Before the Court is a notice of motion filed on 16 October 2020 by two related, corporate plaintiffs, in aid of a summons filed on the same date, seeking, in effect, an interlocutory order in the nature of relief against forfeiture of a commercial lease granted by the defendant to the first plaintiff and, incidentally, ancillary relief of the same nature in respect of a sub-lease granted by the first plaintiff to the second plaintiff.
No objection has been taken by or on behalf of the defendant to the application for relief against forfeiture being heard and determined on an interlocutory basis, rather than at a final hearing: cf, MIR Holdings Pty Ltd v Marina Square Retail Pty Ltd [2020] NSWSC 1418 at [15], citing New Dragon Investments Pty Ltd v Morgan & Banks Development Pty Ltd [2006] NSWSC 1139 at [39]. In substance, the plaintiffs contend that the defendant, having re-entered the premises on 16 October 2020, should be required to restore possession of the premises to them on an interlocutory basis pending preparation of an application for relief of forfeiture on a final basis, with pleadings.
On the hearing of their motion, the plaintiffs foreshadowed an application to amend their summons to include a challenge to the defendant's forfeiture of the first plaintiff's lease as well as a claim to relief against forfeiture. I propose to allow the plaintiffs an opportunity, upon publication of these reasons for judgment, to review their originating process generally. In the meantime, I take into account their contention that the defendant was not entitled to forfeit the lease and (consistently with observations made by Professor Butt in his Land Law (6th ed, Law Book Co, 2010) at paragraph [15-221]) I accept that it is not necessary for the plaintiffs to concede a breach or forfeiture of a lease as a condition of claiming relief against forfeiture.
In essence, the plaintiffs claim the benefit of statutory instruments, promulgated in New South Wales and by the Commonwealth, designed to provide a moratorium on enforcement of the rental obligations of lessees during the COVID19 pandemic which has affected all Australians throughout most of this year. Those instruments include, particularly, the NSW Retail and Other Commercial Leases (COVID19) Regulation 2020 (superseded on 24 October 2020 by the NSW Retail and Other Commercial Leases (COVID19) Regulation (No. 2) 2020); the National Cabinet Mandatory Code of Conduct - SME Commercial Leasing Principles during COVID19 adopted on 7 April 2020 (incorporated by reference in the NSW Regulations); and the Commonwealth's Coronavirus Economic Response Package (Payments and Benefits) Rules 2020, governing entitlements to "Jobkeeper Payments" made by the Commonwealth, to businesses affected by the coronavirus, to cover the costs of wages of their employees.
On the submissions made by the parties, it is not necessary to consider whether any practical consequences flow from the automatic repeal and replacement (with amendment) of the NSW Regulations. I assume not.
Insofar as the plaintiffs' summons and notice of motion claim relief in the nature of relief against forfeiture the claim is ostensibly made for an exercise of equitable jurisdiction, in favour of the first plaintiff, with the intention that it would enure for the benefit of the second plaintiff. The first plaintiff makes no claim for relief against forfeiture under section 129(2) of the Conveyancing Act 1919 NSW. The second plaintiff makes no application under section 130 of the Act for an order protecting it as sub-lessee on forfeiture of the head lease. Nor has any application been made under the lease or by reference to section 133B(1) of the Act requiring the defendant to consent to a sub-lease in favour of the second plaintiff. Although they contend that a "notice of breach" served by the defendant on the first plaintiff under section 129(1) of the Act was formally invalid, their primary focus has been almost entirely directed to the alleged operation of the COVID legislation.
[3]
THE LEASE
On 12 June 2019 the first plaintiff (as "tenant") and the defendant (as "landlord") entered into a "Commercial Lease Agreement" in relation to a "strata factory unit" at St Peters, a suburb of Sydney.
The lease was expressed to be for a term of two years commencing on 23 June 2019, with an option in the tenant to renew the lease for a further year.
The lease included terms to the effect that:
1. rent of $5,500 per month (including GST) was payable in advance on the 14th day of each month (clause 4, schedule item 7).
2. the tenant would "not assign or sub-let" without the landlord's consent (clause 14).
3. the tenant would pay all charges for water as they fell due (clause 8.1(11), schedule item 15).
4. events of default on the part of the tenant, entitling the landlord to terminate the lease, or to resume possession of the leased premises, included a failure to pay rent and a failure "to perform or observe" any of the tenant's "covenants or obligations" under the lease (clause 20.1(1), 20.1(3), 20.2(1) and 20.2(2)).
5. the lease formed "the entire Agreement between the parties" (clause 30).
[4]
THE SUB-LEASE
On or about 31 August 2019 the first plaintiff (as "head tenant") and the second plaintiff (as "sub-tenant") executed a document styled "Sub-Lease Agreement of Commercial Premises" relating to the demised premises. The term of the sub-lease was expressed to begin on 1 September 2019 and to end on 31 December 2020.
Both plaintiffs are owned and controlled by Mr Garry McElister Leonard, their common and sole director. He signed the sub-lease on behalf of each party.
On the evidence before the Court, the first plaintiff did not seek, or obtain, the defendant's consent to the sub-lease. The plaintiffs nevertheless contend that an inference should be drawn that the first defendant was "aware" of the existence of the sub-lease because:
1. during negotiations for the lease in June 2019 a representative of the plaintiffs told a real estate agent of the defendant that Mr Leonard proposed that the second plaintiff (in addition to the first plaintiff) would "also be trading from the premises" and the agent allegedly responded "that's all right".
2. payments of rent due by the first plaintiff to the defendant under the lease were from time to time made by the second plaintiff.
3. on 31 March 2020 Mr Leonard wrote to the defendant a letter (entitled "Lease to [the first plaintiff] …") in which he referred without elaboration to losses suffered by "the businesses" operating in the premises and identified the names of each of the plaintiffs at the bottom of the letter (without more) under his name.
4. a "Notice of Breach" dated 29 September 2020 served by the defendant on the first plaintiff (pursuant to section 129(1) of the Conveyancing Act) itemised breaches of the lease by the first plaintiff which included a breach alleged to be "sub-letting premises without consent" and relevantly called for remedial action "to remove any sub-tenants from the Premises or alternatively seek my consent".
The first defendant, on oath, denies that he was ever requested by the first plaintiff to consent to a sub-letting of the premises. The plaintiffs do not dispute that but they contend that the Court should proceed on the basis that the defendant must have been "aware" of the sub-lease if only because he referred to "sub-letting" in his Notice of Breach.
Even if it be the case that the defendant was "aware" of a sub-letting of the leased premises, that fact alone, would not constitute "consent" to a sub-lease within the meaning of clause 14 of the lease, let alone consent to the particular sub-lease granted by the first plaintiff to the second plaintiff. Admittedly, clause 14 did not require the first plaintiff to apply in writing for the defendant's consent to a sub-lease or for the defendant's consent to be in writing; but the clause is expressed to require "the tenant" to "pay the landlord's costs in relation to any … sub-letting", anticipating a degree of formality. Section 133B(1) of the Conveyancing Act, which governs qualified covenants against sub-letting, provides that consent cannot be unreasonably withheld, subject to payment of the lessor's reasonable costs. All this suggests a degree of formality beyond a lessor simply being "aware" of a sub-letting.
Even if the defendant's real estate agent was authorised to say, and did say, that it would be "all right" if the second plaintiff traded from the leased premises as well as the first plaintiff, such a statement could not take precedence over the terms of clause 14 of the lease in light of the "entire agreement" clause 30, and it could not in any event amount to a (prospective) consent to an unidentified sub-lease.
Neither payments of rent by the second plaintiff to the defendant on the account of the first plaintiff, nor acceptance of such payments, can be taken as constituting "consent" by the defendant to a sub-lease in favour of the second plaintiff.
The fact that the defendant's section 129 Notice complained of a "sub-letting … without consent" cannot ground a finding of knowledge of the sub-lease (or, particularly, the terms of the sub-lease) granted by the first plaintiff to the second plaintiff.
[5]
RENT AND RENT-RELATED BREACHES OF THE LEASE
As events unfolded, the monthly rent instalment due under the lease on 14 April 2020 was not paid. No rent has been paid to the defendant since that time. In light of my determination that the defendant was entitled to rely upon a non-monetary breach of the lease (clause 14) as a ground for re-entry, it is not necessary to consider whether the first plaintiff's non-payment of rent due on 14 April 2020 was a "pre-COVID" breach not subject to the COVID legislation: cf, Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd (No. 2) [2020] NSWSC 1141 at [104]-[107].
Although it may have done so since the commencement of these proceedings (as counsel asserted, but declined to prove), the first plaintiff did not pay water rates (of $280.71) presented to it for payment by the defendant on 16 March 2020, the invoice for which (addressed to the defendant) called for payment by 6 March 2020.
Commencing with an email dated 27 March 2020, and continuing to the present time, the first plaintiff has represented to the defendant that (because of the COVID19 crisis affecting, particularly, the business of the second plaintiff) it has been unable to pay full rent, and it has called for the defendant to accept (for a period initially set at three months, but later extended to six months) a rent reduction of 75%, based upon "leasing principles" set out in the "National Cabinet Mandatory Code".
[6]
THE COVID LEGISLATION'S OPERATION VIS A VIS A SUB-LEASE
The COVID legislation is expressed in terms of a relationship between a lessor and a lessee. It is not expressed in terms that include a relationship between a lessor and a sub-lessee not governed by a contract between them or by the terms of any consent given by the lessor to the grant of a sub-lease by the head lessee. The definition of "lessee" in clause 3 of the NSW Regulations might possibly be thought to include a sub-lessee; it defines a "lessee" as "the person who has the right to occupy premises or land under a commercial lease". However, such a reading does not sit well with the definition of "lessor", in the same clause, as meaning "the person who grants the right to occupy premises or land under a commercial lease". In my opinion, the definitions of "lease", "lessee", "lessor", "under-lease" and "under-lessee" in section 128 of the Conveyancing Act, to the extent that they may be called in aid by the plaintiffs and applied according to their terms, do not justify characterisation of the relationship between the defendant (a head lessor) and the second plaintiff (a sub-lessee) as one of "lessor" and "lessee".
I do not exclude the possibility that, in an appropriate case, the Court might grant, or withhold, discretionary relief or impose conditions (for example, upon an exercise of equitable jurisdiction or jurisdiction under section 129 or 130 of the Conveyancing Act) by reference to considerations of hardship identified by reference to the COVID legislation generally or, more particularly, the "leasing principles" and other provisions set forth in the "National Cabinet Mandatory Code": cf, Sneakerboy Retail Pty Ltd t rading as Sneakerboy v Georges Properties Pty Ltd (No. 2) [2020] NSWSC 1141 at [97], [100] and [102]. However, care needs to be taken not to overreach the pragmatism manifested by the COVID legislation. Although the legislation invites a pragmatic approach to some questions, and encourages compromise solutions, at core it governs rights and obligations.
The "leasing principles" commence with a statement that "[In] negotiating and enacting appropriate temporary arrangements under this Code the … leasing principles should be applied as soon as practicable on a case-by-case basis". The second of those principles is to the following effect:
"Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under this Code".
The COVID legislation also needs to be read in the context of provision in the NSW Regulations that: (a) nothing in the Regulations prevents a lessor taking prescribed action (defined by clause 3 to include exercise of a right of re-entry or termination of a lease) on grounds not related to the economic impacts of the COVID19 pandemic; and (b) nothing in the Regulations excludes the rules of equity and common law from applying to the determination of a dispute concerning the recovery of possession of premises or land from a lessee, the termination of a commercial lease by a lessor, or the exercise or enforcement of another right of a lessor of premises or land.
[7]
CONSIDERATION
In my opinion, the plaintiffs' motion for interlocutory "relief against forfeiture" should be dismissed because they have not established that there is a serious question to be tried.
They have not established that there is a serious question to be tried in that:
1. in breach of clause 14 of the lease, on or about 31 August 2019 the first plaintiff granted a sub-lease to the second plaintiff without the consent of the defendant.
2. that breach entitled the defendant, under clause 20 of the lease, to re-enter possession of the leased premises, subject to compliance with section 129(1) of the Conveyancing Act.
3. the defendant complied with section 129(1) in that he served on the first plaintiff a "notice of breach" (dated 29 September 2020) which, as events transpired, came to the attention of the first plaintiff on 6 October 2020 and thus provided the first plaintiff with a reasonable time (on the face of the notice, until 13 October 2020) to take remedial action, relevantly expressed by the breach notice to be "to remove any sub-tenants from the premises or alternatively seek [the defendant's] consent".
4. the first plaintiff took no remedial action (which, as Batson v De Carvalho (1948) 48 SR (NSW) 417 at 426-427 suggests, was capable of being taken), neither removing the second plaintiff (a corporation under the same ownership and control as the first plaintiff) as a sub-tenant nor applying to the defendant for consent to the sub-lease.
5. even if the COVID legislation otherwise applies (which, on the facts of the present proceedings, it does not), the legislation does not apply in the case of a breach of a lease covenant unrelated to rent.
6. the defendant re-entered into possession of the leased premises on 16 October 2020 after the expiry of a reasonable time (7 days or thereabouts) for the first plaintiff to have taken remedial action.
7. the first plaintiff has made no application for "statutory relief against forfeiture" under the provisions of section 129(2) of the Conveyancing Act, confining its application to a claim for an exercise of equitable jurisdiction.
8. nor has the first plaintiff at any time made an application to the defendant for his consent to the sub-lease, which application (if made before the defendant's re-entry) could not have been unreasonably withheld having regard to section 133B of the Conveyancing Act.
9. nor has the second plaintiff (as sub-lessee to the first plaintiff) made an application to the Court, pursuant to section 130 of the Conveyancing Act, for relief against forfeiture of the first plaintiff's head lease.
10. the COVID legislation, generally, does not apply to the first plaintiff because the legislation's application is limited (by clause 5 of the NSW Regulations) to "the exercise or enforcement of rights under an impacted lease in relation to circumstances occurring during the prescribed period" and the first plaintiff's lease is not a "impacted lease" (within the meaning of clause 3) because it is not a "commercial lease to which an impacted lessee is a party", the first plaintiff not being an "impacted lessee" within the meaning of clause 4. The first plaintiff is not an "impacted lessee" because (as was ultimately conceded by the plaintiffs) it does not "qualify" for the Jobkeeper Scheme under the Coronavirus Economic Response Package (Payments and Benefits) Rules, 2020 Cth. The second plaintiff does qualify for that scheme, but it is not a lessee (within the meaning of clause 3 of the NSW Regulation) vis a vis the defendant.
11. although the COVID legislation does not apply to the second plaintiff, vis a vis the defendant, because the second plaintiff is not the defendant's lessee and is not in occupation pursuant to a sub-lease granted with the defendant's consent, the legislation might have been given effect in favour of the second plaintiff, by analogy, upon an exercise of the Court's discretionary power under section 130 of the Conveyancing Act had the second plaintiff applied for an order under section 130; but the second plaintiff has made no such application.
12. upon an assumption that the COVID legislation did apply to the plaintiffs jointly or severally, it did not impede the defendant's entitlement to exercise his right of re-entry because:
1. as required by the NSW Regulation, the parties have ostensibly engaged in good faith negotiations over the rent payable under, and other terms of, the lease since 27 March 2020 or thereabouts, although each side of the record alleges a lack of good faith by the other.
2. although the plaintiffs requested the Small Business Commissioner to conduct a mediation of the parties' dispute, the plaintiffs (as the Commissioner recorded in an email dated 7 August 2020) withdrew their request for mediation and the mediation process engaged in by the Commissioner accordingly failed to resolve the parties' dispute.
I do not accept, as the plaintiffs have contended, that, even if (as I have found) the current state of the evidence does not establish that the defendant was "aware" of the sub-lease in favour of the second plaintiff and (as the plaintiffs would have it) can thereby be taken to have consented to the sub-lease, they should be restored to possession of the subject premises pending their forensic search for an evidentiary foundation for their submission that the defendant "by implication" consented to the sub-lease. The evidence on the plaintiffs' application must be taken as presented in this respect, not as (speculatively) anticipated.
[8]
THE BALANCE OF CONVENIENCE
Had I found that there was a serious question to be tried on the plaintiffs' interlocutory application for "relief against forfeiture", difficult questions would have arisen upon a consideration of the balance of convenience.
Those questions would have focussed upon a consideration of whether (and, if so, to what extent) the first plaintiff could, or should be able to, take advantage of a "mandatory" waiver (as distinct from a mere deferral) of rent. The plaintiffs' submissions, and (so far as disclosed to the Court) their offers of compromise, focussed squarely on a claim of right, under the COVID legislation, to pay no more than 25% of rent, for a period of at least six months, together with a waiver of any balance.
I note, for the record, that, when pressed, Mr Leonard offered to give to the Court an undertaking as to damages in support of a similar undertaking offered by the plaintiffs.
[9]
CONCLUSION
I make the following orders in disposition of the plaintiffs' motion:
1. ORDER that the plaintiffs' notice of motion filed on 16 October 2020 be dismissed.
2. ORDER that the plaintiffs be granted leave to amend the summons filed on 16 October 2020.
3. ORDER that any amended summons filed pursuant to that grant of leave be filed and served no later than 4 November 2020.
4. ORDER that the proceedings be listed before Lindsay J at 9.30am on 6 November 2020 for directions.
5. RESERVE to the parties liberty to apply to Lindsay J on one day's notice in the meantime.
6. RESERVE for further consideration the question whether the proceedings should proceed by way of pleadings.
7. ORDER that the plaintiffs pay the defendant's costs of their notice of motion, if any.
8. ORDER that these orders be entered forthwith.
[10]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 28 October 2020