Fu-Laihsu v Graham Retailers Pty Ltd
[2003] QDC 20
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- Fu-Laihsu v Graham Retailers Pty Ltd[2003] QDC 20
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Fu-Laihsu v Graham Retailers Pty Ltd[2003] QDC 20
Fu-Laihsu v Graham Retailers Pty Ltd[2003] QDC 20
DISTRICT COURT OF QUEENSLAND
CITATION: | Fu-Laihsu & Anor -v- Graham Retailers Pty Ltd & Ors [2003] QDC 020 |
PARTIES: | STEVE FU-LAIHSU and JOYCE HSUEH-HUA CHIU (Plaintiffs) v GRAHAM RETAILERS PTY LTD (First Defendant) and DAVID FREDERICK GRAHAM (Second Defendant) and PETER ALLAN GRAHAM (Third Defendant) |
FILE NO: | D5723 of 2001 |
DIVISION PROCEEDING | Application |
DELIVERED ON: | 07 February 2003 |
DELIVERED AT: | Brisbane |
HEARING DATES: | |
JUDGE: | Wolfe C.J.D.C. |
ORDER: | Judgement given for the plaintiffs against the defendants in part, in the sum of $14,644.79. Leave granted to defendants to defend balance of the claim. Defendants to pay plaintiff’s costs of and incidental to the application. |
CATCHWORDS: | PRACTICE – summary judgment for the plaintiff LANDLORD AND TENANT – forfeiture and abandonment – termination of lease ESTOPPEL – Conduct CASES CITED The following cases were cited in the judgment: McSimmons v Lee [1998] 2 Qd R 671 Ripka Pty Ltd v Maggiore Bakeries Pty Ltd [1984] VR 629 Leda Commercial Properties Pty Ltd v DHK Retailers Pty Ltd (1992) 111 FLR 81 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1988) 166 CLR 623 Shevill v Builders Licensing Board (1982) 149 CLR 620 Progressive Mailing House Pty Ltd v Tabali Pty Ltd 157 CLR 17 Re Stewart; ex parte Overall’s Pty Ltd [1941] St. R. Qd. R. 175 Hanoitis v. Dimitriou [1983] VR 498 Oastler v. Henderson (1877) QBD 575 Wood Factory Pty Ltd v. Kiritos Pty Ltd [1985] 2 NSWLR 105 Ex parte Whelan [1986] 1 Qd R 500 Ex Parte Taylor [1980] Qd R 253 McFadyen v. Measures (1910) 10 SR (NSW) 190 BBF Toowoomba Pty Ltd v. Nabrean Pty Ltd [2001] QSC 313 Commonwealth v. Verwayen (1990) 170 CLR 394 Morris v. FAI General Insurance Co Limited [1996] 1 Qd R 495 Waltons Stores (Interstate) Ltd v. Maher (1987) 164 CLR 387 McPhee v. Zarb [2002] QSC 4 Section 124 Property Law Act 1974 |
COUNSEL: | Mr Paul Kronberg for the applicant Ms Sue Brown for the respondent. |
SOLICITORS: | Leo Cruise & Co for the applicant |
- [1]This is an application for summary judgment against the defendants for approximately $56,000 in respect of obligations arising under a 10 year lease commencing on 17 December 1996 and a deed of guarantee and indemnity. The damages claimed include the sum of $39,205.28 in respect of rent and operating expenses said to have accrued since 1 November 2001. The plaintiffs claimed that the first defendant as lessee had repudiated the lease, which was made between the plaintiffs’ predecessor in title as lessor and the first defendant as lessee.
- [2]The second and third defendants as guarantors had entered the deed of guarantee in respect of the lease on 22 October 1996.
- [3]In July 1997 the land subject to the lease was sold to the plaintiffs who became the registered proprietors thereof on 7 July 1977. In the relevant circumstances, having regard to the terms of the lease and the guarantee the plaintiffs took the benefit and burden of the lease and the benefit of the guarantee and indemnity on acquiring the reversion: see McSimmons v. Lee [1998] 2 Qd R 671; the definition of “landlord” in clause 1.1 of the lease and in clause 1.1 of the deed of guarantee.
- [4]The defendants admitted that rent and estimated operating expenses were unpaid from 1 November 2000. However they resisted summary judgment on the grounds that the plaintiffs had re-entered and excluded the first defendant and taken possession of the premises by changing the locks (“the lockout”) without giving the requisite notice to remedy breach of covenant. The defendants asserted they had accepted this repudiation terminating the lease on 14 March 2001. It was said that the plaintiffs had repudiated the lease by unlawful re-entry so that the defendants were not liable for rent and operating expenses from the time the defendants accepted the repudiation. The first defendant also counterclaimed by reason of the lockout it lost the opportunity to earn profits and claimed damages in respect thereof. The plaintiffs however asserted there had been no re-entry by the lockout, that the first defendant had vacated or abandoned the premises so that the plaintiffs were permitted to change the locks without the plaintiffs having accepted or being deemed to have accepted a surrender of the lease as, having regard to clause 16.14 of the lease, the lockout did not effect a re-entry. Accordingly the plaintiffs said the lease had not come to an end until 28 November 2001 when they gave notice of termination relying on their notice of I March 2001 to remedy breach of covenant for unpaid rent.
- [5]The defendants also asserted that the plaintiffs were estopped from enforcing the provisions of the lease in relation to the non-payment of rent having regard to the course of conduct and conversations between the plaintiffs’ solicitor and the second defendant who is a director of the lessee and a guarantor. The defendants said that the moneys claimed in respect of the period 1 November 2000 to 22 February 2001 were not owing on 22 February 2001 for, as a result of the defendants dealings with the solicitor in the three month period leading to the lockout, the defendants had been given a reasonable time to find a replacement tenant, and so rent and outgoings were not payable until a suitable replacement tenant was found or a reasonable time had elapsed.
- [6]It is convenient to consider two rental periods, the first from 1 November 2000 to 22 February 2001, and then from 23 February 2001 to 7 January 2002. For the purposes of the summary judgment application, it was not asserted that rent or estimated operating expenses which had accrued prior to 1 November 2000 were unpaid. The plaintiffs did not press for damages accruing after 7 January 2002.
- [7]The first period begins after the defendants and the plaintiffs’ solicitor, Mr Cruise, had had numerous conversations discussing the defendants’ efforts to obtain a replacement tenant and concludes when the plaintiffs changed the locks on the premises without notice to the defendants. The second period begins after the lockout and includes the giving of a s. 124 Notice to Remedy Breach of Covenant dated 1 March 2001 specifying rent and outgoings due; the defendants accepting by reference to the lockout, the plaintiffs’ “repudiation” on 14 March 2001; the plaintiffs delivering to the first defendant a Notice of Termination of the lease on 27 November 2001, and ends on 7 January 2002 as on 8 January 2002 the plaintiffs entered into a new lease with a replacement tenant.
The Facts
- [8]The subject of the lease was a shop in a shopping centre (“the premises”). The first defendant had entered into a licence agreement with a retailer in about June 1997 permitting a retailer to occupy the premises and operate a business therefrom. With the knowledge of the plaintiffs, the retailer’s interests under licence were transferred in May 1998 to another retailer and under the first defendant’s licence agreement, the retailer paid rent and other outgoings payable under the lease directly to the plaintiffs.
- [9]For the purposes of the application, it was not in dispute that, between November 1998 to late 1999, the second defendant, who is also a director of the first defendant, had many conversations with the plaintiffs’ solicitor, Mr Cruise, about the problems with the premises, asking for a reduction in rent and discussing replacement tenants.
- [10]In acting as solicitors for the plaintiffs, Mr Cruise acted within the scope of his authority as agent for the plaintiffs.
- [11]On 16 August 2000, the first defendant advised Mr Cruise in writing that the retailer would vacate the premises, that the first defendant had decided to close the shop and had found a replacement tenant. The retailer finally quit possession of the premises in October 2000. The shop remained empty.
- [12]On 6 September 2000, Mr Cruise wrote to the first defendant in response to the managing director’s letter of 16 August 2000 advising of its intention to cease business at the shop. Mr Cruise asked for information about the proposed assignee and said:
“Should you want to assign the lease to a new tenant, the procedure set out in Clause 14 of the lease must be followed and, until the landlord consents to the assignment pursuant to Clause 14, you and the guarantors to the lease will be responsible for its performance. In this respect, would you please ensure that rent for the month of August and September 2000 are paid immediately as no assignment will be allowed while the payment of rent is in arrears.”
- [13]On 4 October 2000, the plaintiffs’ solicitor wrote to the first defendant enclosing a notice to remedy breach of contract also signed by the solicitor for the plaintiffs in respect of the September and October 2000 rent and estimated operating expenses as well as the rent and operating expenses “on and from 1 November 2000 paying each monthly instalment on or before the first day of each month”. His letter also advised that:-
“our clients’ patience has finally run out and they now insist on strict compliance with the terms of the lease in relation to payment of rent and outgoings. If any further breaches occur, our clients will rely on their rights under the lease to terminate the lease and claim compensation”
Under the lease the tenant was required to pay rent on or before the first day of each month.
- [14]During October 2000 and prior to the retailers vacating the shop on 26 October 2000 the second defendant and Mr Cruise had had numerous telephone conversations. The second defendant deposed to his keeping the solicitor informed about the difficulties experienced with the retailer, that he advised the solicitor that the first defendant would act diligently and reasonably in advertising the premises and trying to obtain a suitable replacement tenant or sub-tenant and that he expected that a suitable tenant would be found within a few months. He also deposed to the solicitor’s advising him that any replacement tenant or sub-tenant must be suitable to the plaintiffs that their consent would be required for any assignment or sub-lease of the lease and reiterating the advice contained in the letter of 6 September 2000, that is, that a condition of the plaintiffs’ consent to any assignment or sub-lease would be that the first defendant pay to the plaintiffs all outstanding arrears of rent and that the first defendant would not be released from its rental obligations under the lease which would need to be settled prior to any assignment, but the plaintiffs and Mr Cruise would co-operate with the first defendant in trying to locate a suitable replacement tenant or sub-tenant.
- [15]The second defendant deposed in para 18(b)(iii) of his affidavit that he understood from this that the first defendant “would not be obliged to settle any rental arrears until a suitable tenant was found”, and because of those conversations the first defendant did not pay any rent or outgoings after November 2000 (para 19). Mr Cruise, the plaintiff’s solicitor, deposed that he had consistently advised the defendants that they must abide the terms of the lease in relation to the payment of rent and outgoings and assignment of the lease to another party and that, at no time, did he advise the second defendant that the first defendant would not be obliged to pay rent until a suitable tenant was found.
- [16]The second defendant and the solicitor had telephone contact during October/November and early December. The second defendant deposed that “at no time during any of these conversations did Cruise say anything to the effect that the plaintiffs would pursue recovery of the outstanding rent before a new tenant was found”.
- [17]The first defendant made payments in respect of rent and outgoings but on 4 December 2000 Mr Cruise wrote to the defendants about the plaintiffs’ miscalculation of the actual amount of rent and outgoings due and advised that the plaintiffs did not seek to recover the full amount of outgoings underpaid. He advised of the amount of rental payable from 17 December 2000.
- [18]Between October 2000 and February 2001, the first defendant engaged real estate agents to find a replacement tenant or sub-tenant and, in that period, the second defendant kept Mr Cruise informed about the first defendant’s efforts to locate replacement tenants. On 29 November 2000 the solicitor wrote to the defendants about the terms on which the plaintiffs would enter a lease with a proposed tenant who had been found by the defendants’ real estate agents to whom the solicitor had spoken. He also advised that he would send details of the rent review due on 17 December in a separate letter. As the defendants conceded, all rent and outgoings payable under the lease continued to accrue. It was also conceded that the first defendant would be liable to pay them at some time – either when a new tenant took over the lease under a licence or sublease, at a time when the plaintiffs reiterated their stance as set out in the letter of 16 September 2000 or after a reasonable time in which to find a new tenant had expired.
- [19]Events had overtaken the Notice to Remedy Breach of Covenant dated 4 October 2000 in respect of the September and October 2000 rent. However, the first defendant did not pay base rent for the months of November and December 2000, nor the estimated operating expenses for the months of November 2000 to March 2001 inclusive.
- [20]On 22 February 2001, both plaintiffs personally went to the premises and found the shop locked with nobody in attendance as they had in December, and also observed that furniture and fittings had been removed. Without notice to the defendants, the plaintiffs changed the locks on the premises. The plaintiffs assert that the first defendant had abandoned the premises.
- [21]On or about 1 March 2001, the plaintiffs gave a notice to remedy breach of covenant in respect of rental and operating expenses payable under the lease since 1 November 2000 and also on 1 March 2001 the plaintiffs retained real estate agents to find a new tenant. However, on or about 14 March 2001 the first defendant, referring to the lockout on 22 February, asserted there had been no delivery of notice to the first defendant and that the lockout evinced an apparent intention not to be bound by the lease, which constituted a repudiation of the lease. That letter advised that the first defendant accepted that repudiation, that the lease was terminated and that the first defendant was no longer bound by its terms.
- [22]According to Mr Cruise, the plaintiffs were willing to allow the first defendant to have the premises inspected by such persons as it saw fit by arrangement with the plaintiffs’ real estate agent but the plaintiffs would not be given a key unless all arrears of rent and outgoings were paid. Mr Cruise said that he consistently advised the defendants that they must abide the terms of the lease in relation to the payment of rent and outgoings and assignment of the lease to another party. However, he did not assert that the first defendant was required to carry on business from the premises.
- [23]On 22 November 2001, the plaintiffs served a Notice of Demand on the guarantors (the second and third defendants) demanding the sum of $205,569.02, the plaintiffs’ then estimated loss.
- [24]On or about 28 November 2001, the plaintiffs delivered a Notice of Termination of Lease, relying upon the failure to remedy the breaches of covenant detailed in the notice of 1 March 2001.
- [25]On 8 January 2002, the plaintiffs entered a five year lease with a new tenant on terms less favourable to the plaintiffs than the first defendant’s lease. The plaintiffs do not claim for loss of rent and estimated operating expenses subsequent to the commencement of the new lease.
- [26]By its defence and counterclaim the defendants pleaded that the changing of the locks constituted repudiation by the plaintiffs of the lease which was accepted by the letter of 14 March 2001 and by its counter claim, alleged that, because of the course of conduct relating to the attempts to find a tenant and the change of locks on 22 February 2001, the first defendant was unable to find another suitable replacement tenant or sub-tenant, thus sustaining loss and damage. Under the Deed of Guarantee and Indemnity, the second and third defendants guaranteed the tenant’s performance of all provisions of the lease and agreed to pay on demand all amounts payable by the tenant if the tenant did not “strictly discharge” its obligations. The guarantee and indemnity is a continuing security.
The Lease
- [27]Under the lease the first defendant was required to operate a shop under a brand name selling ice cream etc. from the premises (see the description of the “permitted use” in Schedule 1 to the lease). Clause 7.1 required the first defendant to use and occupy the premises during normal business hours for the purpose of the permitted use. Clause 7.1 also provided:-
“… The Tenant shall cause the Demised Premises to be adequately staffed and stocked for the Permitted Use to be conducted in a proper, reputable and businesslike manner. The Tenant shall not use the Demised Premises for any purpose other than the Permitted Use without the Landlord’s prior consent. If the Permitted use and the Tenant’s Business are not identical the delay of the Landlord to take action in respect of the Tenant’s default under this clause shall not be:
- (a)a consent under this clause; or
- (b)a waiver of the Landlord’s rights in respect of such default.”
- [28]Prima facie on 22 February 2001 the first defendant was in default under Clause 7.1 as no ice-cream shop, nor indeed any shop had operated from the premises since October 2000 when the retailer quit the premises, and the November-February rent had not been paid.
- [29]Part 16 of the Schedule to the lease provides for the tenant’s default. Clause 16.1 contains a definition of “default” so that the tenant is in default if rent or estimated operating expenses are unpaid after the due date whether or not any demand has been made (paras (a) and (b)); or if the tenant does not observe or perform any of the “essential terms of the lease” on the tenant’s part (para (f)); or if the tenant does not observe or perform any of the “other provisions on the tenant’s part and such failure continues for 7 business days”; or if the tenant abandons or vacates the demised premises (para (m)).
- [30]Clause 16.3 defines certain covenants in the lease as essential terms of the lease. These include the covenant to pay rent and estimated operating expenses (clauses 4.1 and 4.2) and the covenant to use and occupy the premises during business hours for the purpose of the permitted use (clause 7.1). Clause 16.2 provides:-
“16.2Forfeiture of Lease
If the Tenant is in default, the Landlord may without limitation to any other method of termination and after giving prior notice where required by law or the Provisions, immediately or at any time afterwards:
- (a)re-enter into and take possession of the Demised Premises and repossess and enjoy the Demised Premises upon that re-entry this lease shall be terminated.
- (b)by written notice to the Tenant terminate this Lease. Upon that notice being given, this Lease shall be terminated; or
- (c)by written notice to the Tenant elect to convert the unexpired portion of the term into a tenancy from month to month. Upon such notice being given, this Lease shall be terminated…..
The termination of the Lease shall not effect or limit the entitlement of the Landlord to recover damages."
- [31]Clause 16.4 requires the tenant to compensate the landlord for any loss or damage suffered as a result of the tenant’s breach or default, including under clause 16.5 loss or damage suffered where the tenant defaults under an essential term. Clause 16.5 provides for compensation for loss or damage for the entire term where the tenant defaults under an essential term and the landlord accepts the tenant’s repudiation.
- [32]The lease contains the usual non-waiver provisions and in particular clause 16.7 provides that the landlord’s failure to act in respect of any default or breach of the tenant shall not be construed as a waiver of or consent to or ratification of that default or breach and that any waiver, consent or ratification by the landlord must be in writing and if not in writing, shall be of no effect.
- [33]The plaintiffs asserted that the changing of the locks did not amount to re-entry or forfeiture. It was said that the first defendant had not operated the business from the premises for a period of at least five consecutive business days and consequently they were entitled to avail themselves of the power under Clause 16.14 which allows, in the particular circumstances therein set out, the landlord to change the locks. Clause 16.14 relevantly provides:-
“16.14Landlord’s Rights upon Abandonment
If the Tenant vacates or abandons the Demised Premises prior to the expiry date or otherwise repudiates this Lease, the Landlord may find another tenant for the Demised Premises. The Landlord shall not be under any obligation to find another tenant. For that purpose, the Landlord may:
- (a)accept the keys for the Demised Premises;
- (b)enter upon the Demised Premises;
- (c)permit prospective tenants to view the Demised Premises;
- (d)advertise the Demised Premises for re-letting;
- (e)change the locks of the Demised Premises; and
- (f)otherwise do all such acts as the Landlord may think necessary to renovate, restore, clean and secure the Demised Premises without accepting or being deemed to have accepted a surrender of this Lease.
The Tenant’s estate or interest in this Lease shall cease upon:-
- (g)the term expiring through effluxion of time;
- (h)the Landlord accepting by written notice a surrender of this Lease;
- (i)the Landlord otherwise terminating this Lease; or
- (j)any surrender by operation of law.
The rights and remedies of the Landlord including, without limitation, those under this part 16, shall not be affected or limited by this clause. For the purpose of this clause, the Tenant vacates the Demised Premises if the Tenant ceases to carry on the Permitted Use for a period of 5 consecutive business days without paying in advance the instalments of Base Rent and Estimated Operating Expenses payable in respect of that period.”
- [34]It is useful to contrast Clause 16.2 (Forfeiture of Lease) which allows the landlord to re-enter and take possession after giving in effect the required s. 124 notice, and clause 16.14 providing for the landlord’s rights upon abandonment which prima facie, might arise if the tenant ceases to carry on business for five days without paying rent and operating expenses in advance. It was said by the plaintiffs that this clause merely gave a remedial power to the landlord to find another tenant without constituting a re-entry because there is another specific provision for re-entry and Clause 16.14 specifically preserves the lease. Consequently, the plaintiffs submitted that they had not repudiated the lease by relying on Clause 16.14 and that they were not required to give the s. 124 notice. The defendants argued that the phrase “or otherwise repudiates this lease” coloured the acts of vacating or abandonment. The lockout was said to amount to repudiation in the sense discussed in Shevill 149 CLR at 625-626:
“…A contract may be repudiated if one party renounces his liabilities under it – if he evinces an intention no longer to be bound by the contract…or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way…” (per Gibbs CJ).
- [35]As will be seen from s. 124 the parties cannot contract out of the requirement to give notice before exercising a right of re-entry. Clause 16.14 cannot be construed to deny re-entry when that is effected by a lockout. The plaintiffs did not have a right to avail themselves of the definition of vacate in Clause 16.14 to circumvent Clause 16.2. On the evidence adduced by the plaintiffs they knew that the first defendant had not carried on the permitted use, not just for five days, but since October when the second defendant had advised of the retailer vacating the premises. In my view, they could not rely on Clause 16.14 to avoid the statutory prescription of requiring notice as is recognised in Clause 16.2. Consequently, if the lockout effected re-entry the plaintiffs cannot rely on Clause 16.14 to avoid its statutory obligations.
- [36]Where a lessee has committed various breaches of covenant and where the lease had been terminated upon acceptance by the lessor that the lessee had wrongfully repudiated the lease and an act of acceptance of wrongful repudiation terminates the lease as against each of the parties to it. The lessor cannot revive the term by then serving a demand for rent pursuant to a term of the lease agreement allowing termination if unpaid rent was not paid after due notice was given: Ripka Pty Ltd v. Maggiore Bakeries Pty Ltd [1984] VR 629, referred to by Higgins J in Leda Commercial Properties Pty Ltd v. DHK Retailers Pty Ltd (1992) 111 FLR 81 at 91.
- [37]Obviously, where a lessor elects not to determine the lease and enter upon breach of covenant when entitled so to do, a lessor might risk forfeiture being waived as, notwithstanding grounds for forfeiture being made out, the lease will continue until the lessor does some act which shows the intention to determine the lease. A lessor’s right of entry (see, for example, a lessor’s power to entry and repair (s. 107(b) of the Property Law Act 1974)) is distinctly different from the right of re-entry resulting in permanent forfeiture and termination of the lease.
- [38]Where the lessor’s action amount to re-entry, the tenancy determines immediately by operation of law and this determination does not lie at the option of the lessor: Re Stewart; ex parte Overell’s Pty Ltd [1941] St. R. Qd 175 at 177, 179. A lessor effects a re-entry where the lessor obtains possession of the premises to the physical exclusion of the lessee: see e.g. Haniotis v. Dimitriou [1983] VR 498 at 501-502 per Brooking J, where the lessor effected re-entry by changing the locks.
- [39]Counsel for the plaintiffs relied upon Oastler v. Henderson (1877) QBD 575 which was referred to and approved in Wood Factory Pty Ltd v. Kiritos Pty Ltd [1985] 2 NSWLR 105 as authority for the proposition that the right of a landlord upon abandonment of the premises to have possession of the key and find a new tenant without such actions constituting a surrender by entry as being well established. In Oastler the tenant left the premises during the term of the lease handing the keys to his agent to find a tenant. The agent was unable to do so and gave the keys to the landlord who successfully sued the tenant for rent accruing between the time that the tenant had abandoned the premises and when a new tenant was found. It was held in those circumstances that the tenant’s term continued until the new lease was entered into, and the fact that the landlord had used part of the premises after receiving the keys from the tenant was not there, evidence of the landlord surrendering the lease. As Brett LJ noted at 579, there must be some act done which is inconsistent with the continuance of the lease.
- [40]In this case the lockout effected a re-entry. They are not saved by Clause 16.14 or by their willingness to give the keys to the defendants for the limited purpose of finding replacement tenants on condition that all arrears were paid. Consequently, they were required to give notice under s. 128.
- [41]Section 124 of the Property Law Act 1974 applies in respect of the conditions to be observed before a right of re-entry arises or forfeiture for any breach of covenant occurs which may be enforced by action for recovery of possession. In any event, s. 124(9) of the Property Law Act 1974 prohibits the contracting out of the obligation to give the requisite notice. Section 124 relevantly provides:
“124Restriction on and relief against forfeiture
(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, obligation, condition or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice—
(a)specifying the particular breach complained of; and
(b)if the breach is capable of remedy, requiring the lessee to remedy the breach; and
(c)in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same;
and the lessee fails within a reasonable time after service of the notice to remedy the breach, if it is capable of remedy, and, where compensation in money is required, to pay reasonable compensation to the satisfaction of the lessor for the breach.
(2) Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may, in the lessor’s action (if any) or in proceedings instituted by the lessee, apply to the court for relief, and the court, having regard to the proceedings and conduct of the parties under subsection (1), and to all the other circumstances, may grant or refuse relief, as it thinks fit, and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the court in the circumstances of each case thinks fit.
(3) The making of an application under this section shall not of itself be construed as an admission on the part of the lessee—
(a)that any such notice as is mentioned in subsection (1) has been served by the lessor; or
(b)that any such breach as is mentioned in subsection (1) has occurred or that any right of or cause for re-entry or forfeiture has accrued or arisen;
and the court may, if it thinks fit, grant relief without making a finding that, or arriving at a final determination whether, any such notice has been served, or any such breach has occurred, or that any such right has accrued or cause arisen.
(4) This section applies although the proviso or stipulation under which the right of re-entry or forfeiture accrues is inserted in the lease under the directions of any Act of Parliament.
(5) For the purposes of this section a lease limited to continue as long only as the lessee abstains from committing a breach of covenant or obligation shall be and take effect as a lease to continue for any longer for which it could subsist, but determinable by a proviso for re-entry on such a breach.
……
(7) The rights and powers conferred by this section are in addition to and not in derogation of any right to relief or power to grant relief had apart from this section.
(8) The notice mentioned in this section shall be in the approved form.
(9) This section applies to leases made either before or after the commencement of this Act, and shall have effect despite any stipulation to the contrary.”
- [42]Failure to give sufficient notice leads to an inability to exercise the right of re-entry reserved by the lease: McFadyen v. Measures (1910) 10 SR (NSW) 190 where it was held that failure to give notice was fatal to the valid exercise of a right of re-entry and rendered a purported re-entry unlawful. See also Ex parte Taylor [1980] Qd R 253 where the provision for a reasonable time to remedy the breach complained of was an essential prerequisite to the valid exercise of a right of forfeiture.
- [43]In BBF Toowoomba Pty Ltd v. Nebrean Pty Ltd (2001) QSC 313 Moynihan J was not prepared to find that the tenant had abandoned the premises but he did find that the tenant had breached the covenant to conduct the relevant business from the premises. He found the notice to remedy of covenant was valid and the lessor’s re-entry was lawful and determined the lease and accordingly, refused relief against forfeiture. In Leda Commercial Properties Pty Ltd v. DHK Retailers Pty Ltd (1992) 111 FLR 81 the lessor had failed to give a valid notice of its intention to effect re-entry in respect of the breach complained of and Higgins J observed that it was consequently seriously arguable that the re-entry was not authorised or permitted by the provisions of the lease as the notice did not complain of a fundamental breach or a breach of an essential term. For other reasons he found that the lease had been validly determined by re-entry. As Thomas J observed in ex parte Whelan [1986] 1 QdR 500 service of a writ for possession or the physical expulsion of the tenant are not the sole prerequisites for re-entry as it is sufficient if the lessor is left in no doubt as to the purpose of the entry. There, the landlord did not change the locks but physically entered on the premises with the tenant declining to leave.
- [44]The defendants asserted that the mere cessation of business on the premises did not constitute an abandonment of the premises: BBF Toowoomba Pty Ltd v. Nebrean Pty Ltd [2001] QSC 313. In that case, a tenant had advised that it would vacate the premises and carry on its business elsewhere and, on closing the shop, advised the landlord that it would continue to pay rental and comply in all other respect with the lease, removing stock and signage although leaving fittings in place. A notice to remedy breach of covenant was sent and it was alleged the tenant had failed to operate the shop as required by the notice to remedy breach and the premises had been abandoned and that, because of the failure to comply with the notice, the landlord had retaken possession and terminated the lease. The tenant disputed this alleging that the premises had not been abandoned but had been reconfigured to facilitate the business. Moynihan J noted that the notice to remedy breach of covenant had relied upon the clause of the lease requiring the tenant to conduct business at certain times. He found that the new business conducted by the tenant was but one aspect of the use required by the lease and did not comply with the lease requirements and, importantly, the applicant had been given a reasonable time to comply before re-entry and accordingly denied the tenant relief against forfeiture. He said:-
“[10] Surrender of a lease by operation of law can occur by agreement either manifest or inferred from a tenant giving up possession and the resumption of possession by the landlord. Alternatively a tenant’s conduct may constitute a breach of a fundamental term of the lease or repudiation; Shevill v. The Builders Licensing Board (1981-1982) 149 CLR 620, The Progressive Mailing House Pty Ltd v. Tabali Pty Ltd (1984-1985) 157 CLR 17, Wood Factory Pty Ltd v. Kiritos Pty Ltd (1985) 2 NSWLR 105.”
- [45]In Leda Commercial Properties Pty Ltd v. DHK Retailers Pty Ltd (1992) 111 FLR 81 the lessee had removed its trading stock from the leased shop and closed the doors, and a notice was given to the defendant relying on its obligation to conduct a trade or business on the premises. The landlord gave notice requiring remedy of the alleged breach relating to the obligation to remain open for business. The landlord gained entry and excluded access by changing the locks and Higgins J found that by so doing the landlord had taken all such steps as were necessary to evince and intention to forfeit the term granted by the lease. The lease provided that if the lessee abandoned the premises it would be in default and the lessor might at its option without any prior demand or notice re-enter and take possession thereupon determine the lease. The clause also provided the power of re-entry would not be exercised until 14 days notice had been given requiring remedy of any breach complained of. At p 87, Higgins J observed that the anti-Shevill clause making abandonment an essential term of the lease was not intended to allow any breach of covenant however trivial to found a right of re-entry:
“The process of notice clearly focuses on terms of the agreement which, if the lessee persists in breach thereof, would evidence an intention not to be bound by the leasing agreement. Of course, clause 15.04 also focuses on specific obligations, the breach of which are expressly agreed to confer a right of re-entry if that breach remains unremedied of if the forfeiture is not made the subject of equitable relief.”
- [46]As Higgins J observed, if the tenant in closing its doors was evincing an intention not to re-occupy the demised premises, there was a breach of the clause requiring it to trade but if it was evincing an intention to refurbish and re-occupy those premises, it would not in fact then be in breach of that obligation and would not have “vacated or abandoned” the premises. At 90 he noted that:
“It is also essential that the notice expressly require remedy of the breach and allow reasonable time for so doing. It must specify the acts required for remedy of the breach.”
- [47]After referring to ex parte Taylor [1980] QdR 253, Higgins J decided that had the notice been supported by the breach of which it complained, it would have been sufficient in form to activate the power of re-entry, however the resumption of possession by the landlord did not require a finding for the tenant as a finding that the tenant had by conduct surrendered the term or repudiated the lease was not precluded by an unsuccessful attempt at the exercise of powers of determination pursuant to the terms of the lease (at p 90) and what constitutes repudiation may well differ according to the circumstances: Progressive Mailing House Pty Ltd v. Tabali Pty Ltd (1985) 157 CLR 17 at 30, 55.
- [48]As Moynihan J noted in BBF Toowoomba, it was pointed out in Progressive Mailing that breach of the covenant to pay rent or to repair without more did not constitute breach of a fundamental term or amount to repudiation, whereas refusal to pay rent or withholding it under cover of an unfounded claim in conjunction with other breaches established repudiation or breach of a fundamental term. He was not prepared to conclude in that case that the tenant had abandoned the premises to its landlord, breached a fundamental term or repudiated the lease and, accordingly, that lease was not surrendered by operation of law. Nor was he persuaded that the landlord’s acceptance of rent constituted a waiver since the remedy of forfeiture was contingent on non-compliance with the notice.
- [49]Generally, the ordinary contractual principles apply to leases: Progressive Mailing House Pty Ltd v. Tabali Pty Ltd (1985) 57 ALR 609 at 618 per Mason J. The question here is whether, firstly, the court should regard the lessor’s conduct in changing the locks, as constituting repudiation and, secondly, whether the lessee’s conduct in failing to pay rent and other payments due under the lease, in failing to use the premises as covenanted or in failing to observe any other term described in the lease as essential or fundamental, as repudiatory conduct. As was said in Repudiation and Leases, Michael Redfern (1998) 6 Australian Property Law Journal 153 at 155, High Court decisions might indicate that, where the conduct complained of represents an effective renunciation of the lease, there is likely to be a finding of repudiation: Shevill v. The Builders Licensing Board (1983) 147 CLR 620 at 624 per Gibbs J; Laurinda v. Capalaba Park Shopping Centre (1989) 166 CLR 623 at 634 per Mason J. In Progressive Mailing House Pty Ltd v. Tabali Pty Ltd, supra, and in Wood Factory Pty Ltd v. Kiritos Pty Ltd (1985) 2 NSWLR 105, it was held that failure to pay five months’ rent (and in the case of Tabali, together with other breaches) constituted repudiation by the lessee.
- [50]Repudiatory conduct does not, by itself, terminate the lease and the innocent party must clearly elect to treat the lease at an end immediately by unequivocal words or conduct evincing an election to terminate the performance of the contract. In Laurinda v. Capalaba Park Shopping Centre, supra, at 649, Brennan J said:-
“Repudiation may be established without proof of an effective notice to complete. The absence of an effective notice means that the other evidence must be examined to determine whether a clear inference of repudiation should be drawn but it does not preclude the drawing of that inference.”
It should be noted however that in Laurinda, it was the lessee who failed to provide notice to the defaulting lessor and it was decided that the lessee could elect to treat the lessor’s conduct as repudiation and elect to terminate without notice. Similarly, there are decisions in other states, for example, Ripka Pty Ltd v. Maggoria Bakeries Pty Ltd [1984] VR 629, where the lessor failed to give notice to the defaulting lessee and it was found that the lessor might terminate without notice.
- [51]The lease in question contains the usual anti-Shevill clause describing clauses in the lease as fundamental or essential and whose breach will be able to be treated as repudiatory, and also a clause providing that, on repudiation, the lessor is entitled to determine the lease and treat as damages the whole of the monies due to be paid at the end of the term or the whole of the monies subject to any adjustment for monies received from a new tenant.
- [52]In this case absent the dealings with the solicitors, the continuing breach of Clause 7.1 and the non-payment of four months rent would support a finding of repudiation by the lessee. However, that is not the end of the matter.
- [53]The defendants assert an arguable case as to estoppel as the plaintiffs, through their agent, the solicitor, both by express representation and implied by conduct, represented that they would not enforce the terms of the lease strictly in relation to the payment of rent or operating expenses and would not seek to enforce any rights arising from the non-payment of the outstanding amounts until after the first defendant had found a prospective sub-tenant or tenant, and had the plaintiffs by reasonable notice demanded payment of the outstanding monies, they could have re-enlivened their rights in respect of the non-payment under lease. As the first defendant had relied upon the representation, it was asserted those payments were not made, they engaged real estate agents to locate a sub-tenant or tenant, actively pursuing this course and that this was encouraged by correspondence with the plaintiffs’ solicitor: see Commonwealth v. Verwayen (1990) 170 CLR 394 at 443-446; Morris v. FAI General Insurance Co Limited [1996] 1 Qd R 495. Brennan J, in Waltons Stores (Interstate) Ltd v. Maher (1987) 164 CLR 387 at 428-9 prescribes what is required for promissory estoppel as did Deane J in Commonwealth v. Verwayen (1990) 170 CLR 394 at 444-446.
- [54]If the evidence of the second defendant is accepted, the plaintiffs were aware and having been informed that the first defendant was not conducted the permitted use from the premises as the retailer had vacated the premises, that the first defendant and its agents were showing the premises to prospective tenants or replacement tenants while the second defendant believed that the plaintiffs had agreed to co-operate to assist the first defendant to find a suitable replacement tenant or sub-tenant and would not pursue recovery of any rent in arrears on the basis that the first defendant would act diligently and reasonably to locate a suitable replacement tenant or sub-tenant and pay all arrears of rent prior to any assignment or sub-lease of the lease.
- [55]The plaintiffs had required strict compliance with the lease up to early October, but prior to the many conversations deposed to in late October. The Notice to Remedy Breach, which was dated 4 October 2001, related to August and September and there is no allegation that those moneys were not paid when the relevant correspondence and conversations occurred.
- [56]Consequently, apart from the estoppel raised on the defendants’ evidence the first defendant was in breach of the following essential terms of the lease, firstly by its failure to pay rent and estimated outgoings from 1 November 2000, and also, under clause 7.1, by failing to operate the permitted use. Secondly, the plaintiffs failed to give the requisite s. 124 Notice, and thus had no right to re-enter by changing the locks. Prima facie, they had repudiated the lease. Clause 16.14 does not permit the landlord to circumvent the requirements of s. 124. The evidence of the plaintiffs’ solicitor’s conversations with the first defendant’s managing director (the second defendant), the circumstances where the plaintiffs had not raised vacating or abandonment of the premises under clause 16.14, if accepted are sufficient to found an estoppel. The plaintiffs could not then rely on those breaches of covenant before a reasonable time had elapsed. There is also the question of what amounted to a reasonable time in the circumstances as found.
- [57]For the purposes of this application the defendants believed no rent was payable until a suitable tenant was found or a reasonable time had elapsed.
- [58]It is clear, as Wilson J pointed out in McPhee v. Zarb [2002] QSC 4 that the wording of the summary judgment provisions in the Uniform Civil Procedure Rules together with the expressed purpose of the Rules suggest a more robust approach than that applied under Order 18 Rule 1 of the Supreme Court Rules.
- [59]In this case there is no issue that the rent and operating expenses accrued from 1 November 2000 to 21 February 2001 are payable. That is an amount of $12,246.77. I am unable to determine on a summary application the plaintiffs’ claim for rent and outgoings for the period 22 February 2001 until 7 January 2002 as there is some conflict in the evidence of the plaintiffs’ solicitor and the second defendant in respect to what was contained in the conversations between them. Accordingly the defendants should have leave to defend this part of the claim.
Orders
- [60]For the reasons given, the plaintiffs are entitled to judgment in respect of part of their claim against the defendants for the sum of $12,246.77. I shall allow interest on that sum at the rate of 10% for the period from 21 February 2001 to 6 February 2003, being the amount of $2,398.02. Accordingly I give judgment for the plaintiffs against the defendants in the sum of $14,644.79.
- [61]
- [62]I will give directions as to the future conduct of the matter.
- [63]Subject to the parties’ submissions I would expect that the plaintiffs should have their costs of the application as against the defendants to be assessed on a standard basis.