Valuer given detailed reasons as required by s 37(6) of the Act?
48	The tenant argues that the Valuer failed to provide detailed reasons in relation to the following matters in the Determination
i	Explanation of why he used the direct comparison method and what he considered in using this method of valuation;
ii	Explain why he determined the market rental based on seating capacity of 800 or 1150 neither of which were legally permissible under the terms of the s 173 agreement;
iii	What matters he had regard to when applying the profits method to determine the current market rent;
iv	His failure to take account of s 52(2) of the Act and s 251 of the Building Act vis a vis essential safety measures; and
v	Failure to provide detail about the hypothetical transaction referred to at paragraph 76(a) of the Determination.
49	Turning to each of the tenant’s complaints.
i	Failure to explain why he used the direct comparison method and what he considered in using this method of valuation
50	In the Determination, when summarising the submissions made on behalf of the tenant, the Valuer states
Mr Castran’s submission includes four (4) comparable leases of evidence he has relied on in providing his assessment of market rent on behalf of the Lessee. The analysis of the rental evidence reveals a range in $per square metre of building area of between $157 per sqm and $527 per sqm. Further analysis of the evidence by (myself) on a rent $ per patron capacity basis close bracket reveals a range of between $171 per patron and $520 per patron…
Mr Castran provides an opinion of the market rent to be estimated at $200,000 per annum plus GST. He has not provided any calculation in support of that opinion other than a “profits method” check approach based on the gross turnover of $2.1 to $2.2 million and a rental in the order of 8% to 10% indicating a rent in the order of $168,000-$220,000 per annum plus GST. 
51	Whereas, when summarising the submissions made on behalf of the landlord, the Valuer states
Mr Georgievski has adopted two methodologies in his assessment of market rent being direct comparison ($per seat capacity) and secondly the “profits method”.
52	This statement reflects that the expert valuers for both the landlord and the tenant used different methodologies for the determination of the market rent; Mr Castran adopting a $ per sqm methodology and the profits method as a cheque methodology while Mr Georgievski adopted both $ per seat and a profits method. 
53	The Valuer elected to adopt a $ per seat method to determine the market rent.
54	At page 26 of the Determination, the Valuer states
I consider the most reliable method to adopt in formulating my determination of market value is by direct comparison whereby I have assessed the rental on a rate per seat capacity basis. I consider this approach to be more relevant than applying a rental rate on a floor area basis in doing so, I am satisfied that both function rooms trade at full capacity and have applied the following seat configuration assessment purposes:
…
55	The tenant’s complaint is that the Valuer provided little to no explanation for why he determined that the appropriate method of valuation was to adopt a $ per seat method. As set above, the Valuer states that he considers the rate per seat capacity basis to be more relevant but does not explain why it is more relevant or preferable to the direct profits method or a rental rate on a floor area basis. He does not explain the reasons for adopting one particular method over another and provides no figures, calculations or evidence for the conclusion reached.
56	The landlord disputes this, and argues that the Valuer did in fact provide reasons for adopting the method he did. The landlord relies upon statement of the Valuer at page 28 of the Determination 
I have analysed the rental evidence to derive a rate per sqm of floor area, per seat and per licensed maximum capacity basis. The most meaningful analysis in my opinion is based on a rate per seat based on dining dance floor and configured for wedding occasions in line with the operational use of the subject premises.
The evidence reveals the following range in analysis:
…
57	The evidence referred to in this paragraph confirms the rates per seat at venues similar to the premises, that is the comparable lease evidence. After referring to those comparables, the Valuer makes an assessment of what in his opinion is the appropriate rate to be adopted.
58	I disagree with the tenant.  The Valuer provided an explanation at paragraph 28 (set out above).  While it does not detail every step of the Valuer’s reasoning, this is not what is required. I consider that the reasons given in relation to this issue are sufficiently detailed to comply with s 37(6) of the Act.
ii	Failure to explain why he determined the market rental based on seating capacity of 800 or 1150 neither of which were legally permissible under the terms of the s 173 agreement.
59	This argument is put by the tenant as an alternative to the argument that the use of the seating capacity figures other than those permitted by the s 173 Agreement is an error which vitiates the Determination.
60	The tenant argues that the error regarding the seating capacity of the premises is also a failure by the Valuer to provide detailed reasons.  It is the Valuer’s failure to explain why he determined the seating capacity of the premises was 800 or 1,150 or why he chose to disregard the limitation on the seating capacity in the s 173 Agreement.  The Valuer states  
In relation to timing and patron maximum capacities, Mr Georgievski notes current seating configuration being 500 patrons (Ballroom) and some 300 patrons (Alexandria) giving a total of 800 patrons. The On-Premises Licence allows 650 patrons (Ballroom) and 500 patrons (Alexandria), a total of 1150 patrons. Notwithstanding, the section 173 Planning Agreement limits the trading capacity to operate with a maximal capacity of 504 patrons subject to timing limitations. Mr Georgievski has based his assessment of market rent that both function rooms trade [sic] to their full capacity of 500 patrons and 300 patrons respective on weekends.
61	The landlord conceded the error but not that inadequate reasons had been provided and relies on the argument above as this issue is subsumed within the choice of valuation method. 
62	I disagree with the tenant.  The Valuer provided an explanation at paragraph 28 (set out above). While it does not detail every step of the Valuer’s reasoning, this is not what is required. I consider that the reasons given in relation to this issue are sufficiently detailed to comply with s 37(6) of the Act.
iii	Failure to explain what matters he had regard to when applying the profits method to determine the current market rent
63	In the Determination, the Valuer has relied on the profits method of assessment as a check method for his primary basis for assessment, the $ per seat method. While adopting a check method is prudent, the tenant complains that the Valuer failed to explain his reasoning when using this method. 
64	In particular, the tenant alleges that the Valuer failed to disclose in the Determination:
i	The projected turnover that he adopted for the hypothetical tenant trading as an average competent manager at the Premises during the term; or
ii	the percentage of EBITDAR that he adopted as the market rate for rent using a profits method or the comparable transactions to which he had regard in determining that figure. 
65	The Landlord contends that this criticism by the Tenant is disingenuous. The Valuer noted in the Determination that he had received submissions from the parties addressed to the profits method as an approach to consider in making the Determination. Specifically, the Landlord furnished to the Valuer “historic trading data” and the Tenant provided “current” trading figures and provided profit and loss figures for 2014, 2015 and 2016 on a confidential basis. Necessarily this information was not disclosed by the Valuer. 
66	The tenant’s complaint is that the Valuer did not need to disclose the actual figures when disclosing the hypothetical adopted. The Landlord disputes this and says that 
had the valuer disclosed hypothetical figures but not the actual figures you would have then been criticized [sic] for not showing the line of reasoning that caused him to adopt the hypothetical figures; in the absence of actual figures the provision of the hypothetical figures would not have advances the parties’ understanding of the Determination.
67	I do not accept the tenant’s argument in relation to this issue.  The Tenant provided financial information to the Valuer on a confidential basis. To then suggest he is required to disclose any information relating to a hypothetical tenant that may result in a disclosure of any information provided by the Tenant, in breach of the confidentiality obligations is placing an unfair burden on the Valuer.
68	I find that the reasons provided by the Valuer in the Determination with respect to the profits method (which used only as a check method) are sufficiently detailed to comply with s 37(6) of the Act.
iv	The failure to take account of s 52(2) of the Act and s 251 of the Building Act vis a vis essential safety measures
69	The tenant asserts that in making his Determination the Valuer has erroneously assumed that the tenant was responsible for:
i	the expenses of operating maintaining and repairing heating cooling and air-conditioning services at the premises including the cost of regular repair and maintenance (despite the operation of s 52(2) of the Act); and 
ii	the costs of fire safety and essential safety measures at the premises despite the operation of section 251 of the Building Act 1993 (Vic) (the Building Act).
70	With respect to these matters, the Valuer states:
2.	The Tenant must pay when due the expense of operating, maintaining and repairing any thinking, calling or air-conditioning equipment exclusively servicing the premises including the costs of regular maintenance and or service contracts, but excluding expenses of capital nature.
3.	The Tenant must pay the cost of maintaining and servicing any fire protection and/or Fire and emergency services equipment excluding expenses of a capital nature.
4.	The Tenant must at its cost clean and keep clean the internal canopies in the kitchen.
71	And further states at page 20
The Retail Leases Act 2003 (RLA 2003) applies to this lease. The provisions of the act deal with requirements which apply to all “retail premises” with a gross occupancy cost of less than $1 million and which are listed within the Act.
The RLA 2003 when introduced provided tenants with a number of additional benefits above that afforded to them in the previous legislation. Specifically, the RLA 2003 now provides greater protection to tenants by:
…
o	extending the landlord’s liability for repairs;
…
72	And further at page 22
•	Mr Castran comments that the Lessee has been charged essential services which has now been outlawed under current legislation and must be refunded by the Lessor
73	The Valuer does not discuss this issue any further Determination and the list of comparable transactions to which the valuer says he had regard, does not identify whether the leases were retail leases under the Act and makes no reference to the repair and maintenance and essential safety measures obligations of the parties under those leases.
74	Accordingly, the tenant argues that the valuer incorrectly assumes the tenant was liable for these matters and failed to give reasons for his consideration of these issues and how he treated those obligations. In this regard the tenant relies upon the decision in the decision of Josephine Ung Pty Ltd v Jagjit Associates Pty Ltd (Josephine Ung) wherein, a similar error was found to vitiate a market rental determination.
75	In Josephine Ung, Member Edquist found that the valuer had failed to have regard to the terms of the lease contrary to s37(2)(a) of the Act in circumstances where the repair obligations in a lease are different from, and inconsistent with, the repair obligations implied by s 52 of the Act.  
76	The landlord accepts that this was an error by the Valuer but argues that the nature of the error is not one that ought to result in the Determination being set aside, rather it was a risk that was negligent of the Valuer and one which the parties agreed to accept in their appointment of the Valuer.
77	I do not accept the landlord’s argument. Again, the shifting of the financial burden of the repair and maintenance issues results in the valuation of a different premises from the actual premises which were the subject of the Determination.
78	Further, the cursory reference to s 52 in the Determination does not mean that the Valuer had regard to that term of the Lease when reaching the Determination.
79	As Member Edquist stated in Josephine Ung
The Valuer expressly indicated that he was aware of the tenant’s covenant to keep the premises properly cleaned and maintained, except for fair wear and tear, but he did not refer to s 52. Just because the provisions of s 52(2) are implied into the lease is not a reason for assuming that the Valuer was aware of those provisions. If the Valuer was aware of s 52, he certainly did not articulate how it affected his Determination. 
80	I therefore find that the error of the Valuer in failing to take into account the effect of s 52(2) of the Act and s 251 of the Building Act on the terms of the Lease is one which vitiates the Determination.
81	For these reasons, I find that in this regard, the Valuer has failed to take into account the terms of the Lease contrary to s 37(2)(a) of the Act and the Determination should be set aside.
v	Failure to provide detail about the hypothetical transaction referred to at paragraph 76 of the Determination.
82	The final complaint addressed by the tenant was that the Valuer had not provided detailed reasons about the hypothetical transaction or the characteristics of the hypothetical landlord or tenant.
83	S 37(2) of the Act sets out those matters which the Valuer is to have regard when reaching his determination of the market rent.  The tenant argues that many of the statements in the Determination which are relevant to this issue and what matters the Valuer has considered, are motherhood statements which provide no explanation of how the Valuer has applied these matters in his actual determination.
84	In essence, the tenant’s complaint is that the Valuer has provided his conclusions and made reference to some of the steps he has taken to reach the conclusions but has not set out his detailed reasoning to explain how he reached those conclusions.
85	That is, in the analysis section of the Determination, the Valuer adopts a general broad-brush use of statements about what has been considered without any explanation of how those matters have been taken into account or assessed. 
86	The landlord disputes this.  The landlord argues that throughout the Determination the Valuer makes reference to his assumptions particularly at pages 5, 13 and 21 of the Determination.
87	The landlord argues that the Valuer has fulfilled his obligation of having regard to those matters set out in s 37(2) by referring to those matters and his conclusion.  He does not need to expand further on those matters.
88	The landlord argues that the Valuer has undertaken his task correctly. The landlord submits that the Valuer is not required to set out every single thought and step he has undertaken in his analysis in order to reach his conclusion.  
89	The landlord says the task of determining the market rent for a property is an art not a science which requires the Valuer to exercise his subjective judgment in analysing the materials which are relevant to his determination. 
90	The Valuer undertakes his task by explaining what matters he has taken into account and what considerations have impacted his determination as well what matters have caused him to discount areas of consideration.  But he has not set out the arithmetic workings he then undertook to reach the Determination. The landlord argues that he does not have to go so far as to provide all his arithmetic reasoning in order to comply with section 37(6).
91	The requirement in s37(6)(b) of the Act is for the Valuer to give detailed reasons.  Section 37(6)(c) of the Act requires the Valuer to “specify the matters to which the valuer had regard in making the determination”.  
92	I agree with the landlord that the Valuer is not required to set out all of his arithmetic workings as part of his reasons for the Determination. However, more than a mere “passing comment” disregarding a matter or assumption is required.  The analysis or reasoning must be meaningful and able to show the path of reasoning undertaken by the Valuer to reach his determination.
93	The essence of the tenant’s complaint is that due to the absence of any explanation of steps taken in the valuer’s reasoning, what matters were considered and how the market rental determination was arrived at, the parties are unable to understand how the rent figure has been determined.
94	I agree with the tenant. As set out above, some of the Valuer’s conclusions are not supported by reasoning explaining why he has reached that conclusion.  While a detailed exposition of the valuer’s thought process is not required, the reasons for accepting some matters and disregarding others is required in order to enable the parties to understand how the market rental determination was reached.  
CONCLUSION
95	For the reasons provided above, I find that the Determination is vitiated by error with respect to the maximum number of patrons allowed at the premises. This error is significant enough to result in the Valuer undertaking his task of determining the market rent for premises which are entirely different from the premises.
96	I also find that the Determination fails to provide sufficient reasoning and as such does not comply with section 37 of the Act. As the Determination is not made in accordance with the Act, it is not binding on the parties. 
97	I will make orders and declarations to this effect.

H. Nash
Member