Wynsix Hotels (Oxford St) v Toomey [2004] NSWSC 236

The tenant under a lease of Torres System land applied to the Court for relief against forfeiture in respect of its lease. The tenant has had a history of late payment of rent, although rent was always eventually paid.

The tenant was also associated with a third company which had entered into transactions with the landlord. As part of the transactions that the third company had with the landlord, a mortgage of the tenant’s leasehold interest was granted to the landlord. Pursuant to this mortgage, the landlord appointed a receiver in November 2003 (there was no complaint about the right of the landlord to do this under the mortgage). However, under the terms of the lease, the landlord has a right of re-entry if a receiver appointed is appointed over any of the tenant’s assets (which included the lease).

There were therefore two bases upon which the landlord sought forfeiture of the lease: (1) the late payment of rent by the tenant and (2) the appointment of a receiver to the tenant’s asset.

Forfeiture due to late payment of rent

Citing the decision of Hope J in Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562, Young CJ noted that:

Relief against forfeiture is ordinarily given to a lessee whose sole breach is non-payment of rent where the rent has now been paid. However, the matter is always discretionary. The history of payment of rent…is relevant when considering whether such order should be refused in the exercise of the court’s discretion.

However, the court is not only limited to this factor when exercising its discretionary power to grant relief. Young CJ also considered as important in refusing relief, evidence that some of the other companies in the group were in a poor financial state.

Ultimately, Young CJ granted relief against forfeiture for late payment of rent because the landlord has in its possession, a bank guarantee which secures six month’s worth of rent. Furthermore, due to the substantial refurbishment that was made by the tenant ($500,000 in costs), re-entry would give the landlord a huge windfall which was not expected as the lease was a long term lease (5 years plus 3 options, each of 5 years).

Finally, his honour also considered that the prevailing thought amongst courts dealing with this type of case is to permit the tenant to have relief against forfeiture notwithstanding a poor rent history, at least on the first application for relief against forfeiture (for example, World by Nite Pty Ltd v Michael [2004] 1 Qd R 338].

Forfeiture due to appointment of receiver

Under section 129 of the Conveyancing Act 1919, a right of re-entry for a breach of any covenant in the lease, other than the covenant to pay rent, is not enforceable until the landlord serves on the tenant a notice specifying the particular breach, and the opportunity to remedy the breach.

Young CJ held that the clause in the lease which gave the landlord the right of re-entry if a receiver is appointed over any of the tenant’s assets, was covered by the scope of section 129, such that the landlord was required to serve a notice upon the tenant. This is so, even if the breach is incapable of remedying as the notice gives the opportunity to quickly seek relief against forfeiture before the landlord re-enters.

In this case, the landlord had given a notice to the tenant, but withdrew the notice 7 days later, citing a “misunderstanding”.

Young CJ held that even if the notice was valid, relief against forfeiture would have been given in this case, because the purpose of the clause is to protect the landlord against a situation where the tenant is in dire financial straits, which was not evident in this case: the receiver over the tenant’s leasehold interest was appointed by the landlord due to a transaction with a third company.

Relief granted by Young CJ

Taking the view that forfeiture should be given, Young CJ granted an order restraining the landlord from taking any action to enforce the two forfeitures incurred by the tenant up including approaching the Registrar General to remove the lease for purported re-entry by the landlord pursuant to section 55 of the Real Property Act 1900.

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