This is an appeal by a lessor, in a retail leases dispute, from an answer given by the Tribunal to a preliminary question raised by the lessor, in a dispute about the quantum of money due to the lessor in respect of a lease of premises used as a restaurant. The lease commenced in July 2019 and came to an end in June 2022, before the expiry of its fixed term. According to Mr Spring, agent, who appeared at the hearing of the appeal for the lessee, the lease came to an end as a result of a surrender of the lease.
The Tribunal's answer, the subject of this appeal, was:
[The lessee] is not disentitled, by reason of non-payment of rent at various times, to seek the protections under the COVID Regulations and the Code and in this regard there is no forfeiture of those rights to seek protection.
The "Code" referred to in this answer was the National Cabinet Mandatory Code of Conduct concerning commercial leases released on 7 April 2020 (the Code). The "COVID Regulations" are, presumably, a reference to, at least, the Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 and the Retail and Other Commercial Leases (COVID-19) Regulation 2022, which continue to apply in the manner referred to in s 88 of the Retail Leases Act 1994 (NSW) (RLA) concerning savings of "protections" granted during the COVID-19 pandemic.
The Code included "Leasing Principles" one of which was numbered 2 as follows:
2. 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.
At the end of the Code (before Appendix 1) it was stated:
This Code comes into effect in all states and territories from a date following 3 April 2020 (being the date that National Cabinet agreed to a set of principles to guide the Code to govern commercial tenancies as affected by the COVID-19 pandemic) to be defined by each jurisdiction, for the period during which the Commonwealth JobKeeper program remains operational.
In New South Wales, this objective was achieved by the passing of the Retail and Other Commercial Leases (COVID-19) Regulation 2020, which commenced on 24 April 2020, and the subsequent remaking of this regulation, with some amendments, through regulations covering distinct periods up to 30 June 2022.
The Tribunal's answer was in the nature of an answer to a preliminary question. If answered in favour of the lessor, it would have dictated that Tribunal proceedings brought by the lessee were dismissed and that a substantial money order be made in favour of the lessor in Tribunal proceedings it had commenced.
We are satisfied that the Tribunal's answer is an "internally appealable decision", within the meaning of s 80 (1) of the Civil and Administrative Tribunal Act 2013 (NSW) (NCAT Act).
For reasons that appear below, it is unnecessary for us to determine whether the decision is an "interlocutory decision" or an "ancillary decision", as referred to in s 80 (2) (a) and (b) of the NCAT Act. This is because the decision was founded upon an error on a question of law such that if leave to appeal was required, as is the case with an interlocutory decision, we would grant such leave to appeal. If the decision was an "ancillary decision", then there is an appeal as of right under s 80 (2) (b) because it involves a question of law.
Despite such error of law, we have decided that it is not appropriate for us to order that the appeal be allowed and the decision set aside (see s 81 (1) of the NCAT Act). The error of law we have identified was involved in the question posed by the lessor and was not advanced by it as a ground of appeal. Despite the error, we consider that although the preliminary question posed by the lessor was founded on an erroneous assumption, the subsequent answer given was not incorrect in its terms and, accordingly, there is no utility in setting it aside.
We now proceed to explain the reasons for these conclusions concerning the outcome of the appeal.
The Tribunal's answer was given in two proceedings in the Tribunal between the parties. The first in time was a retail leases application commenced by the lessor in September 2022, claiming damages of $317,361.78 in respect of unpaid rent, outgoings and interest.
The second proceeding was a retail leases application commenced by the lessee in February 2023, seeking an order that it not have to pay the above amount claimed by the lessor. The lessee's application included a document titled "Defence and Cross Application", which included an allegation that the lessor had contravened the unconscionable conduct provision in s 62 B of the RLA by, amongst other things, refusing to negotiate in good faith with the lessee as an "impacted lessee".
Whilst there was a further specification in this Defence and Cross Application of relief sought by the lessee, which included a claim for an order that the lessor pay the lessee a sum of money, at the hearing of the appeal, Mr Spring informed us that, in addition to various claims for declarations, including a declaration that the lessee was an "impacted lessee", the only money order sought by the lessee was an order that the amount of money sought by the lessor was not due and owing to it (an order sought pursuant to s 72 (1) (b) or s 72 AA (1) (b) of the RLA).
At the hearing of the appeal, we were told by Mr Blank, who appeared for the lessor, that the amount claimed by the lessee was, principally, made up of unpaid rent covering the period from 25 February 2019 to 1 June 2022 and that the outstanding rent claimed included the full amount specified in the written lease between the parties ($13,557.14 per month) throughout the period of the COVID-19 pandemic. This was the claim even though the lessor, at a point in time in 2020, during the pandemic, had accepted that it would waive (not just defer) 40% of the contractual rent due for the months of April, May and June 2020.
Whilst the determination of this preliminary question was not the subject of any written agreed facts, on appeal, no issue was taken with the following part of the Tribunal's reasons:
20 The submissions on behalf of the respondent lessee, firstly cavilled as to whether the lessee was in default at the commencement of the Code, pursuant to the Regulations and secondly acknowledged that during the prescribed period, that is after commencement of the Regulations that the lessee had not made payment of the adjusted rent for the months of April, May and June 2020, but that in fact the adjusted rent was paid in full by 17 July 2020.
Whilst the Tribunal's answer refers to non-payment of rent at "various times", it appears from the reasons for decision that the only factual conclusion that the Tribunal had regard to and acted upon in respect of the non-payment of rent was the acknowledged non-payment of the adjusted rent for the months of April, May and June 2020. One of the criticisms of the decision made by the appellant was that the Tribunal failed to have regard to breaches by the lessee in respect of the payment of rent after June 2020.
The Tribunal approached the preliminary question on the basis that it needed to address the lessor's argument that failure to pay reduced rent for the months of April, May and June 2020 constituted a fundamental breach (or breaches) of the lease and that, as a consequence, the tenant forfeited any protection provided under the Code in accordance with commercial leasing principle 2 set out above (at [26] of the reasons).
The Tribunal did so on the basis that commercial leasing principle 2 was a statutory provision which prescribed forfeiture of "protections" in the events referred to in the leasing principle. Accordingly, it addressed questions as to whether the terms provided for in the leasing principle were satisfied on the facts we have referred to and then asked itself a question as to whether the subsequent payment of the adjusted rent in July 2020 rectified the earlier "material failure" (at [27]-[29]). As to this, it said (at [29]):
….
The wording in the 2nd Leasing Principle talks of the tenant forfeiting any protection, and certainly the lessor is pursuing this avenue by seeking to have the lessee be denied any consideration under the Code, that is the lessee has forfeited any rights to protection.
The Tribunal then reasoned (at [30]-[31]) that the wording of commercial leasing principle 2 lent itself to comparison to the situation of a lessee seeking relief against the forfeiture of the lease, as to which the granting of relief was discretionary, in circumstances where forfeiture was regarded as, in substance, security for rent and where relief against forfeiture would usually be granted upon payment by the tenant of rent, costs, interest and other expenses.
The Tribunal then concluded that the same analysis applied to the situation under commercial leasing principle 2 and that once the lessor had received payment of the back rent the lessor had received all that it was entitled to and it would be unconscionable to regard the material breach as ongoing so as to deny the lessee the right to seek relief pursuant to the COVID-19 Regulation and the Code (at [32]). Accordingly, it gave the answer we referred to at the start of these reasons (at [33] of the Tribunal's reasons).
On appeal, the lessor criticised the Tribunal's reliance upon the principles concerning relief against forfeiture and, amongst other arguments, contended that commercial leasing principle 2 did not contain any discretionary component because it specified that forfeiture "will" occur, not that it "may" occur.
However, as we raised with the parties at the hearing of the appeal, there was an anterior and fundamental problem with the application of commercial leasing principle 2 as if it was a statutory provision for forfeiture of rights, namely that it was the relevant COVID-19 Regulation, not the Code, which contained the law to be applied and such regulation had not adopted commercial leasing principle 2 as a statutory provision for forfeiture of a tenant's "protections".
The Code was not an exercise of legislative power. As appears from the Code itself, it contemplated the passage of legislation in each of the states and territories reflecting the policies and principles expressed in the Code.
The Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 contains the following provisions:
5 Application of Regulation
This Regulation applies to the exercise or enforcement of rights under a commercial lease in relation to circumstances occurring during the prescribed period. [Defined as the period beginning on the commencement of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 and ending at the end of 28 March 2021]
7 Obligation to renegotiate rent and other terms of commercial leases before prescribed action
(1) A lessor must not take prescribed action against the impacted lessee on the grounds of a breach of the impacted lease occurring during the prescribed period consisting of any of the following unless the lessor has complied with any obligations imposed on the lessor by this clause and clause 8 -
(a) a failure to pay rent,
(b) a failure to pay outgoings,
(c) the business operating under the lease not being open for business during the hours specified in the lease.
Note -
See leasing principles No. 1, 11 and 14 in the National Code of Conduct.
(2) A party to an impacted lease may request the other parties to renegotiate the rent payable under, and other terms of, the impacted lease.
(3) A party to the impacted lease may make a second or subsequent request under subclause (2), but, unless the parties otherwise agree, an impacted lessee may make a second or subsequent request only if the request -
(a) is made during the prescribed period, and
(b) does not relate to rent or outgoings for a period for which the rent or outgoings have already been reduced, waived or deferred following a renegotiation under this clause.
(4) A party to an impacted lease must, if requested under this clause -
(a) renegotiate in good faith the rent payable under, and other terms of, the impacted lease, and
(b) commence renegotiations within -
(i) 14 days of receiving the request, or
(ii) another period agreed to by the parties.
(5) An impacted lessee must give the lessor the following in respect of the impacted lease -
(a) a statement to the effect that the lessee is an impacted lessee,
(b) evidence that the lessee is an impacted lessee.
(6) The parties are to renegotiate the rent payable under, and other terms of, the impacted lease having regard to -
(a) the economic impacts of the COVID-19 pandemic, and
(b) the leasing principles set out in the National Code of Conduct.
Note -
See leasing principles No. 3-5, 7-10 and 12 in the National Code of Conduct.
In particular, leasing principle No. 3 in the National Code of Conduct requires landlords to offer rent reductions, in the form of waivers or deferrals of rent, proportionate to lessees' reductions in turnover.
(7) If the impacted lessee does not comply with subclauses (4)-(6), the lessor is taken to have complied with this clause.
…..
9 Tribunal and court consideration of National Code of Conduct leasing principles
The Tribunal and any court, when considering whether to make a decision or order relating to any of the following, is to have regard to the leasing principles set out in the National Code of Conduct -
(a) the recovery of possession of premises or land from a lessee,
(b) the termination of a commercial lease by a lessor,
(c) the exercise or enforcement of another right of a lessor under an impacted lease.
10 Lessor action for non-COVID-19 pandemic related reasons
Nothing in this Regulation prevents a lessor taking a prescribed action on grounds not related to the economic impacts of the COVID-19 pandemic.
….
The Tribunal referred to clause 9 of the COVID-19 regulations (at [14]), as did the appellant on appeal (we recognise that the language "is to have regard to" changed to "must consider" in subsequent versions of the COVID-19 Regulation after 13 August 2021), but the preliminary question it addressed did not involve any question as to the meaning or application of that clause. We add that it is difficult to see how any useful or sensible preliminary question arises in respect of an application of the relevant COVID-19 regulation to the disputes between the parties given the factual issues that appear to arise, including in relation to the issue concerning unconscionable conduct.
Rather, as we have already mentioned, the preliminary question and the answer given proceeded from a false premise that there existed in law, in favour of the lessor, a statutory right of forfeiture of "protections" in the terms described in commercial leasing principle 2.
Pertinently, nothing in the COVID-19 regulations provides that a lessee forfeits, or otherwise loses, any right it may have to pursue a claim for unconscionable conduct by the lessor under the RLA, or to obtain relief in respect of such conduct, relating to an alleged failure by the lessor to comply with the terms of clauses 7 (4) and (6), because there was a material failure by the lessee to abide by substantive terms of the lease.
Nor is there anything in the COVID-19 regulations that provides that a lessee is prevented from relying upon any agreement reached for the payment of a reduced rental for a period of time, because there was material failure by the lessee to abide by substantive terms of the lease.
The competing money claims by the lessor and lessee must be determined on their merits and not by reference to a resolution of the preliminary question raised by the lessor.
[2]
Orders
For the above reasons, we order that:
1. To the extent required, leave to appeal is granted.
2. The appeal is dismissed.
[3]
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
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Decision last updated: 08 August 2023