Option not exercised because of default

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com

In Computer & Parts Land Pty Ltd v Property Sunrise Pty Ltd [2012] VCAT 1522 the Tribunal was asked to determine whether an option contained in a lease was not exercisable by the tenant because of breaches of the lease that enlivened s.27(2) of the Retail Leases Act 2003 .  Section 27(2) provides that the "only circumstances" in which an option is not exercisable is if the "tenant has not remedied any defaults under the lease about which the landlord has given the tenant written notice" (s.27(2)(a)) or " the tenant has persistently defaulted under the lease throughout its term and the landlord has given the tenant written notice of the defaults" (s.27(2)(b)). Section 27(2)(b) is ambiguous: what is meant by "persistently", what is meant by "throughout its term", does a landlord have to give notice of each default or is one notice that describes all the defaults adequate? There have been a number of cases concerning s.27(2) all of which have avoided giving any definitive answers to these questions. 

See: for example, Westgate Battery  Company Pty Ltd v GCA Pty Ltd [2005] VCAT 2080 and Westside Real Estate Investments Pty Ltd [2011] VCAT 1830. In this case the term of  the lease was four years with two options for four year terms. The landlord relied on s.27(2)(a) and (b) in alleging that the option had not been exercised because at the time of the purported exercise the tenant had not remedied a default and the tenant had persistently defaulted under the lease throughout the four year term of the first option period. Firstly, the  Tribunal held that s.27(2) prevailed over the provisions contained in the lease concerning the exercise of the option.  

There had been nine occasions “over two stretches” when the rent was not paid on time and the rent had never been more than five weeks’ late. The Tribunal held that in those circumstances it was not “persuaded that the late payments could be described as ‘persistent’ (in the sense of ‘persevering’ or ‘constantly repeated’)" and that the late repayments had not occurred “throughout” the term of the lease.  Nevertheless, the Tribunal held that the option had not been exercised because when the tenant exercised the option it had failed to provide a bank guarantee as required by the lease and the landlord had given written notice of the default  (s. 27(2)(a)).  Rectification of the default after the purported exercise of the option did not alter the position.

The tenant sought relief against forfeiture of the option. The Tribunal followed the decision of Dixon J in Lontav Pty Ltd v Pineross Custodial Services Pty Ltd (No. 2) [2011] VSC 485 in  holding that VCAT had no power to grant relief against forfeiture of an option.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience.

Author: Robert Hays Barrister subject to copyright under DMCA.

Setting off damages claims against the rent

There is a translation key(widget)  on this blog for ease of reading for non-English speaking members of the public or professionals.

At common law a tenant may not set-off a damages claim against a landlord’s claim for rent (Meagher, Gummow & Lenane’s Equity Doctrines and Remedies, 4^th ed, para [37,045], p1056).

However, a tenant may claim an equitable set-off provided that the tenant’s equity “impeaches” the landlord’s title to the demand for rent. See: British Anzani (Felixstowe) Ltd v International Management (UK) Ltd [1980] QB 137; Walker v Department of Social Security (1995) 56 FCR 356; Forsyth v Gibbs [2009] 1 Qd R 403.

The case of MEK Nominees Pty Ltd v Billboard Entertainment Pty Ltd (1993) V ConvR 54-468 is a classic example of the application of the principle. In MEK the tenant was in arrears of rent.

The tenant alleged that the landlord had breached the covenant of quiet enjoyment with the consequence that its business had fallen away to the extent that it had a damages claim that  exceeded the arrears of rent.

The tenant successfully resisted an application for summary judgment for possession on the ground that it had an equitable set-off; that is its damages claim had such a nexus to landlord’s claim as to impeach the landlord’s claim.

A tenant’s right of equitable set-off against rent may be excluded by clear words. See: Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689.

Victorian courts have generally held that a lease that requires the payment of rent “without deduction” precludes a tenant from claiming an equitable set-off. See: Beach J’s decision in Citibank Savings Pty Ltd v Simon Fredericks Pty Ltd [1993] 2 VR 168 (‘without any deduction whatsoever’); see also MEK Nominees v Secure Parking [2000] VSC 406; Novawest Constructions Pty Ltd v Taras Nominees Pty Ltd [1998] VSC 205.

There are decisions to the contrary in other jurisdictions: See: Connaught Restaurants Limited v Indoor Leisure Limited [1994] 1 WLR 501; Re Partnership Pacific Securities Limited [1994] 1 Qd R 410.  This week the Full Court of the Federal Court held obiter that a rent covenant requiring the payment of rent “without any deductions whatsoever” precluded the availability of equitable set-off. See: Norman; in the matter of Forest Enterprises Limited v FEA Plantation Limited [2011] FCAFC 99 at [180] – [202]. Norman contains a comprehensive discussion concerning the principles governing equitable set-off.

In VCAT, Beach J's decision in Simon Fredericks has been followed. See: Wytell Pty Ltd v Glowinski [2006] VCAT 454.

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/