Section 124 of the Property Law Act 1974 (Qld) (PLA) provides protection for tenants before a landlord is able to take the significant step of terminating a lease pursuant to a right of re-entry or forfeiture under any provision in the lease.
However, as Special Counsel Anthony Pitt and Solicitor Greta Carew-Johns discuss in the following article, a recent District Court of Queensland decision demonstrates that this is not always necessarily the case.
Wash Investments Pty Ltd & Ors v SCK Properties Pty Ltd & Ors [2016] QDC 77
On 14 April 2011, the plaintiffs (tenant) entered into a lease with the defendants (landlord) for an initial period of ten years for premises to be used as a car wash business. However, within 6 months, the business began to experience financial difficulties and thereafter fell behind on the payment of rent and outgoings under the lease.
A Notice to Remedy Breach of Covenant pursuant to s124 of the PLA (First Notice) was sent to the tenant on 8 August 2012 in respect of rent and outgoings owing at that time. The parties disputed whether those breaches were rectified in full or not, but the business continued to struggle with the result that the tenant was significantly behind in rent and outgoings by the following year. During this time, there had been persistent requests by the tenant to the landlord to reduce the rent payable because of the tenant's inability to pay.
This resulted in a further Notice to Remedy Breach of Covenant pursuant to s124 of the PLA (Second Notice) being sent to the tenant on 4 June 2013.
On 19 June 2013, the tenant's solicitor sent a letter to the landlord who made it clear that unless the landlord urgently reduced the rent, the tenant could not continue trading and would have to declare bankruptcy.
On 25 June 2013, the landlord re-entered and took possession of the premises.
There were a range of matters in dispute between the parties relevant to the above facts. One of these, which was considered at length in the judgment, was whether the Second Notice was: prepared by the landlord; properly served on the tenant; and received by the tenant before the landlord terminated the lease and re-entered the premises. This was because the tenant claimed not to have received it.
However, the Court found that any deficiencies with respect to the Second Notice did not matter because the tenant's solicitor's letter of 19 June 2013, together with the tenant's continued arrears of rent and outgoings and persistent requests to reduce the rent payable, clearly evinced the tenant's intention to no longer be bound by the terms of the lease. The landlord treated this conduct (and the court agreed) as a repudiation of the lease by the tenant.
The Court confirmed that the Second Notice was not required to be given in circumstances where the landlord elected to accept the tenant's repudiation of the lease as per its common law right to do so, prior to the landlord terminating the lease and re-entering the premises.
Importantly, the Court discussed that the tenant's conduct must be repudiatory and that a breach of a term (even an essential term) alone may not necessarily evince an unwillingness or inability to be bound by the terms of the lease. The relevant conduct of the tenant in each case must be examined in order to determine whether it was in fact repudiatory.
The tenant argued that the letter of 19 June 2013 was not repudiatory at all, and was only sent as a "bargaining tool", "to let them know we were serious because a solicitor had written the letter" and "because they knew we had been struggling". However, this submission was rejected as the Court considered that the letter clearly indicated that, unless a rent reduction was given, the tenant would not, and could not, meet those obligations any longer. The tenant also argued that s124 of the PLA must be complied with before a lease is terminated on any basis – but the Court decided that this argument was against the weight of case authority that said otherwise.
The tenant was therefore ordered to pay the landlord $118,469.55 in damages for loss of rent and outgoings plus interest.
The decision serves as a timely reminder for landlords and tenants of the possibility of termination of a lease even where a notice under s124 of the PLA has not been served; as well as the care required to be taken in drafting correspondence to ensure that it cannot be taken on its own, or in conjunction with other conduct, as repudiatory.
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