NightOwl Properties Pty Ltd v Replay Australia Pty Ltd

The plaintiff, NightOwl Properties Pty Ltd (“NightOwl”) leased retail shop premises from the defendant, Replay Australia Pty Ltd (“Replay”). The lease was registered, for a term of ten years, with two five-year options. In January 2020, NightOwl gave notice exercising the first option. It subsequently sought rent relief in connection with the COVID-19 pandemic and, notwithstanding that there was no agreement with Replay to do so, paid reduced rent from April to August 2020. After the initial lease expired in October 2020, Replay refused to grant NightOwl a further lease on grounds that it had been in breach of the lease from April to August 2020. NightOwl sought relief, including relief against forfeiture of the option, under s 124(2) Property Law Act 1974 or in equity. In the result, Bradley J held that there was jurisdiction to grant equitable relief against forfeiture, notwithstanding that statutory relief was unavailable.

Bradley J

30 September 2022

Background

The plaintiff, NightOwl Properties Pty Ltd (“NightOwl”), leased retail shop premises from the defendant, Replay Australia Pty Ltd (“Replay”). [1]. The lease was registered, for a term of ten years commencing 14 October 2010 and expiring on 13 October 2020, with two five-year options. [2]–[3], [9]–[10]. By cl 7.2(A), exercise of the first option required, inter alia, that notice of the exercise be given between 13 January and 13 April 2020, and that there was not, at that time or after until expiry of the initial lease on 13 October 2020, any unremedied breach by NightOwl which had not been waived by Replay. [9]–[10].

NightOwl gave notice of exercise of the option on 22 January 2020 but received no substantive response. [14], [16]. In March 2020, it requested rent relief from Replay in connection with the COVID-19 pandemic, but no relief arrangement was reached. [17]–[26], [48]. NightOwl nonetheless paid reduced rent between April and August 2020. [17]–[20]. After the initial lease expired, NightOwl enquired about a further lease in line with its exercise of the option. [32]–[37]. On 9 December 2020, Replay responded to the effect that NightOwl was in rental arrears for the period April to August 2020, and that for that and other reasons, Replay was not obliged to grant a further lease. [39]–[43], [48].

NightOwl paid the arrears the following day. [44]. After it became clear that Replay would not grant the further lease, NightOwl sought relief including a declaration that it had validly exercised the option, and orders that the grant of the lease be specifically performed. [45]–[53]. Replay resisted on grounds that NightOwl’s lease had expired on 13 October 2020, and on that date, contrary to cl 7.2(A), it had been in breach of the lease by being in rental arrears and so was not entitled to a further lease. [54]. In reply, NightOwl argued that Replay had waived the breaches or benefit of cl 7.2(A), and alternatively, sought relief against forfeiture under s 124(2) Property Law Act 1974 (“PLA”) or in equity. [55].

Relief against forfeiture

Justice Bradley was not satisfied that Replay had waived NightOwl’s breaches or the benefit of cl 7.2(A). [74]–[87]. As such, his Honour turned to consider NightOwl’s alternative claims. [88]. Having outlined ss 124(2) and 123 PLA, his Honour noted Replay’s contention that cl 7.2(A) did not operate such that NightOwl had “become entitled to have the lease granted” upon giving notice, and as a result, that the option was not a “lease” under s 124(2) PLA. [88]–[91]. NightOwl’s response to that argument had relied upon the Court accepting its waiver argument. [92]. That argument having been rejected, NightOwl’s case for relief under s 124(2) PLA also necessarily failed. [92].

Replay had attempted to meet NightOwl’s equitable claim inter alia by arguing that the lease had expired with NightOwl in breach, so that there was no right which could be specifically performed. [103]. However, Bradley J clarified that the loss of contractual rights is not a bar to a suit for relief against the forfeiture of an estate in property. [104]. Similarly, Replay’s contention that a tenant who fails to comply with a post-option notice condition had failed to exercise the option and so could not be relieved, relief upon decisions concerned with statutory relief. [108]. Those decisions had neither involved an equitable claim for relief, nor did they exclude the availability of equitable relief. [108].

Justice Bradley expressly rejected the submission that the Court is unable to grant equitable relief against forfeiture of an option in a registered lease where the circumstances would otherwise make relief appropriate. [112]. The fact that relief was not available under s 128(4) PLA, which concerns relief for breaches arising before notice of the exercise of an option is given, was a relevant circumstance. [124]. However, his Honour considered that the limits placed on statutory relief against forfeiture did not otherwise exclude the availability of equitable relief against forfeiture. [124].

Disposition

In the result, having considered the suitability of granting relief, Bradley J concluded that the Court ought to relieve NightOwl from forfeiture of the option by reason of its breaches in April to August 2020, and made declarations and orders accordingly. [114]–[126], [127]–[133].

B McNamara