No s.146 notice required for contractual right to terminate

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Leases often provide that the landlord may re-enter premises and end the lease if a guarantor becomes bankrupt.

In N.C.Reid & Co Pty Ltd v Pencarl Pty Ltd  [2011] VCAT2241 the guarantor became bankrupt, the landlord re-entered the premises and leased the premises to a new tenant.

The existing tenant sought relief against forfeiture and/or damages.

The tenant claimed, among other things, that the landlord should have served a notice under s.146 of the Property Law Act 1958 because the lease had been terminated "for repudiation" with the consequence that the tenant would have had 14 days to remedy the breach.

The tenant's claim was unsuccessful. Judge O'Neill held that the lease had been terminated pursuant to a contractual right and not because of a repudiation of the lease and therefore a notice that  complied with s.146 did not have to be served.

His Honour also said that in if there were a breach it could not have been rectified.

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Author: Robert Hays Barrister subject to copyright under DMCA.

Section 146 notices

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There is a common misconception that receipt of a valid notice under s 146(1) of the Property Law Act 1958 requires the tenant to rectify the defaults alleged   within the time specified. 

The purpose of a notice is to give the tenant an opportunity to consider its position and give a response: See: Primary RE Limited v Great Southern Property Holdings Limited [2011] VSC 242 [147].

If the breach is capable of remedy, an adequate response may be to admit the breach and propose a course of remediation. See: Primary RE [147].  In Primary RE the tenants had failed to comply with lease and forestry agreements. At [132] Judd J said that a “sufficient response” by the tenant to the notices would have been to undertake to recommence management of the plantations and perform its obligations under each lease and to agree to pay compensation for any damage to the reversion. At [147] His Honour said:

 “…having received the noticed of default, a sufficient response from the tenant to avoid forfeiture, re-entry or termination, would have been to recommence management of the plantations in compliance with its obligations under each lease and forestry agreement, coupled with a proposal to pay reasonable compensation for any injury to the reversion. In my view it would not have been necessary for the tenant to do more in order to avoid the risk of termination, provided the tenant had the capacity and communicated a genuine intention to do as proposed. Nothing of the kind was communicated by the tenant to any of the landlords. The fact that the remediation work, identified in the notices, might take one or more years was not a determining factor in the calculation of a reasonable time within which to respond.”

As to what is a "reasonable time" for the lessee to respond to a statutory notice, Judd J said at [140} that this “depends upon the purpose for which the notice is given, the nature of the breaches alleged and what is required to be done to avoid forfeiture”.

A reasonable time is not the time necessary to actually undertake the work.

 The reference in s 146(1)  "compensation"  is directed to loss suffered as a consequence of damage to the reversion and is not “intended a substitute for remediation” ([133]). The landlord need not specify in the statutory notice the amount of "compensation" necessary to satisfy the demand.

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