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Relief against forfeiture

1. Section 129(2) of the Conveyancing Act 1919 (NSW) is engaged. It provides: (2) Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may personally bring a suit and apply to the Court for relief; and the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, may grant or refuse relief, as it thinks fit; and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit.
2. As recounted in the quantum judgment at [39]-[43] and [78], it is not in dispute that for the period 8 October 2020 to 10 September 2021 rent was payable but was not paid. It is not also in dispute that the Lease was terminated.
3. The Landlord terminated the Lease by notice dated 10 September 2021, relying expressly on the failure by the tenants to pay the Base Rent under the Lease.
4. The covering letter of the notice referred to other breaches by the tenants including, but not limited to, failure to pay outgoings and provide a bank guarantee/bond security. Argument on this application centred on the tenants' failure to pay rent.
5. The Court has a wide discretion when it comes to granting relief against forfeiture.
6. There was no debate about the applicable legal principles. Generally, provided the lessor can be put in the same position as before the forfeiture, the Court will grant relief against forfeiture upon the payment of rent, costs, interest and other expenses. If those terms are offered (which they are here), the Court rarely refuses relief. One instance where relief may be withheld is if the tenant is unable to pay future rent or may reasonably be expected to become so; see Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd [2020] NSWSC 996; 19 BPR 40,443.
7. The Landlord puts that this is in the category of cases where relief should be refused because it follows from the Court's findings in the quantum judgment to the effect that it is more probable than not that the tenants will not obtain Service Approval and will not trade, and will therefore not be able to pay the rent. Additionally, it puts that, for the same reasons, relief will have no utility. It argues that it should not be required to maintain premises which are in effect unused and untenanted. The Landlord also says a factor against the exercise of the Court's discretion in their favour is that the tenants have delayed in obtaining an Occupation Certificate.
8. The tenants argue that their breach was caused by the Landlord's breach. They wish to be restored to their tenancy. They offer to pay the rent and discharge their other obligations even though they do not have an Occupation Certificate or Service Approval. They have taken some further steps towards obtaining an Occupation Certificate.
9. In all the circumstances of this case, the tenants should have relief against forfeiture.
10. Their breach in not paying rent was caused by the Landlord's breach.
11. Leaving aside what other resources the tenants may have or be able to draw upon, they now have a verdict against the Landlord, which, if met, will give them the equivalent of about two years rent. Annual rent is presently $412,344. I observe that during the hearing of this application nothing was said on behalf of the Landlord to indicate that it will not meet the verdict. It does not lie fairly in the Landlord's mouth to argue that this is a rare case where the tenants should be denied relief on the footing that they will not be able to pay future rent, when, if the Landlord meets the verdict, they will have the resources to do so for at least a year (even if they spend $350,000 on upgrading the Centre - see [159] of the quantum judgment).
12. As to the tenants' delay, it is to be recognised that they have been distracted by this hard-fought and no doubt costly litigation of uncertain outcome. The COVID-19 pandemic also has had some role to play.
13. The tenants will now have to pay rent, which will no doubt infuse a sense of urgency. In any event, their delay in obtaining an Occupation Certificate has not been of such a quality to constitute a factor against them. They will not be able to operate until they get Service Approval, but the Landlord will be getting its rent either way.
14. The tenants are conscious of the fact that the Lease which they are to have, contains a provision (clause 20.2) which requires rent to be paid free of exchange, without any deductions or abatements and without any deduction or set off whatsoever other than as provided in the Lease.
15. I interpolate that in Norman; in the matter of Forest Enterprises Limited v FEA Plantation Limited [2011] FCAFC 99; 195 FCR 97, 119 at [199], which was referred to during argument, the full Federal Court construed such a provision (which used the word whatsoever) as disallowing any deduction of any kind from rent including a reduction by way of equitable set off.
16. The tenants proffered Short Minutes of Order which included a proposed order that until the Landlord pays them the entirety of the verdict, they are entitled to pay rent that falls due from 1 January 2023 by way of a credit in the same amount to the Landlord with respect to damages and interest owing by it to them. This proposed order would conflict with the express obligation they will have under clause 20.2 and I do not propose to make it.
17. They also sought an order that the Landlord pay them the amount of the rent guarantees they have to establish. This would also conflict with their direct obligation under the Lease to provide guarantees.
18. I was informed from the bar table that the tenants maintain their application for relief against forfeiture even if the Court declines to make orders in these terms. They are cognisant of the fact that they must now pay rent without deduction at a time at which they may not have recovered all or any of the verdict. That obligation will arise immediately upon entry into the new lease. Their claim for damages has now merged in the judgment. They consciously take the commercial risk of a failure to obtain Service Approval (or indeed the risk of getting it).
19. The Landlord put that time limits should be imposed on the tenants to obtain an Occupation Certificate and Service Approval. I do not consider this to be appropriate. The Lease itself contains no such impositions and the commercial dynamics will play their role.
20. I will make orders providing for relief against forfeiture.