Termination of leases and relief from forfeiture – Lontav Pty Ltd v Pineross Custodial Services [2011] VSC 278

June 29, 2011

Property / leasing

In the decision of Lontav Pty Ltd v Pineross Custodial Services [2011] VSC 278, handed down last Thursday, a tenant applied to the Supreme Court seeking orders that the landlord of a retail premises lease had wrongly purported to terminate the lease and, in the alternative, sought relief from forfeiture.

There are a couple of interesting findings in Hargraves J’s reasons:

  • the s 146 notice expired on a public holiday (Good Friday).  The tenant argued that the time for compliance should extend to the next business day.  The Court rejected that argument on the grounds that there is no general extension for compliance until the next working day where the contracted time to perform an act falls on a weekend or public holiday unless the contract provides otherwise (see paragraph [61]).  This is important for practitioners advising tenants who have received a s 146 notice, particularly as the tenant has to pay the landlord’s costs of a relief from forfeiture application, usually on a solicitor and client or indemnity basis;
  • the tenant was in arrears of rent and certain outgoings.  The tenant paid some of the arrears of rent under a note designating the payment as a rental payment.  The landlord purported to re-allocate that money to outgoings in what the court described as a deliberate attempt to increase the rental arrears that it could rely on.  The court found that the landlord cannot re-allocate a payment to a different debt if the tenant has already done so (see paragraphs [64] and [65]).  Practitioners should be aware that receiving rent after a right to terminate has accrued affirms the lease and waives the landlord’s ability to terminate;  and
  • the tenant had tried to sell its business and assign its lease but had not obtained the landlord’s consent to the assignment.  The tenant then became very ill and appointed the purchaser as agent to manage the business.  The landlord argued that the tenant had breached the covenant not to part with possession.  The Court considered some cases on this topic and concluded that, in the particular circumstances of this case, the appointment of a manager did not breach the covenant against parting with possession (see paragraphs [77] to [98]).
There is also an interesting issue over jurisdiction that is not discussed in the judgment.  Under section 89 of the Retail Leases Act 2003 (Vic), VCAT has exclusive jurisdiction to hear and determine retail tenancies disputes.  However, the courts retain jurisdiction to hear claims for relief from forfeiture (see s 89(4)).  Justice Vickery in Xiao v Perpetual Trustee Co Ltd [2008] VSC 412 held that the court has accrued jurisdiction to hear and determine an allegation of wrongful termination of a lease when the plaintiff has brought a bona fides application for relief from forfeiture.  This view has been criticised by Croft J and Hay in Retail Leases Victoria and was not followed by Pagone J in ABC Developmental Learning Centres Pty Ltd v B & M Children’s Services Pty Ltd [2010] VSC 262.  However, the issue has not been considered on appeal.  It is not clear from the decision whether there were other factors that took the lease out of the RLA.
Thanks to Jamie Bedelis from Cornwalls for alerting me to this case.

About Sam Hopper

Sam is a property and insolvency barrister.

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3 Comments on “Termination of leases and relief from forfeiture – Lontav Pty Ltd v Pineross Custodial Services [2011] VSC 278”

  1. Jamie Bedelis Says:

    The issue of allocation of payments was discussed by Deputy President Macnamara in Macdav Pty Ltd v Alliswell Pty Ltd [2001] VCAT 2436. He referred to the “first in first out” principle. (Although that case referred to allocation of rent payments to different months). See paras 29 – 31.

    Reply

  2. Sam Hopper Says:

    Thanks for the useful reference Jamie.

    Reply

  3. marctestart Says:

    That accrued jurisdiction question is a very interesting one… I haven’t looked at the cases you’ve referred to in the context of a termination of a lease (yet), but it comes up in Family Law as well (I wonder if there is an analogy)… would be interesting to see what an Appeal Court does 🙂

    Great post!

    Reply

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