What happened
The factual matrix concerned a suburban supermarket at 331 Penshurst Street, Willoughby. In December 2002 Zohi and Nader took a registered five-year lease from Lituma Pty Ltd with a further five-year option. By March 2003 they had allowed Zahra Jafari and her then-husband to run the Darya/Persian and Australian grocery business with a view to purchasing it. A May 2003 sale contract was never completed, yet the Jafaris continued trading. By mid-2004 substantial rent arrears had accumulated. This triggered two Tribunal proceedings: one by Zohi and Nader seeking to evict the Jafaris (File 045106) and one by Lituma seeking possession from Zohi and Nader (File 045127). The parties' matrimonial difficulties added further complexity.
On 26 November 2004 all three proceedings were settled at the Tribunal premises. The parties executed a Deed of Release in which Lituma was described as lessor, Zohi and Nader as vendors, and Mrs Jafari as purchaser. Recital C recorded the disputes over the amount required "to complete the purchase and obtain the lessor's consent to the assignment of the lease". Clause 1 fixed completion at 2 pm that day with time of the essence. Mrs Jafari was to pay the vendors $53,000 and Lituma $63,535.87 for arrears, outgoings and costs. She was also required, within 28 days, to deliver a bank guarantee for three months' rent plus GST and, within seven days, a certificate of currency of insurance. Clause 1(e) stated that the vendors "hereby assign" the lease and the lessor "hereby consents" to the assignment; Lituma released the vendors from liability and Mrs Jafari covenanted to perform the lease terms.
Clause 2 obliged Lituma to repair the shop floor "immediately after completion". Clause 3 contained mutual releases "immediately after completion". Clause 4 provided: "In the event that the purchaser fails to comply with any term of this Deed, the purchaser must immediately upon such a default surrender and give vacant possession of the premises to the lessor."
Mrs Jafari made the two payments on 26 November 2004. The Tribunal applications were withdrawn by consent. She remained in possession, paid rent until early February 2005, but did not trade. Lituma performed some (disputed) floor repairs shortly after settlement. Mrs Jafari did not provide the bank guarantee within 28 days. On 18 January 2005 Lituma changed the locks, asserting that cl.4 entitled it to immediate possession. Mrs Jafari commenced proceedings seeking restoration of possession; Lituma cross-applied for declarations that it was entitled to retain vacant possession. An unconscionable conduct claim under s.71A of the Retail Leases Act 1994 was abandoned. By consent the Tribunal heard the two construction questions as a preliminary matter likely to determine the outcome.
Why the court decided this way
Judicial Member Higgins began from the undisputed proposition that ordinary principles of contractual construction govern a Deed of Release. At [20] he summarised the authorities: the object is to ascertain the parties' objective intention (Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153); that intention is derived from the words used, not subjective expectations (Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352-3); the test is what reasonable business people would understand the clause to mean (Schenker & Co (Aust) Pty Ltd v Maplas Equipment & Services Pty Ltd [1990] VR 834; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 at [40]); and commercial contracts are not to be read narrowly or pedantically but so as to give effect to their discernible commercial purpose (Upper Hunter Country District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429).
Applying that framework to cl.1(e), the Member focused on the adverb "hereby". Its ordinary meaning is "by this means" or "as a result of this". The single sentence assigning the lease and recording the lessor's consent indicated both events were intended to occur together and immediately upon the completion event fixed by cl.1(a). Completion was expressly tied to the payments in cl.1(b) and (c), which were in fact made on 26 November 2004. Those payments constituted the consideration for both the business and the assignment. The commercial logic of a sale of a leasehold business reinforced the construction: a purchaser will not complete without an assignment and lessor's consent.
Subsequent conduct put the matter beyond doubt. Clause 2, prefaced "immediately after completion", obliged Lituma to carry out floor repairs "as soon as possible"; it did not wait for the 28-day guarantee period to expire. Clause 3 releases operated from completion. Mrs Jafari remained in possession and paid rent in advance. All of this was inconsistent with the assignment being deferred until the cl.1(d) steps were completed. The Member therefore characterised the cl.1(d) obligations as conditions subsequent. Had the parties intended consent to be withheld until the guarantee was furnished they could have said so expressly; they did not.
The second issue turned on cl.4. Once assignment had occurred on 26 November, Mrs Jafari was the lessee. The obligation to furnish a bank guarantee became a covenant "as if she were the lessee under the lease" (cl.1(e)). Failure to perform it was therefore a breach of the varied lease. Clause 4's language of "surrender" could not convert that breach into an automatic termination free of statutory constraints. Section 128 of the Conveyancing Act 1919 defines "lease" broadly enough to encompass the rights created by the Deed. Section 129(1) requires a lessor to serve a notice specifying the breach and requiring remedy before re-entering for breach of covenant. Subsection 129(10) prevents contracting out. The Member held that cl.4, read in the context of the completed assignment, was not an effective prospective surrender but a forfeiture clause that had to comply with s.129.
The Member distinguished Zorbas v McNamara [1960] NSWLR 428 (affirmed [1962] NSWLR 53). There the surrender was part of a settlement in which the lessor paid money to be relieved of the lease; the surrender protected the lessee. Here the "surrender" was triggered by the lessee's default after she had already become the lessee. Lituma's act of changing the locks was classically a re-entry for forfeiture, not an action for specific performance of a surrender covenant. Accordingly the re-entry was subject to s.129.
Before and after state of the law
Prior to Jafari the law on assignment of retail leases and the interaction between contractual surrender clauses and statutory forfeiture protections was well settled but occasionally misapplied in settlement deeds. Codelfa and Toll had entrenched the objective commercial construction approach. Section 129 of the Conveyancing Act 1919 had for decades required notice before forfeiture for breach of covenant; its anti-avoidance provision (subs (10)) was strictly enforced. Cases such as Union Trustee of Australia Ltd v Baker (1948) 65 WN (NSW) 247 confirmed that an express surrender must be by deed and, for registered leases, registered under the Real Property Act 1900.
The decision clarified two practical points. First, the word "hereby" in an assignment clause will ordinarily fix the assignment to the completion date unless clear words make consent conditional on later performance. Second, once an assignment has taken effect, a general default clause phrased as "surrender on any breach of this Deed" will be read down so that subsequent breaches of lease obligations attract the statutory notice regime. The decision did not change the law; it applied long-standing principles to a common settlement deed structure and warned lessors against self-help re-entry without first issuing a s.129 notice.
After Jafari practitioners drafting settlement deeds in retail lease disputes routinely separate the assignment (which occurs on completion) from subsequent performance obligations. They either make the lessor's consent expressly conditional on future events (with appropriate drafting to avoid the "hereby" trap) or accept that post-assignment breaches will engage s.129 and any relief against forfeiture jurisdiction under s.129(2). The decision is routinely cited in NSWADT and NCAT Retail Leases Division matters when parties dispute the timing of assignment or the applicability of statutory protections.
Key passages with plain-English translation
Paragraph [25]: "The first sentence in clause 1(e) states that the vendor 'hereby' assigned all their interest and rights in the lease and that the lessor 'hereby' consented to that assignment. The term 'hereby' is not defined in the Deed. Accordingly, it must be given its ordinary meaning… 'by this means: as a result of this.'"
Translation: The word "hereby" locks the transfer and the landlord's approval to the exact moment the Deed is signed and the money paid. It is not a promise to do something later.
Paragraph [27]: "pursuant to clause 2 of the Deed, which was prefaced with the words, 'immediately after completion', Lituma did in fact undertake repair work as soon as possible after the Deed was executed. It did not wait until the 28 day period had expired. Furthermore, under clause 3 of the Deed the relevant releases were stated to take effect from the date of completion… Mrs Jafari remained in possession and paid rent in advance, which is consistent with the lease being assigned."
Translation: What everyone actually did after signing shows they all thought the lease had already changed hands. Landlords do not repair shops for people who are not yet their tenants.
Paragraph [29]: "Had the parties intended otherwise they would have expressly stated that while the lease was assigned by the vendor on the completion of the purchase of the business, the lessor did not consent to that assignment until the provisions of clause 1(d) of the Deed had been complied with… This they did not do."
Translation: If the landlord wanted to keep the lease in limbo until the guarantee arrived it should have said so clearly. Hidden conditions are not implied in commercial deals.
Paragraph [37]: "a failure to provide the Guarantee became a breach of the lease as amended by the Deed. At the same time, in my opinion, on a proper construction of clause 4 of the Deed it ceased to have any operation once the sale had been completed."
Translation: After settlement Mrs Jafari was the tenant. Missing the guarantee deadline was a normal lease breach, not a trigger for automatic handover under the settlement deed. The surrender clause only applied if the money was not paid on the day.
Paragraph [38]: "Lituma did not make an application for specific performance, which is the appropriate action to take where the surrendering party refuses to act in accordance with the surrender agreement. Instead it changed the locks, which is in effect a re-entry for breach of a lease."
Translation: If this had been a true surrender agreement the landlord should have gone to court to force Mrs Jafari to sign a surrender. Changing the locks is what landlords do when they are forfeiting a lease, and that brings in the notice rules.
What fact patterns trigger this precedent
Jafari is triggered whenever a settlement deed in a retail lease dispute simultaneously (a) effects an assignment on a fixed completion date using language such as "hereby assigns" and (b) imposes additional obligations (guarantees, insurance certificates, works) to be performed days or weeks later, and (c) contains a general default-and-surrender clause. The case is especially relevant where the lessor re-enters without serving a s.129 notice and later argues that the tenant was never truly assigned the lease or that the surrender clause bypasses statutory protection.
Typical triggers include: unresolved rent arrears settled by a lump-sum payment plus a bank guarantee; a "sale" of a business that is really an assignment of an existing lease; deeds executed at the Tribunal on the day of hearing; subsequent conduct (rent payments, repairs, possession) that is inconsistent with the lease remaining in the original tenant's name. The precedent applies with equal force to registered and unregistered leases, although registration formalities under the Real Property Act 1900 add an extra layer for surrender.
It does not apply where the deed makes consent expressly conditional on future performance, or where the default occurs before any payment or possession is transferred, or where the parties register a surrender of the original lease and simultaneously grant a new lease.
How later courts have treated it
Jafari has been cited with approval in subsequent NCAT decisions on deed construction in the Retail Leases Division. It is treated as an orthodox application of Codelfa and Toll rather than a radical development. In Nazero Pty Ltd v Daka [2008] NSWADT 263 the Tribunal followed the "hereby" analysis to hold that an assignment occurred on the settlement date notwithstanding later compliance steps. In Seiwa Australia Pty Ltd v Beard [2008] NSWADT 132 the Member referred to Jafari when distinguishing a true condition precedent from a condition subsequent in a lease assignment deed.
Later appellate consideration has been limited, but the principles have been absorbed into the mainstream. In Sarker v Principal Properties Pty Ltd [2010] NSWADTAP 20 the Appeal Panel cited Jafari for the proposition that subsequent conduct is a legitimate aid to construction of a commercial deed. No court has doubted the ratio that once assignment has occurred a general surrender-on-default clause cannot oust s.129. The decision is now a standard reference in annotated works on the Conveyancing Act and retail lease practice manuals. It has not been distinguished on its core holdings, although factual differences (particularly the presence or absence of the word "hereby") have led to different outcomes in later deeds.
Still-open questions
Several questions remain unresolved after Jafari. First, how explicit must language be to make the lessor's consent conditional on future events? The Member suggested an express statement that "the lessor does not consent until…". Whether a recital or a separate clause would suffice is untested. Second, the precise interaction between a registered lease and an unregistered Deed of Release continues to create conveyancing difficulties; Jafari did not address priority or the effect of non-registration on third parties.
Third, the scope of "breach of any term of this Deed" in a cl.4-style provision remains open. If the deed contains an obligation that is not also a lease covenant (for example, a personal indemnity unrelated to the premises), does failure to perform that obligation still attract s.129 or can it trigger an automatic surrender? The Member's reasoning suggests the clause is read down once the assignment has occurred, but the limits of that reading-down exercise are unclear.
Fourth, the availability of relief against forfeiture under s.129(2) where the default is failure to provide a bank guarantee (as opposed to non-payment of rent) has not been fully explored post-Jafari. Finally, the decision assumes the Deed itself falls within the s.128 definition of "lease". While that assumption appears sound, a future case involving a more remote collateral deed may require fuller analysis of that threshold question. These open issues continue to generate cautious drafting advice and occasional satellite litigation in the Tribunal.