Thursday, 31 May 2012

Retail Leases Seminar 2012

Yesterday (30 May 2012) I filled in for Sam Hopper at a Retail Leasing Seminar. 

I spoke to Sam's papers on Terminating leases and Seeking relief against forfeiture (Sam was struck down by laryngitis). Rob Hay also spoke at the seminar. 

I follow both of their property law blogs. See: (a blog entitled "The Property Law Blog"), and 

Copies of all of the papers from yesterday are available from Legalwise Seminars (see:

The only comment I have about Sam's paper is that he displays an obvious bias when discussing V & O Princi Pty Ltd v Prestige Holdings Group Pty Ltd [2010] VSC 627 (he acted for the landlord in that case, and I acted for the tenant).

W G Stark 
Hayden Starke Chambers

Tuesday, 29 May 2012

When can a tenant that has been granted relief against forfeiture be relieved again from forfeiture?

In Lontav Pty Ltd v Pineross Custodial Services Pty Ltd [2011] VSC 485, Dixon J of the Supreme Court of Victoria looks at the issue of whether a tenant that had previously been granted relief against forfeiture should receive another grant of relief against forfeiture.

On 23 June 2011, Hargrave J granted the plaintiff, Lontav Pty Ltd, relief from forfeiture of the lease of The London Café Bar & Restaurant in Beach Street, Port Melbourne (the premises). The defendant, Pineross Custodial Services Pty Ltd, is the owner and lessor of the premises.

In that first proceeding Pineross contended that Lontav was in material breach of the lease in four respects:
1.       failure to pay rent,
2.       failure to pay interest,
3.       failure to provide an increased bank guarantee and
4.       parting with possession without prior consent of Pineross.
The fourth ground of breach arose out of dealings between Lontav and Jamal Mohammad and/or a company controlled by him, Melbourne Entertainment Corporation Pty Ltd (MEC). On 21 April 2011, Pineross terminated the lease by re-entry. The central issue for determination in the first trial was the capacity in which Mr Mohammad and MEC occupied the premises.

About 6 weeks after the first grant of relief against forfeiture, Lontav forfeited the lease on different grounds. The tenant again sought relief from forfeiture in the Supreme Court.

In the original proceeding, Justice Hargrave ordered relief against forfeiture for the established financial breaches on conditions, most of which had been met by the time of the second proceeding.

Two of the conditions required Lontav to apply for re-transfer of the liquor licence for the premises to Lontav and for the appointment of Mr Mohammad as its nominee for the balance of the trial period specified in MEC’s current liquor licence. Justice Hargrave stated that this condition was necessary to restore the position intended at all times by the parties.

Lontav was in breach of cl 17 of the lease. Clause 17 was explicitly identified as an essential term. In summary, cl 17 required the lessee lawfully to carry on a liquor supply business at the premises, but that breach was not then the subject of a notice to remedy. The condition imposed by the court to cure the lessee’s breaches of cl 17, was envisaged as an apparently straightforward matter of rectification.

On 1 July 2011, when Pineross served a notice to remedy breach in respect of the default under cl 17, transfer of the licence to Lontav had not been achieved. The breach was not remedied in the period allowed by the notice. The licence had not been transferred from MEC to Lontav when Lontav closed its case (the last day of hearing was on 20 September 2011, when the tenant sought to re-open its case and file a letter from the Director of Liquor Licensing transferring the licence back to Lontav). The liquor licence had not been in Lontav’s name for over a year at that time.

Pineross has not physically re-entered the premises (it was restrained from taking possession by injunction).

Lontav did not dispute that the lease was validly forfeited on its terms on 3 August 2011 following its failure to have the licence transferred to it as required by the Notice. Lontav sought relief from that forfeiture.

The lease term expired on 30 September 2011.

On 18 June 2011, Lontav had served a Notice of Exercise of Option under cl 26 of the lease. The validity of this exercise of option was challenged by Pineross, primarily as Lontav was in breach of cl 17 when it purported to exercise the option. Lontav did not seek relief in respect of the option notice or the enforcement of any rights to a further term of the lease in the Supreme Court proceeding. Lontav commenced the process necessary to bring the matter before VCAT, where Lontav intended to seek the necessary relief should the forfeiture be relieved in the Supreme Court.

After embarking on an examination of the history of relief against forfeiture, Dixon J refused the application for relief against forfeiture.
His Honour noted (at paragraph 12):
Courts of equity have long granted relief against the forfeiture of a proprietary interest. The modern restatement of the principles governing relief against forfeiture is that of Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] AC 691 at 723–724:
It remains true today that equity expects men to carry out their bargains and will not let them buy their way out by uncovenanted payment. But it is consistent with these principles that we should reaffirm the rights of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The word “appropriate” involves consideration of the conduct of the applicant for relief, in particular where his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach.

Dixon J explained, due to the breach by the tenant being of an essential term of the lease, insistence by Pineross on strict legal rights will not ordinarily result in an unconscionable forfeiture of the lease of the premises.

The test is whether enforcement of strict legal rights by Pineross is unconscionable or inequitable, because that conduct is taking unjust or unfair advantage of circumstances of mistake or accident in Lontav’s breach of that essential term. In Legione v Hateley, Mason and Deane JJ explained (1983) 152 CLR 406 at 447 that: 

The critical question then is: Should specific performance ever be ordered when the purchaser is in breach of an essential condition? The argument in favour of a negative answer is forceful. If parties expressly or impliedly stipulate that performance of a term is essential to their bargain then it would ordinarily be unjust to the innocent party to require him to complete notwithstanding a breach of that term. Generally speaking equity expects men to carry out their bargains and “will not let them buy their way out by uncovenanted payment’ (Shiloh Spinners Ltd v Harding, per Lord Wilberforce). Nor will it remake the parties” contract simply because it transpires that as things have happened one party has made a bad bargain. But if there be fraud, mistake, accident, surprise or some other element which would make it unconscionable or inequitable to insist on forfeiture of the purchaser’s interest under the contract because he has not performed in strict accordance with its terms there is no injustice to the innocent party in granting relief against forfeiture by means of specific performance with or without compensation.

In equity, circumstances of wilful default must be exceptional when examined for unconscionability on the part of the party strictly asserting contractual rights. It is not usually unconscionable to enforce strict legal rights where the breach is deliberate or wilful; enforcing legal rights is appropriate, for the innocent party is not taking advantage of another’s misfortune in exercising legal rights on deliberate breach. In exercising the discretion conferred by s 146(2) of the Property Law Act 1958 (Vic), whether breach is deliberate or wilful is a matter to be taken into account.

His Honour relied on Hollingworth J’s review of the principles applying on relief from forfeiture in Beamer Pty Ltd v Star Lodge Supported Residential Services Pty Ltd, [2005] VSC 236 at [442]–[443].

His Honour thought the principles relevant to the application before him were:
• The court must be satisfied, in relieving against forfeiture, that there is a reasonable expectation that the tenant will honour the lease obligations in the future. Where the tenant is guilty of conduct, beyond the notified default, of such gravity that, even accepting the notified default has been remedied, it would not be unconscionable on the landlord’s part to insist on strict legal rights, relief may be declined.
• Much of the court’s consideration of whether or not to grant relief will focus on the conduct of the tenant.
(i) A tenant must, so far as possible, attempt to remedy the breach or breaches alleged in the notice served and pay reasonable compensation for the breaches that cannot be remedied.
(ii) A tenant must come to court with clean hands and ought not to be relieved if evincing an intention to continue or to repeat the breach of covenant.
(iii) Where the conduct of the tenant reveals a clear history of wilful breaches of more than one covenant, a case of contumacious disregard by the tenant of the landlord’s rights over a period of time, and a total lack of evidence as to the tenant’s ability to speedily and adequately make good the consequences of the default, relief against forfeiture will not be granted.

His Honour concluded that the tenant in this case was not deserving of an order for relief against forfeiture, and dismissed the application.

The tenant has previously been granted relief against forfeiture and it failed to remedy another breach of its lease, despite service of a notice under section 146 of the Property Law Act, 1958.

The tenant sought to rely on a purported exercise of an option. However, at the time that it purported to exercise the option for a further term under the lease, it was still in breach of clause 17. In those circumstances, Dixon J held the purported exercise of the option was nothing more than a counter offer by the tenant. The landlord had clearly not accepted that counter offer, and so the term of the lease expired on 30 September 2011, 2 days after the judgment.

W G Stark 
Hayden Starke Chambers

Friday, 25 May 2012

Is there a recent Victorian case analysing notices of default served on a tenant?

In Primary RE Ltd v Great Southern Property Holdings Pty Ltd [2011] VSC 242 Judd J of the Supreme Court of Victoria looks in some detail at notices under section 146 of the Property Law Act, 1958.

This case arose out of the collapse of the Great Southern Group in May 2009. The Group, among other things, managed a number of forestry projects.

Judd J describes the relevant part of the Group in paragraphs 6 and 7 in this way:

[6] There were approximately 4000 investors in the scheme. The land employed in the 2007 Scheme was divided into 43,989 woodlots of approximately one third of a hectare each. The investors had, by May 2009, invested approximately $132 million in pursuit of the objects of the scheme. The relationship between the tenant, as Responsible Entity of the 2007 Scheme, and the investors was defined by a Product Disclosure Statement, a scheme constitution, the terms of each sub-lease or sub-licence, and a management agreement pursuant to which each grower engaged the tenant to prepare, establish, maintain and ultimately harvest trees.

[7] Following the collapse of the Group the tenant was unable to continue to perform its management functions, which included an obligation under each lease and forestry agreement, to “tend and maintain the Plantation Crop in a proper and skilful manner and in accordance with sound silvicultural and environmental practices adopted within the forestry industry”. It was insolvent, and in the absence of an injection of funds, did not have the money to discharge its obligations. Limited protective maintenance was carried out by the receivers for a limited time.

Notices of default

As a result of the tenant being unable to perform its duties under the various leases, from April 2010, the landlords served notices of default on the tenant alleging a breach of lease.

The notices of default required the alleged breaches to be remedied within 30 days. In addition to alleging a breach of a specific clause, each notice gave particulars of the breach, by stating the respect in which the tenants failure to perform its management obligations required remediation. For example, some notices alleged a failure to fertilise plantations or to control weeds.

Following service of the notices of default, the tenant took no steps to recommence management of the plantations, or to remedy any particular breach, or to make application for relief against forfeiture. The notices of default required payment of compensation. None was offered or paid.

Termination / re-entry

At various times after service of the notices of default, the landlords served notices of termination or re-entry.


On 17 December 2010, the landlords exchanged contracts of sale of the land with a third party purchaser. The plaintiff, Primary RE Ltd, was the new Responsible Entity for the 2007 Scheme, having been appointed to replace the tenant on 24 December 2010.

The court action

Primary challenged the validity of the notices of default and terminations by alleging that the management obligations in each lease and forestry agreement were ambiguous or uncertain; that the recitation of the breach in each notice of default was inadequate; that the notices did not allow reasonable time to remedy the breaches, or between service of the notices and termination, that the notices failed to specify compensation.

Judd J’s decision is 92 pages and 210 paragraphs long. I am focusing solely on his analysis of the requirements for a valid section 146 notice, which begins at paragraph 76.

Section 146 of the Property Law Act 

Section 146(1) and (2) of the Property Law Act 1958 is the relevant provision.
Judd J decided at paragraph 104 that the overarching breach (the insolvency of the tenant), and its consequences on particular plantations, was proved by the landlords on the balance of probabilities.

Validity of notices of default

His Honour then went on to consider the Validity of notices of default. First, he looked at the useful summary of legal principles applicable to the construction of the relevant statutory requirements in the judgment of Hodgson JA in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268. His Honour said:

308. The purpose of s [146] is to give the lessee an opportunity to remedy any alleged breaches before the lessor exercises its legal right of forfeiture: Fletcher v Nokes [1897] 1 Ch 271 at 274; Horsey Estate Ltd v Steiger [1899] 2 QB 79 at 91; Ex parte Dally-Watkins; Re Wilson (1956) 72 WN (NSW) 454 at 456.

309. In my opinion, a proper opportunity is not afforded unless the lessee is alerted to the particular breaches on which the lessor proposes to rely and what the lessor requires in order to bring about a position where termination would not occur.

310. The reported cases are concerned with notices issued pursuant to alleged breaches of covenants to repair. In Fletcher v Nokes, a notice was issued under s 14 of the Conveyancing and Law of Property Act 1881 in which the lessor alleged generally that the lessee had “broken the covenants for repairing the inside and outside” of the demised premises, and required the lessee to repair “in accordance with the said covenants”. This notice was held insufficient because the lease was over six houses and the notice did not indicate in which of the houses the default was made. North J said (at 274):

I think the notice … ought to be such a notice as will enable the tenant to understand with reasonable certainty what it is which he is required to do. I do not mean that the landlord need go through every room in a house and point out every defect. But the notice ought to be so distinct as to direct the attention of the tenant to the particular things of which the landlord complains, so that the tenant may have an opportunity of remedying them before an action to enforce a forfeiture of the lease is brought against him. In my opinion, the notice which the plaintiff has given to the defendant is not sufficiently specific. Sect. [146] says that it is to be a notice “specifying the particular breach complained of.” I do not think that is met by a notice which simply says, “You have broken the covenants for repairing.” The plaintiff has not condescended upon any details, and, in my opinion, the notice is not sufficient under s 14[6].

311. To similar effect are the statements of Collins LJ in Penton v Barnett [1898] 1 QB 276 and Lord Russell CJ in Horsey Estate Ltd v Steiger [1899] 2 QB 79. Collins LJ said ( [1898] 1 QB 276 at 281):

I think, however, that we ought to construe the words “particular breach” in the section according to the obvious intention of the Legislature, which was that the tenant should be informed of the particular condition of the premises which he was required to remedy. The expression “breach” means the neglect to deal with the condition of the premises so pointed out, and not merely failure to comply with the covenants of the lease. The common sense of the matter is, that the tenant is to have full notice of what he is required to do. He has had notice, and has failed to act on it; and with regard to that the physical condition of the premises which he was required to make good was the same when the action was brought as when the notice was given.

312. Lord Russell CJ said ([1899] 2 QB 79 at 91):

To determine the character of the required notice, what it shall contain and when it ought to be given, it is necessary to consider the scope of s 14[6] of the Act … as a whole. The object seems to be to require in the defined cases (1.) that a notice shall precede any proceeding to enforce a forfeiture, (2.) that the notice shall be such as to give the tenant precise information of what is alleged against him and what is demanded from him, and (3.) that a reasonable time shall after notice be allowed the tenant to act before an action is brought. The reason is clear: he ought to have the opportunity of considering whether he can admit the breach alleged; whether it is capable of remedy; whether he ought to offer any, and, if so, what, compensation; and, finally, if the case is one for relief, whether he ought or ought not promptly to apply for such relief. In short, the notice is intended to give to the person whose interest it is sought to forfeit the opportunity of considering his position before an action is brought against him.

313. The statements in Fletcher v Nokes, Penton v Barnett and Horsey Estate v Steiger were quoted with approval in the leading case of Fox v Jolly [1916] 1 AC 1. Lord Buckmaster LC saw no reason to depart from the statement of North J in Fletcher v Nokes, “except so far as it seeks to establish the standard — often fluctuating and uncertain — of particulars in an action as a test of the sufficiency of the notice” (at 13). His Lordship went on to say that the particulars required for a notice in respect of a covenant to repair “would not necessarily be as detailed and minute” as the particulars required in respect of a claim for damages for breach of covenant (at 14).

314. Lord Atkinson was “quite willing” to accept the statement of North J, but said that it is to be borne in mind that the notice is addressed to a person who knows, or ought to know, the nature and condition of the premises, “so that a statement might be sufficient to draw his attention to the things of which the landlord complains, which might be insufficient so to do in the case of a stranger” (at 18).

315. Lord Parmoor said (at 22):

My Lords, in my opinion a notice is sufficient to comply with s 14[6] if it specifies to the lessee the breach complained of, with such particularity, as fairly to tell him what it is he is required to remedy, if it is capable of remedy, and what it is for which he is required to make compensation in money. To determine whether a notice complies with this test depends on the information which the notice, as a whole, may be fairly said to give.

316. The impugned notice in Fox v Jolly was served by the lessor of six small houses. Annexed to the notice was a schedule of dilapidations, including, for example, “Make good all cement fillets and all flashings” and “Repair landings and other woodwork”. Lord Buckmaster LC held that the notice sufficiently specified the landlord’s complaints and gave the tenant adequate notice of what he was required to do.

317. The Australian position reflects the above authorities. …

318. In Gerraty v McGavin [1914] HCA 23 ; (1914) 18 CLR 152 at 160 (decided before Fox v Jolly), Griffith CJ quoted with approval the statement that Collins LJ made in Penton v Barnett, and held that a notice merely quoting the covenant was insufficient. Isaacs J agreed in the result with Griffith CJ, saying that a lessor (at 164–165):

[M]ust then do what he would have to do if he had brought an action, namely, specify what he says is “the particular breach,” and not merely state that there has been “a breach.” If he does that, he is not bound to go further and instruct the tenant how to repair it. That would not only be an undue burden on the landlord, but, if effectual at all, would tie the tenant down to one particular mode of repairing his fault.

319. In Dogan v Morton (1935) 35 SR (NSW) 142 at 148, Davidson J (with whom Stephen and Street JJ agreed) referred to the English authorities and concluded:

The landlord must give the kind of particulars which will draw the attention of the lessee to the particular defect in the premises which he desires to have rectified in accordance with the covenant. The indication need only be such as would enable the lessee to understand with reasonable certainty what it is that he is required to remedy.

320. In Ex parte Dally-Watkins; Re Wilson (1956) 72 WN (NSW) 454 at 456, Street CJ (with the concurrence of Roper CJ in Eq and Sugerman J) said that the object of the notice is to bring to the attention of the lessee the matters which are complained of and to give him the opportunity of rectifying what has taken place in the past, if it be capable of rectification. To do so, the “vital thing” is to alert the tenant to the term of the lease alleged to have been broken and the manner in which it has been broken. Street CJ also held that the form set out in Sch 6 is not “a piece of sacramental ritual”.

321. In Johnson v Senes & Berger (1961) 78 WN (NSW) 861 at 864, Wallace J said (referring to Horsey Estate v Steiger):

The object of this legislation includes not only the placing of restrictions on and the giving of relief against forfeiture and re-entry, but the placing of the lessee in a completely informed position so as to enable him to elect what shall be his subsequent conduct.

322. Finally, in Visser v Jacobs (1987) NSW ConvR 55-350 at 57,164, Bryson J explained that:

The underlying mechanism achieved by the working of sec [146] is that provisions of leases which create rights of re-entry are not employed to deprive lessees of valuable leasehold interests if other measures are available to bring about the desirable result that covenants of leases are complied with and breaches of them are remedied.

Bryson J acknowledged that the “degree of specificity must vary with the circumstances and with the facts already known or manifest to the lessee”. One of the bases on which the notice in Visser was held invalid was that it contained no specification of particular breaches (only the general subject of the breaches).

His Honour concluded:

323. In my opinion, the above authorities clearly indicate that a notice under s [146] must not only allege breach, but must also describe the particular acts or omissions constituting the alleged breach; and the notice must indicate the acts of the tenant which the landlord would consider sufficient for the lease to continue, and upon completion of which the landlord would abandon its claim to forfeit. The standard of particulars or degree of specificity depends upon the circumstances, including the nature of the covenant alleged to be breached, the tenant’s actual or constructive knowledge, and whether the landlord claims reasonable compensation. To use the example of Lord Buckmaster LC, where there are several options open to a tenant to waterproof a leaking ceiling, then that choice is at the tenant’s discretion. Thus s [146] is, in my opinion, directed at allowing the tenant to bring about (within a reasonable time) a state of affairs under which the landlord would not pursue forfeiture.

324. In particular, the lessee should not be left to speculate as to whether, if it took whatever action it could to remedy the specified breaches, the lessor might nevertheless proceed to terminate the lease on the basis that the breaches were not capable of remedy or that, because what the lessee did was insufficient to eliminate loss caused to the lessor by the late performance of the lessee’s obligations, the lessee was still in breach.16

Judd J noted (at paragraph 106) that the landlords submitted that the tenant was not required, in a statutory notice, to specify the means by which a breach was to be remedied. In Fox v Jolly [1916] AC 1 Lord Buckmaster LC said:

Now the schedule is attacked on several grounds. It is said that it does not tell the tenant what it is he ought to do in order to remedy the breach of which the complaint is made. I am not prepared to accede to that view of the schedule. But even if it did not, I can find nowhere in the section any words which cast upon the landlord the obligation of telling the tenant what it is that he must do. All that the landlord is bound to do is to state particulars of the breaches of covenants of which he complains and call upon the lessee to remedy them. The means by which the breach is to be remedied is a matter for the lessee and not for the lessor. In many cases specification of the breach will of itself suggest the only possible remedy. For example, complaint that a covenant to paint or to paper has been broken can only be met by painting and papering. But it does not follow that this is always so. A particular covenant to keep the roof watertight, if broken, would be sufficiently defined by a reference to the covenant, a statement that the roof had not been kept watertight, and that the tenant was required to remedy the omission; the means by which this could be accomplished would be for the tenant to determine.

The landlords in Primary submitted that the notices specified the covenants in the leases which the landlord alleged to have been breached by the tenant, and the manner in which the breach had occurred. They argued that they were not required to spell out how the tenant was to respond. They submitted that the tenant could not claim the status as a stranger which knew nothing of the land, and leases.

Judd J concluded that Primary’s complaint concerning the lack of specificity of the breaches in each of the s 146 notices was without substance. It was not for the landlord to prescribe the way in which the tenant was to remedy the breach. Nothing was being done by the tenant to tend and manage the plantations.
The decision (although quite lengthy) provides some useful insights into the requirements needed for a notice under section 146 of the Property Law Act, 1958 to be valid.

W G Stark 
Hayden Starke Chambers

Tuesday, 8 May 2012

When does a variation to a lease amount to a surrender and re-grant?

In Richmond Football Club Ltd v Verraty Pty Ltd [2011] VCAT 2104 , Senior Member Riegler of VCAT considered the effect of a surrender and re-grant of a Retail Premises Lease (over the Wantirna Club premises) in 2004, and the fact that no disclosure statement for outgoings had been provided by the landlord.

Background facts (taken from the judgment):
By an agreement dated 26 August 1998, Richmond Football Club Ltd (‘RFC’) and Verraty entered into a lease of the Wantirna Club (‘the Premises’). The lease was for 10 years commencing on 7 May 1998, with a further option term of 10 years.

Under the terms of the lease RFC was liable to pay all outgoings and land tax related to the Premises. The rent for the first year of the lease was fixed at $714,000 per annum.

The rent was to increase annually during the first 10 year term by 4% and that the rent for the first year of the option term was to be agreed or as determined by a valuer but not less than the rental paid immediately prior to the rent review date plus 4%.

In 2003, RFC contacted Verraty and claimed that anti-smoking legislation introduced in September 2002 had had an adverse effect on the profitability of the Wantirna Club. Consequently, it sought a rent review opportunity. A series of communications followed between the parties and their lawyers. Eventually, the parties executed a Variation of Lease dated 30 January 2004 (‘the 2004 Variation’).

The 2004 Variation reduced the rent, amended the rent review and bank guarantee provisions, introduced an obligation to pay GST and extended the term of the lease by 10 years to 18 May 2018.

Until December 2009, RFC continued to pay outgoings and land tax in accordance with the express terms of the lease.

Shortly before 9 December 2009, Verraty received two letters from RFC. The first letter sought to renegotiate the terms of the lease as a consequence of further changes made to the gaming laws in Victoria. The second letter stated that RFC had received legal advice that the 2004 Variation had effected a surrender and re-grant and therefore, the tenancy became subject to the Retail Leases Act 2003 (‘the RLA’) from the date that the 2004 Variation was entered into.

Under the RLA (s.46), RFC is not liable to contribute to any outgoings until it is given a statement of outgoings. No such statement of outgoings had been provided to RFC up until that time. Further, under s.50 of the RLA, any provision of retail premises lease is deemed void to the extent that it makes a tenant liable to pay an amount for land tax.

RFC argued before VCAT that the 2004 Variation operated in law as a surrender and re-demise of the lease - principally because it significantly extended the term of the original lease. Consequently, the lease was governed by the RLA (because that Act applies to retail premises leases entered into or renewed after 1 May 2003).

By operation of the RLA, RFC was not required to pay land tax or outgoings from the date that the parties entered into the 2004 Variation. Therefore, it sought to recover amounts paid in respect of that expenditure.

The landlord argued that the RLA does not apply to the lease as varied because the 2004 Variation effected a variation and not a surrender and re-grant. Alternatively, it argued that RFC is estopped from asserting its rights under the RLA or otherwise is not entitled to the relief it seeks.

The member concluded at paragraph 38 that:

In my opinion, the substantial changes made to the original lease - by significantly extending the term of the lease, altering the rent payable, and imposing an obligation to pay GST - clearly operate at law to effect a surrender and re-grant on substantially the same terms as the original lease as amended by the 2004 Variation. 

The member found further (at paragraphs 46 and 47):
The cases referred to [by Verraty] … are situations where the parties were aware of their rights but chose not to exercise them. The present situation is different. There is no evidence to suggest that either party was aware of their rights or obligations arising under the RLA when the 2004 Variation was executed. Indeed, the evidence suggests and I find, that RFC was completely ignorant that the 2004 Variation may have constituted a surrender and re-grant, with the obvious consequence of the RLA then governing the relationship between the parties.

In my opinion, there can be no estoppel by convention in the present case because RFC was unaware of its rights under the RLA until it first raised the issue in 2009. The situation might be different if RFC had been aware that the 2004 Variation had the effect of introducing the RLA but nevertheless chose to ignore whatever rights or obligations arose under that Act. However, that is not the case here. Therefore, I do not accept that the elements of estoppel by conventional (sic) have been established.

Retail premises lease
The member found (in paragraph 62) that the lease was a retail premises lease, within the meaning of that term as defined in the RLA.

In those circumstances, RFC sought to recover land tax in the sum of $143,675 paid between 1 April 2004 and 4 December 2009 and outgoings in the sum of $81,855.78 in respect of municipal rates and $6,516.05 in respect of water rates, said to have been paid in breach of certain provisions of the  RLA.

The member further found (at paragraphs 98 and 99):

In my opinion, the payment of outgoings is analogous to the payment of rent, in that it has a direct connection with the use and occupation of the Premises. In my view, The Dog Depot applies in respect of the payment of outgoings. Good consideration was received for the money paid in respect of outgoings. That being the case, it would be unconscionable or unfair to allow RFC to be repaid moneys in respect of outgoings.

Therefore ... the claim for money had and received, in so far as it relates to outgoings, must fail.

Land tax  
The member reached a different conclusion about land tax (at paragraph 104):

In my view, the consideration given by Verraty for the payment of land tax is severable. It is analogous to the imposition of the withholding tax in David Securities. There is no right nor can there be a right to require RFC to pay land tax owed by Verraty pursuant to the terms of the lease. That consideration fails and in my opinion, does not give rise to a defence to the restitutionary claim made by RFC.

The member found that the landlord was obligated to repay RFC $125,320 being money had and received in respect of land tax mistakenly paid by RFC after 29 October 2004 (ie 6 years before the proceedings were issued).

The case confirms that parties should be extremely careful when re-negotiating the terms of their existing leasing arrangments to ensure that they do not trigger any unwanted consequences, by effecting a surrender and re-grant in circumstances where legislation has intervened to impose different obligations on the parties.

W G Stark
Hayden Starke Chambers