Lstar Holdings Pty Ltd v Ta

Case •

[2021] NSWCATCD 62

•

19 March 2021

No judgment structure available for this case.

Civil and Administrative Tribunal


New South Wales

Medium Neutral Citation: Lstar Holdings Pty Ltd v Ta [2021] NSWCATCD 62
Hearing dates: 15 February 2021
Date of orders: 19 March 2021
Decision date: 19 March 2021
Jurisdiction:Consumer and Commercial Division
Before: R Titterton OAM, Senior Member
Decision:

1. The application should be dismissed.

2. Orders 3(a) and (c) of the Tribunal made on 11 January 2021 in matter AP 21/00887 are set aside.

Catchwords:

RETAIL LEASES – Application of Rental and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 – Whether tenant is an “impacted lessee” – relief against forfeiture

Legislation Cited:

Conveyancing Act 1919 (NSW)

Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth)

Environmental Planning and Assessment Act 1979 (NSW)

Retail and Other Commercial Leases (COVID-19) Regulation 2020 Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020

Rental and Other Commercial Leases (COVID-19) Regulation (No 3) 2020

Retail Leases Act 1994 (NSW)

Cases Cited:

MIR Holdings Pty Ltd & Anor v Marina Square Retail Pty Ltd [2020] NSWSC 1418

First Renewable Pty Ltd v Nastevski [2020] NSWSC 1508

Category:Principal judgment
Parties: Lstar Holdings Pty Ltd (Appellant)
Minh Hai Ta (First Respondent)
Chi Thuyen Ta (Second Respondent)
Representation: Solicitor:
David Leamey Solicitor & Barrister Respondent
File Number(s): COM 21/00309
Publication restriction: Nil

REASONS FOR DECISION

Introduction

  1. By application dated 5 January 2021, the applicant Lstar Holdings Pty Ltd (the Tenant) seeks orders that it be allowed to re-enter leased premises in Bathurst Street Sydney (Premises) where it conducts a café business.

  2. The background is that on 5 January 2021 the Consumer and Commercial Division of the Tribunal made orders refusing that application. However, the landlords, Minh Hai Ta and Chi Thuyen Ta (the Landlord) appealed to the Appeal Panel and, on 11 January 2021, the Appeal Panel set aside those orders and ordered, pending further order of the Tribunal, that the Landlord be restrained from leasing, publicly offering for lease, or otherwise dealing with the property.

  3. The Appeal Panel noted that there were seven issues that needed to be determined. I will list these below with a summary of my decision on each. (Defined terms are explained in the body of these Reasons.)

  1. Is and was the Tenant an impacted lessee within the meaning of the Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (Regulation No 2) and/or Rental and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (Regulation No 3)?

  2. No, the Tenant should not be considered an impacted lessee by reason of it not complying with cll 7(4) and 7(6) of the Regulation No 3.

  3. Was the Landlord prevented from terminating the Lease and re-entering the Premises because of the Regulations?

  4. No.

  5. Do the Regulations prevent taking action to terminate for matters of a type described as "non financial defaults" set out in the Notice of Termination and Re-Entry dated 5 January 2021 issued by the Landlord?

Not necessary to answer.

  1. Did the Tenant breach the lease as alleged?

To the extent that the alleged breach is a failure to pay rent, it follows from the above analysis that the answer is “Yes”.

  1. If the Lease was lawfully terminated, is the Tenant entitled to relief against forfeiture?

  2. No.

  3. Is the Tenant entitled to damages for breach by the Landlord? If so, how much?

This claim only arose in the event that the Tribunal found that the Landlord breached the Lease and unlawfully terminated it. Therefore, the question does not arise.

  1. What orders should be made in light of the above matters?

  2. The application should be dismissed, and orders 3(a) and (c) of the Tribunal made on 11 January 2021 in matter AP 21/00887 are set aside.

Procedural Matters

  1. At the hearing the Tenant was represented by its director Mr Hyuongsup Lim. The Landlord was represented by its Solicitor Mr David Leamey. Due to COVID-19, both Mr Lim and Mr Leamey appeared by telephone, as did interpreter Ms Grace Lee. Ms Lee is an interpreter in the Korean language and provided assistance to Mr Lim.

  2. At the commencement of the hearing, Mr Leamey provided to the Tribunal and Mr Lim written submissions, a chronology and a list of authorities. At the conclusion of the hearing the Tribunal allowed Mr Lim a day to provide a written response.

  3. Mr Lim did so, and his submissions state:

1. It is clear that we've been impacted by Covid. Especially in the city area, international students and tourists account for more than 50% of the guests. In addition, as the ratio of existing office workers to work from home increases, businesses in the City area, as well as us, are being hit harder than in other regions. We are no exception. As you can see from the accountant's letter, we lost 70% of our sales compared to the previous one, which is less than the minimum cost of maintaining the store.

2. In view of this situation, the government also presented guidelines through the Code of conduct, and we had a plan to normalize our business by relying on them. But suddenly, the owner of the building ignored the government's policy and unilaterally prevented us from operating. This is to protect small tenants and to prevent the local economy from collapsing. Due to this, all the stocks such as coffee beans and cake, milk have gone bad. They insulted us by putting an Eviction Notice on the window, which should be confidential at the time of eviction so we might lose our regular customers. We lost all the staff after being closed for more than a month. Also, it will take more than a week to prepare for business because the milk left outside the refrigerator in the store is spoiled and stinking and we need to clean our shop again.

3. We were a sincere tenant who had never been behind on rent before Covid.

4. Regarding the construction of the toilet, it was not carried out without permission, and it was simply a matter of procedure caused by the change of construction details of the construction were changed. Above all, the owner of the building agreed and signed on the construction of the toilet. Counselor also gave us permission to extend it until January 18, but we just evicted before the day. 

5. There was no stench at all until January 4th when we were in business, and if there was, the customer wouldn't have stayed. Rather, the stench was caused by food injuries when we were evicted.

6. Lastly, I don't know the law well and I don't have good English. However, due to the difficult business environment, I couldn't hire a lawyer. Therefore, we lack the power to refute the building owner professionally and efficiently. But I think it was the COVID-19 Code of conduct that the government did to give tenants in this situation a chance to overcome and recover from Covid. I would like to ask you to give me, my family, and my employees time and opportunity to recover their business for the last time.”

  1. The Tribunal then received from the Landlord’s solicitor submissions which stated:

In response we object to the references to facts which are not in evidence. This includes to those in submission paragraphs 1 5 and 6.

Submission 1: The requirements to be covered by the protections for Covid are very clearly set out in the various Regulations and in particular #3 and the ATO requirements. They have been publicly advertised Australia wide. We object to the reference to fresh evidence.

Submission 2: We submit that the evidence shows that the Applicant has had poor and inadequate communication and that it had made unreasonable assumptions about the Covid provisions. There is no evidence to support the submission that the Respondent ignored the law. Quite the opposite. The tenant did not engage in good faith negotiations and communications and failed to attend at Mediation. The Respondent was very patient in all of the circumstances. We rely upon the Notices.

Submission 3: This is denied by the Respondent and the submission is not supported by any evidence. There was pre covid breaches. If the Applicant was sincere then it would have paid some rent as required by the Covid provisions. Not one dollar was paid since 10th Feb 2020. Likewise the removal of the toilet has been over16 months since the DA was abandoned.

Submission 4: The Council Notice and the uncontested evidence before the Tribunal is that the works are unauthorised and there is a stench of raw sewerage. A view could be arranged at short notice if required.

By way of fresh evidence which we seek to rely upon, the Council rang today and requires the toilet to be removed Immediately. The Applicant had plenty of time to rectify the issue and admits it could not afford to do so. Another reason against freedom against forfeiture.

Submission 5: The evidence is that the toilet bowl has been removed. Fank Mou, Susan Ta and David Leamey's evidence is there was a smell of sewerage from the toilet. They weren't challenged on their evidence. The reference to food is not in evidence and is absurd. The food is in fridges.

Submission 6: The Applicant is a company. The debt to April is $300,000. It's a commercial situation. Ignorance of the law is not an excuse. It is not up to the Tribunal to prosecute the Applicants case for it. Insolvency is the reason why the Applicant ceased using Accountants and Lawyers.

It was not the Business environment but insolvency. If the Applicant is insolvent then it cannot be committed to a lease that expires on 30th April 2021 if it was still in place.

The last paragraph is not supported by evidence and is not relevant to the substantive issues. The business could not recover before 30th April 2021 and the Jobkeeper ceases in March 2021. Many fear that April will be a cliff for business insolvency.

  1. At the conclusion of that document, the Landlord’s solicitor noted that earlier in the day he had sent to the Registry “some further orders sought”. Those orders were relevantly as follows:

A. That the rental bond held by Retail bonds in the sum of $74,241.03 for Ground Floor 95b Bathurst St, Sydney on account of LStar Holdings Pty Ltd (as tenant) and lodged by FM Property agent id 87226-7 on behalf of the landlord, be paid to Minh Hai Ta & Chi Thuyen Ta (landlord).

B. The [Tenant] is to be granted access to the property for the purpose of removing any chattels that it seeks to remove. This Order does not affect the make good provisions in the lease. The access is to be upon the following basis . . .”

  1. Following receipt of this request for additional orders, on 17 February 2021 the Tribunal issued a direction which stated:

The Tribunal notes that at the conclusion of the hearing Mr Lim was given leave to file written submissions for the Tenant, and for the Landlord to respond. In the Landlord's submissions, further orders were sought in addition to those sought at the hearing, in particular an order that the bond of $74,241.03 be released to the Landlord.

The Tribunal considers that the Tenant must be given an opportunity to respond to the request for that order, and is also concerned that no application was filed by the Landlord seeking that relief.

In the circumstances, the Tribunal will allow both parties the opportunity to make submissions on those issues, and is prepared to hold a further hearing at short notice if necessary. In the circumstances, the Tribunal now directs the Landlord to file submissions on the following matters:

1 Whether the Tribunal has the power to make the order sought in relation to the bond in the absence of a separate application;

2 The effect of clause 9 of Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 in relation to the Tribunal's decision, in particular in regard to the Landlord's submission that the Tenant is not entitled to relief against forfeiture.

3 Whether a further hearing should be held, or whether the Landlord considers that the Tribunal can reach a decision "on the papers" and without a hearing.

4 The Landlord is to file those submissions on or before 24 February 2021.

The Tenant is to respond to the Landlord's on or before 3 March 2020.

If a further hearing is necessary, the parties will be contacted and arrangements will be made for the matter to be listed as soon as possible.

  1. Following that direction, the Tribunal received correspondence from the Landlord stating he wished to withdraw the claim in relation to the bond, and on 24 February 2021, as directed, filed submissions relating to the effect of cl 9 of Regulation No 3 in relation to the Tribunal's decision, in particular in regard to the Landlord's submission that the Tenant is not entitled to relief against forfeiture.

  2. Those submissions stated:

1. Question 1: We submit that the tribunal has the power to determine any dispute between the parties in relation to the lease. If the Tribunal was to make a finding that the Lease was lawfully terminated and that the re-entry was lawful, then the consequence is that the Bond could be claimed by the landlord as a consequence of the debt owing. The bond being security for that debt. If necessary leave could be granted to amend the application.

2. The Tribunal was asked to make the order about the bond by the respondent as being anciliary to the determinations that were litigated. If it is convenient for the Tribunal to make the order on that basis then it can, otherwise the Tribunal could decline to determine the matter and to allow the Respondent to withdraw the further order they sought. That would leave the issue open to the Respondent to deal with after the decision is delivered in these proceedings.

3. Question 2: The effect of clause 9 of the Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 is that if the lease was a Covid Impacted lease on 5th January 2021 and there was no other non- Covid protected default then subclause 9( c) would preclude the making of an enforcement order in respect of the Bond and/or if the Tribunal was to find that he lease was not lawfully terminated under 9 (a) or 9(b) then the Bond would not be recoverable at that time.

4. The respondent’s submissions are repeated about the lease not being a Covid impacted lease as at 5th January 2021 and that there was preCovid default that was actionable and there was non-Covid default within the meaning of clause 10 of the Regulation. Thus the termination was lawful and the re-entry and it follows that the Bond be forfeit to the Respondent due to the debt owing to the Respondent exceeding the Bond, and the debt increasing as the end of the lease approaches.

5. Question 3: The respondent submits that there is no need for any further hearing. The Applicant has been given the opportunity to respond to these submissions. Up until now the Applicant has basically asked the Tribunal to determine the matter for it without any significant submissions being made by it.

6. Upon receiving the Directions of the Tribunal on 17th February 2021 the Respondent sought leave to withdraw the late further order in relation to the bond that was submitted after the end of the hearing and before the end of submissions. The reason it did that was to remove the complication and to assist the speedy resolution of the matter. We did not hear a response to that that request so we have provided the submissions as ordered.

7. The other further orders dealing with the removal of the Applicant’s chattels if the Tribunal did not permit the re-entry by the Applicant, were generally consistent with the terms negotiated between the parties, except for the length of time. We were trying to assist and not to further complicate the matter.

  1. No further submissions were received from the Tenant.

Evidence

The Tenant’s evidence

  1. The primary evidence of the Tenant are the statements of Mr Lim dated 7 January and 18 January 2021. It appears that the first statement was prepared without the benefit of legal advice. It provides general information about the effect of COVID-19 on the Tenant’s business, the actions of the Landlord’s agent in demanding rent and the effect of a storm in February 2020. Attached to the statement is a letter from his accountant dated 17 June 2020 stating that the business had an annual turnover of $75,000, but had a decline in turnover of 98% as of the date of the letter.

  2. The second statement appears to have been prepared by a solicitor. I summarise the contents of that statement as follows.

  1. On or about 7 May 2019, the Tenant entered into a lease for the premises at the ground floor and basement in Bathurst Street Sydney. This was effected by way of a Deed of Assignment of Lease and Consent of Lessor, undated, but apparently effected or about 7 May 2019;

  2. On or about 12 August 2019, the Tenant submitted an application for a construction certificate to fit out the premises as a café/restaurant;

  3. On or about 16 August 2019, the Landlord agreed to the Tenant’s application;

  4. On or about 28 August 2019, the Tenant decided not to proceed with the Development Application and to cancel it with the consent of the Landlord;

  5. On 4 October 2019, the Tenant sent a copy of the floor plan to Mr Frank Mou, the managing agent of the Landlord;

  6. On or about 22 February 2020, the Tenant received a notice from the Landlord requiring that it remove the ambulant toilet;

  7. On 28 February 2020, through their respective solicitors, the Tenant sought more time to comply with the Landlord’s request;

  8. On or about 12 March 2020, the Landlord requested that the applicant “bolt up” the ambulant toilet and not use it. The Tenant complied with this request;

  9. On 29 April and 12 May 2020, the Tenant asked Sydney Council for an extension of time in which to comply with the Council's request to remove the ambulant toilet;

  10. On or about 23 October 2020, the Tenant again asked the Council for an extension of time in which to comply with the Council's request to remove the ambulant toilet;

  11. On 28 October 2020, Council agreed to grant an grant extension of time to 18 January 2021;

  12. On 5 January 2021, Mr Lim received a call from one of staff at the café who said words to the effect that "the café is locked up and there is a notice from the Landlord displayed on the window saying that they evict us”;

  13. Since 5 January 2021, the Tenant has not been able to obtain possession of the café. Nor has it been able to effect removal of the toilet.

The Landlord’s evidence

  1. The Landlord’s evidence was contained in statutory declarations of Ms Chi Thuyen Ta (statutory declaration dated 21 January 2021) and her daughter Ms Susan Ta, (statutory declaration dated 22 January 2021).

  2. Ms Chi Ta relevantly states that the Tenant was evicted in the lease terminated on 5 January 2021. At the time the rent owing under the lease was $251,939.12, with the monthly rent being ongoing at $24,747.01. Apparently, the Landlord offered a waiver of $49,494 in rent up to and including September 2020, and for deferral of $17,997.82 of rent. However, the Tenant refused to participate in mediation with the Small Business Commissioner. Ms Ta says that she is suffering hardship because of the non-payment of rent due to the outgoings she is paying for mortgage repayments.

  3. Ms Susan Ta manages a number of properties for her parents and gives similar but more detailed evidence to that of her mother. In summary, she says that the Tenant is insolvent cannot possibly repay the rental arrears. She refutes the submission of the Tenant that the Landlord agreed to the installation of the toilet and says it was built illegally. She also says it could be taken away in a couple of hours. She states that the Landlord has made genuine attempt to resolve the dispute.

Findings

  1. While Mr Leaming cross-examined Mr Lim for some hours, ultimately many of the factual matters are not in dispute. However, where the evidence of the Landlord conflicts with that of the Tenant, I prefer the evidence relied on by the Landlord, as the Landlord’s evidence generally was corroborated by documents, whereas the Tenant’s evidence was not corroborated, and Mr Lim gave a number of unresponsive, or incorrect, answers to questions put to him by Mr Leamey in cross-examination.

  1. My findings are as follows.

  2. On or about 1 May 2016, the Landlord entered into a lease (the Lease) with Maum Complex Pty Ltd (Maum). The Lease was later registered with registration number AK9502985.

  3. Relevant terms of the Lease included:

  1. The term of the Lease was five years, commencing 1 May 2016 and expiring on 30 April 2021;

  2. The Premises the subject of the Lease were located in Bathurst Street, Sydney;

  3. The rent was $240,000 a year by monthly instalments of $20,000 plus GST.

  1. The Lease did not contain an option to renew the Lease for a further period, and expressly provided that the maximum period of tenancy under the Lease was five years.

  2. On or about 7 May 2019, Maum and the Landlord agreed to enter into a Deed of Assignment of Lease and Consent of Lessor, the effect of which was to assign the Lease from Maum as lessee to the Tenant.

  3. Sometime after 7 May 2019, (the Variation of Lease provided to the Tribunal is undated), the Lease was relevantly varied so as to provide the Tenant with one option of five years, with the rent for the further period of the Lease increasing by 10%.

  4. The varied Lease provided that the Tenant could only exercise the option if:

  1. The Tenant served on the Landlord a notice of exercise of option not earlier than 1 November 2020 and not later than 1 February 2021; and

  2. At the time of service of the notice of exercise of option there was no rent or outgoings overdue for payment and all other obligations of the Tenant have been complied with and fully remedied in accordance with the terms of any notice to remedy given by the Landlord.

  1. In the period 1 November 2020 to 1 February 2021 the Tenant did not serve a notice of exercise of option on the Landlord.

  2. The Tenant conducted the business of a café from the Premises.

  3. In 2019, the Tenant installed a toilet in the premises without approval of Council of the City of Sydney (Council).

  4. On or about 10 December 2019, the Council issued an Order to the Landlord under Div 9.3, Sch 5, Pt 1 of the Environmental Planning and Assessment Act 1979 (NSW) requiring removal of the toilet within 28 days.

  5. On 16 December 2019, the Landlord sent the Council Notice to the Tenant.

  6. As at the time of the hearing, the toilet had not been removed.

  7. In the period 22 December 2019 to 8 January 2020, the Tenant paid the Landlord rent for January 2020 of $24,747.01. (I note that the Lease provided for monthly rental payments of $20,000 plus GST, but that the “rent” claimed by the Landlord was $24,747.01 per month. I assume, but this was not explained on the evidence, that the difference was the various outgoings for which the Tenant is liable under the Lease);

  8. In the period 10 February to 22 February 2020, the Tenant paid the Landlord rent for February 2020 of $24,747.01.

  9. On 25 February 2020, the Landlord served a notice pursuant to s 129 of the Conveyancing Act 1919 (NSW) on the Tenant titled “Notice Under Conveyancing Act 1919 – Sect 129 Demand for Compliance with Council Requirements” (the First s 129 Notice) on the Tenant. In summary, the First s 129 Notice relevantly stated that:

2. The lease required you to obtain any City of Sydney approvals for any works carried out at the premises and for you to comply with all Local Government laws and Regulations

3. You carried out some works at the premises without Council permission.

4. The Council Issued a Notice of Intention to give an Order on 10th December 2019 with a copy of the intended order attached. A copy of those documents have been provided to you already and a copy is attached hereto.

5. You are required to remove the unapproved works forthwith.

6. You are required to carry out the following works immediately "To remove the building (being the accessible toilet, including the cistern, hand rails, hand basin and walls enclosing the toilet) located at Lot 1 DP 172795,95 Bathurst Street, Sydney NSW 2000".

7. Special conditions 1,3 & 12 of the lease refer and clauses 6.1.4,7.4,7.5 and 7.6.

8. Clause 6.1 is an essential term of the lease by cl 12.5.

9. You are hereby placed on notice that the lessor intends to lawfully enter and to do the work required by the Council and to charge you for the cost of doing such work and legal costs, pursuant to clauses 7.4 & 7.5, if such default is not rectified forthwith and within 7 days. The lessor hereby gives notice that it intends to have access to the property at 10am on 4th March 2020 to carry out the works unless you have provided access to the lessor earlier to demonstrate that the work has already been completed.

10. No further notice will be provided and this notice is without prejudice to any other right that the lessor has in relation to the lease.

11 The default by you is capable of remedy and the lessor requires the lessee to remedy the breach by complying with the correspondence from the City of Sydney dated 10th December 2020.

  1. On 13 March 2020, the Tenant paid the Landlord rent for March 2020 of $24,747.01.

  2. This was the last occasion on which the Tenant paid any rent to the Landlord.

  3. On 17 June 2020, the Tenant’s accountant wrote to the Landlord relevantly stating:

We are writing to confirm the following information:

Has an annual turnover above $75,000

Sit below the NSW Government 2019-20 payroll tax threshold of $900,000

Had a decline in turnover of 98% due to COVID-19 outbreak

- Average turnover prior to outbreak: $45,501

- 13/04/2020 – 26/04/2020: $828.

  1. On 6 July 2020, the Council informed the Landlord that compliance with the order requiring removal of the toilet had been extended to 31 October 2020.

  2. On 28 July 2020, the Tenant’s then solicitor wrote to the Landlord’s solicitor attaching a BAS Statement for the period January to March 2020, a letter from the Tenant’s accountant dated 17 June 2020 (referred to above) and an ANZ bank statement from 1 May to 2 June 2020:

  1. The BAS Statement records total sales for the period of $190,385.00;

  2. The content of the letter from the Tenant’s accountant is set out above;

  3. The bank statement shows an opening balance on 1 May 2020 of $9,329.68, and a closing balance on 2 June 2020 of $8,427.00.

  1. On 12 October 2020, the Landlord offered the Tenant a waiver of:

  • 50% of the rent for the months of April and May ($11,248.48), together with a deferral of $5,624.32 rent (being approximately 23% of the monthly rent) for each month;

  • 30% of the rent for the months of June, July and August ($6,749.18), together with a deferral of $3,374.59 rent (being approximately 14% of the monthly rent) for each month;

  • 30% of the rent for the months of September and October 2020 ($6,749.18).

  1. This is a total waiver of rent of $49,494.00 of rent for the period from April to October 2020, and a deferral of rent for the months of April to July 2020 in the amount of $17,997.82.

  2. The Tenant did not accept this offer.

  3. Despite the request of the Landlord, the Tenant refused to participate in mediation with the Small Business Commissioner.

  4. On 19 October 2020, the Landlord served another notice pursuant to s 129 of the Conveyancing Act 1919 (NSW) on the Tenant titled “Notice Under Conveyancing Act 1919 – Sect 129 Demand for Unpaid Rent & Remedy Of Other Breaches” (the Second s 129 Notice). The Second s 129 Notice stated that the Tenant was in default of the Lease for non-payment of rent in the sum of $183,525.61 (cl 2). The Second s 129 Notice also stated:

“3. Clause 5 of the lease requires you to pay rent month in advance. You failed to pay the monthly rent in the sum of $24,747.01 for the month payable on 1st April 2020; and·the monthly rent of $25,736.89 due on 1st May 2020; 1st June 2020; 1st July 2020; 1st August 2020;1st September 2020; and 1st October 2020 and part of the rent due on 1st March 2020 is still unpaid being $2,307.54.other amounts for outgoings of water useage and call out fee are overdue as set out in the attached statement.

4. The total amount of unpaid rent and outgoings as at today is $183,525.61 as set out in the attached statement. . . .

8. The [Landlord] has attended at a conference with you to discuss your request for rental relief due to Covid-19, however you have failed to provide documents to substantiate your claim to rental relief due to hardship. Your failure to pay any rent for the months of April 2020 to October 2020 is a repudiation of the lease in circumstances where the business has been operating and receiving revenue and Covid-19 financial assistance including Jobkeeper and cashboost. The lessor is unable to assess your request without proper documentation being provided.

9. You are also in default of the lease by falling to participate In PEXA workspace PEXA204545396 to facilitate the registration of the transfer of the lease to you and the variation of the lease. The default by you Is capable of remedy and the lessor requires the lessee to remedy the breach by participating in the PEXA workspace and to facilitate the registration of the dealings and payment to PEXA of the lodgement fees and Pexa fees.

10. You are also in default of the lease by making building works at the property without Sydney Council approval resulting in a Notice Issuing by the Council which has not been complied with by you. These works include an unauthorised toilet.”

  1. On 5 January 2021, the Landlord served a Notice of Termination and Re-Entry dated 5 January 2021 on the Tenant (Notice of Termination). The Notice of Termination relevantly stated:

“3. You have defaulted under the lease in not complying with financial obligations under the lease and by breaching non-financial obligations under the lease. . . .

5. The lease is not an impacted lease within the meaning of the regulation.

6. You have not given the lessor a statement to the effect that the lessee is an impacted lessee and evidence that the lessee is an impacted lessee.

7. You failed to provide the requested evidence at or after the informal settlement conference.

8. You refused to mediate the Covid provisions that applied to the lease.

9. A certificate under section 68 of the Retail leases Act 1994 that mediation has not taken place was issued on 17th November 2020. Mediation did not take place because you refused to participate.

10. There is no evidence provided by you that after the 4th January 2021 that you are eligible for JobKeeper and that you have demonstrated that your actual GST turnover has fallen in the December quarter 2020 (October, November, December) by at least 30% relative to a comparable period, usually the same period in 2019.

11. The [Landlord] is not precluded by the Regulation from taking the action in this Notice.

12. You have failed to comply with or to satisfy various notices under section 129 of the Conveyancing Act served on you in 2020, including the Notices dated 19th October 2020 and 7th September 2020 and other demands served on you.

13. The financial default(s) relied upon include:-

(a) clause 5 of the lease requires you to pay rent and other financial obligations. You are in default of the lease for non-payment of Rent & outgoings and other amounts under the lease in the balance sum of $251,939.12.

(b) Clause 5 of the lease requires you to pay rent month in advance. You failed to pay the monthly rent in the sum of $24,747.01 for the month payable on 1st April 2020 and each month thereafter up to and including 1st January 2021;

(c) You failed to pay the full amount of the rent that was due on the 1st March 2020.

14. The total amount of unpaid rent and outgoings as at today [5 January 2021] is $251,939.12. . . .

18. The non-financial defaults under the lease to which you have with Notices under section 129 of the Conveyancing Act and for which you have failed to rectify, being those dated.7th September 2020 In relation to compliance =with the Local Council requirements and the Notice dated 7th September 2020 at paragraph 10 for failure to participate In the PEXA for the registration of various lease documents Including the variation of lease. The breaches are:-

A.(a) The lease required you to obtain any City of Sydney approvals for any works carried out at the premises and for you to comply with all Local Government laws and Regulations.

（b) You carried out some works at the premises without Council permission.

（c) The Council Issued a Notice of Intention to give an Order on 10th December 2019 with a copy of the intended order is attached. A copy of those documents have been provided to you already. You obtained an extension of time to comply.

（d) You were served with a Notice by us to remove the unapproved works and you have failed to do.so or to provide a copy of any applicable approval by the Council or to have the said Notice of Intention to give an Order to be withdrawn.

（e) You were required to carry out the following works immediately "To remove the unapproved building works (being the accessible toilet, including the cistern, hand rails, hand basin and walls enclosing the toilet) located at Lot 1 DP 172795,95 Bathurst Street, Sydney NSW2000".

（f) you have failed to do so.

（g) Special conditions 1,3 & 12 of the lease refer to the requirement for Council approvals and clauses 6.1.4,7.4,7.5 and 7.6 apply. Clause 6.1 of the lease is an essential term of the lease by cl 12.5.

B. You have failed despite request to do so, co-operate with the registration of various lease documents including the variation of lease. That is a repudiation of the lease and the variation of lease.

C. You have failed to complete the conditions of the variation of lease including the installation of a commercial kitchen as set out in item 21 of the variation of lease document signed by the parties by adding new paragraphs 16 and 17 to the lease. That is a repudiation of the variation of lease.

19. This notice is without prejudice to any other right that the lessor has in relation to the lease and its termination.”

Is and was the Tenant an impacted lesee within the meaning of the Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 and/or Rental and Other Commercial Leases (COVID-19) Regulation (No 3) 2020?

  1. Both the Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (Regulation No 2) and Rental and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (Regulation No 3) (together, the Regulations) were made under the Retail Leases Act 1994 (NSW) and the Conveyancing Act 1919 (NSW). The object of Regulation No 2 was to repeal and remake, with amendments, the Retail and Other Commercial Leases (COVID-19) Regulation 2020 and to extend prohibitions and requirements in relation to the exercise of certain rights of lessors during the COVID-19 pandemic period until the end of 31 December 2020. The object of Regulation No 3 was similar save that its effect was until the end of 28 March 2021.

  2. As the Tenant is effectively seeking to overcome the effect of the Notice of Termination (dated 5 January 2021), the relevant regulation is Regulation No 3.

  3. Relevantly, cl 6 of Regulation No 3 provides:

6 Prohibitions and restrictions relating to impacted leases

(1) This clause applies if, during the prescribed period, a lessee is an impacted lessee.

(2) The rent payable under the impacted lease must not be increased during the prescribed period, other than rent or a component of rent determined by reference to turnover.

Note. See leasing principle No. 13 in the National Code of Conduct.

(3) A lessor must not, after the prescribed period, take prescribed action against the impacted lessee on the grounds of a breach of the impacted lease consisting of a failure to pay an amount equivalent to or representing the rent increase amount referred to in subclause (2).

Note. See leasing principle No. 1

  1. Clause 4 defines “impacted lessee” as:

4 Meaning of “impacted lessee”

(1) A lessee is an impacted lessee if—

(a) the lessee qualifies for the jobkeeper scheme under sections 7 and 8 of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 of the Commonwealth, and

(b) the following turnover in the 2018–2019 financial year was less than $50 million—

(i) if the lessee is a franchisee—the turnover of the business conducted at the premises or land concerned,

(ii) if the lessee is a corporation that is a member of a group—the turnover of the group,

(iii) in any other case—the turnover of the business conducted by the lessee.

  1. “Prescribed action” is defined in cl 3 as:

taking action under the provisions of a commercial lease or seeking orders or issuing proceedings in a court or tribunal for any of the following—

(a)    eviction of the lessee from premises or land the subject of the commercial lease,

(b)    exercising a right of re-entry to premises or land the subject of the commercial lease,

(c)    recovery of the premises or land,

(d)    distraint of goods,

(e)    forfeiture,

(f)    damages,

(g)    requiring a payment of interest on, or a fee or charge related to, unpaid rent otherwise payable by a lessee,

(h)    recovery of the whole or part of a security bond under the commercial lease,

(i)    performance of obligations by the lessee or any other person pursuant to a guarantee under the commercial lease,

(j)    possession,

(k)    termination of the commercial lease,

(l)    any other remedy otherwise available to a lessor against a lessee at common law or under the law of this State.

  1. In summary, if a tenant is an impacted lessee, during the prescribed period a lessor must not take any prescribed action against the impacted lessee on the grounds of a breach of the impacted lease occurring during the prescribed period consisting (relevantly) of a failure to pay rent.

  2. The first question therefore is whether or not the Tenant is an impacted lessee.

  3. The applicant states it is a “COVID Job Keeper Benefit company”, and Mr Lim stated during the hearing that the Tenant received JobKeeper for two employees. In addition, the letter of Tenant’s accountant dated 15 January 2021 also states that the Tenant is currently receiving JobKeeper. On the basis of this evidence I find that the Tenant qualifies for the JobKeeper Scheme.

  4. Given contents of the letters from the Tenant’s accountant of 15 January 2021 and 17 June 2020, I find that the annual turnover of the Tenant was less than $50 million.

  5. Thus far, the effect of the Regulations is that the Landlord may not evict the Tenant during the prescribed period because of its failure to pay rent: cl 7(1)(a).

  6. It is appropriate to set out cl 7 of Regulation No 3 in full, as the Landlord seeks to rely on the Tenant’s failure to comply with certain sub-clauses.

7 Obligation to renegotiate rent and other terms of impacted leases before prescribed action

(1)    A lessor must not take prescribed action against the impacted lessee on the grounds of a breach of the impacted lease occurring during the prescribed period consisting of any of the following unless the lessor has complied with any obligations imposed on the lessor by this clause and clause 8—

(a) a failure to pay rent,

(b) a failure to pay outgoings,

(c) the business operating under the lease not being open for business during the hours specified in the lease.

Note. See leasing principles No. 1, 11 and 14 in the National Code of Conduct.

(2)    A party to an impacted lease may request the other parties to renegotiate the rent payable under, and other terms of, the impacted lease.

(3)    A party to the impacted lease may make a second or subsequent request under subclause (2), but, unless the parties otherwise agree, an impacted lessee may make a second or subsequent request only if the request— (a) is made during the prescribed period, and (b) does not relate to rent or outgoings for a period for which the rent or outgoings have already been reduced, waived or deferred following a renegotiation under this clause.

(4)    A party to an impacted lease must, if requested under this clause— (a) renegotiate in good faith the rent payable under, and other terms of, the impacted lease, and (b) commence renegotiations within— (i) 14 days of receiving the request, or (ii) another period agreed to by the parties.

(5)    An impacted lessee must give the lessor the following in respect of the impacted lease— (a) a statement to the effect that the lessee is an impacted lessee, (b) evidence that the lessee is an impacted lessee.

(6)    The parties are to renegotiate the rent payable under, and other terms of, the impacted lease having regard to— (a) the economic impacts of the COVID-19 pandemic, and (b) the leasing principles set out in the National Code of Conduct.

Note. See leasing principles No. 3–5, 7–10 and 12 in the National Code of Conduct. In particular, leasing principle No. 3 in the National Code of Conduct requires landlords to offer rent reductions, in the form of waivers or deferrals of rent, proportionate to lessees’ reductions in turnover.

(7)    If the impacted lessee does not comply with subclauses (4)–(6), the lessor is taken to have complied with this clause.

(8)    Nothing in this clause prevents a lessor and impacted lessee agreeing to the parties taking action in relation to the impacted lease, including the lessor taking prescribed action or the parties agreeing to terminate the impacted lease.

(9)    To avoid doubt, a renegotiation commenced but not concluded before the expiry of the prescribed period may be continued and concluded after that expiry.

  1. The Landlord claims that the Tenant failed to comply with each of cll 7(4), 7(5) and 7(6), and accordingly, that pursuant to cl 7(7) the Landlord is taken to have complied with cl 7. My interpretation of cl 7(7) is that the Tenant must comply with the requirements of each of cll 7(4), 7(5) and cl 7(6). Failure to comply with any individual sub-clause means that the Tenant has failed to comply with cl 7(7).

  2. I am satisfied that the evidence establishes that the Tenant did not comply with cl 7(4) (that is, negotiate in good faith the rent payable under the Lease); the evidence is that it did not neither responded to the Landlord’s offer to reduce and waive the rent, and did not attended for mediation with the Small Business Commissioner.,

  3. It follows that I am also satisfied that the Tenant did comply with cl 7(6) in that it did not subsequently renegotiate the rent in light of the economic impact of the COVID-19 pandemic and the Leasing Principles.

  4. However, I will give the Tenant the benefit of the doubt on the requirements of cl 7(5). First of all, it is not clear whether paragraphs (a) and (b) are to be read conjunctively or disjunctively. I can see arguments both ways. It is the case that the Tenant did not give the Landlord a statement saying it was an impacted lessee. But it is tolerably clear that some evidence to that effect was provided by the Tenant’s accountant on 17 June 2020 and by the Tenant’s solicitor on 28 July 2020, although I accept that the words “impacted lessee” do not appear in the accountant’s letter.

  5. As the Tenant has not complied with each of cll 7(4) and 7(6) the Landlord is taken to have complied with cl 7: cl 7(7).

  6. The effect of this conclusion is that the Landlord is not prohibited from taking action under the Lease in relation to the failure of the Tenant to pay rent in respect of the Premises since 10 February 2020, this default being the subject of the Notice of Termination.

  7. That said, if I had found otherwise, cl 10 of the Regulation provides that nothing in the Regulation prevents a lessor taking prescribed action on grounds not related to the economic impacts of the COVID-19 pandemic. Accordingly, there is no issue that the Landlord could terminate for other reasons provided the termination is based on a breach amounting to a repudiation. In this respect see MIR Holdings Pty Ltd & Anor v Marina Square Retail Pty Ltd [2020] NSWSC 1418 at [55] where the Court held that the provisions of the Regulations are not concerned with defaults prior to the COVID-19 pandemic and prior to the prescribed period. See too, to similar effect, First Renewable Pty Ltd v Nastevski [2020] NSWSC 1508 at [24].

  8. The other breaches alleged in the Notice of Termination are:

  1. Failing to participate in PEXA workspace PEXA204545396 to facilitate the registration of the transfer of the Lease to the Tenant and the variation of the Lease; and

  2. Making building works at the property without Council approval resulting in a Notice being issued by the Council which has not been complied with by the Tenant. Those works included the unauthorised toilet.

  1. In my view the failure to transfer the Lease is not an act of a repudiatory nature warranting the Landlord to terminate the Lease. The failure to do so is not claimed to be so in the First s 129 Notice, which alleged default is recognised by the Landlord as being capable of remedy.

  2. As to the failure to remove the toilet in compliance with the Council order, I can see the issue is arguable, as cl 12.5 of the Lease states that cl 6.1 of the Lease is an essential term. Clause 6.1.4 provides that the Tenant must comply with all laws regulating how the Premises are used. However, it is not necessary for the purposes of these reasons to come to a definitive view.

  3. In summary, I find that due to the Tenant’s failure to comply with cll 7(4) and 7(6) of Regulation No 3, the Tenant is not an impacted lessee. Accordingly the Landlord is entitled to terminate for the Tenant’s failure to pay rent.

  4. I turn now to the other issues identified by the Appeal Panel.

Was the Landlords prevented from terminating the Lease and re-entering the premises because of the Regulations?

  1. It follows from the above analysis that the answer to this question is “No”.

Do the Regulations prevent taking action to terminate for matters of a type described as "non financial defaults" set out in the Notice of Termination and Re-Entry dated 5 January 2021 issued by the Landlord?

  1. Not necessary to answer.

Did the tenant breach the lease as alleged?

  1. To the extent that the alleged breach is a failure to pay rent, it follows from the above analysis that the answer is “Yes”.

If the Lease was lawfully terminated, is the tenant entitled to relief against forfeiture?

  1. The grant of relief against forfeiture is discretionary. In MIR Holdings at [60] the Court stated:

The general principles [in relation to relief against forfeiture] are well known and were summarised by Campbell J (as his Honour then was) in Wilkinson v S & SGikasPty Ltd:

“[23] The granting of relief against forfeiture is discretionary. In relation to a lease, the principle that is generally applied is that the power to re-enter or forfeit for non-payment of rent is regarded as being in substance security for the rent. Provided the lessor and other persons concerned can be put in the same position as before the forfeiture or re-entry, the Court will usually grant relief against forfeiture upon payment of rent, costs, interest and other expenses. If those terms are offered, it is only in a rare case that the Court would refuse relief against forfeiture. The principle on which that is done is that, once the landlord has got all that the right of re-entry was, in equity’s eyes, security for, it would be unconscionable for the landlord to insist on its legal right to re-enter.

[24] However, such a rare case can occur if the tenant is unable to pay future rent, or may reasonably be expected to become so. If there is a sufficiently serious risk that the tenant will not be able to perform its obligations in the future, it may be that the consequence is that it is not unconscionable for the landlord to insist on its strict legal right.

  1. It was clear from the evidence of Mr Lim during the hearing, and again in his written submissions following the hearing, that the Tenant wished to remain in the Premises. This was opposed by the Landlord because, amongst other matters:

  1. The Tenant has paid no rent since February 2020 despite continuing to trade for all but a very brief period of time;

  2. The Landlord asked the Tenant to engage in mediation and at all times acted in good faith;

  3. The Tenant has failed to act in good faith by not participating in a formal mediation and not providing financial data to the Landlord;

  4. The fact that the Lease expires on 30 April 2021, the option to renew not having been exercised; and

  5. The totality of all of the breaches by the Tenant.

  1. As noted above, I have found that the Tenant was an impacted lessee for the purposes of Regulation No 3. Therefore, I consider it appropriate to consider the Leasing Principles as a factor in determining whether or not to grant relief against forfeiture. The purpose of the Leasing Principles is:

to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/operators/other landlords and tenants, where the tenant is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme.

  1. The Leasing Principles apply to negotiating amendments in good faith to existing leasing arrangements so as to aid the management of cashflow for SME tenants and landlords on a proportionate basis.

  2. The objective of the Leasing Principles is to:

share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period, whilst seeking to appropriately balance the interests of tenants and landlords. It is intended that landlords will agree tailored, bespoke and appropriate temporary arrangements for each SME tenant, taking into account their particular circumstances on a case-by-case basis.

  1. The Leasing Principles relevantly provide that:

  1. Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period: Principle 3;

  2. Rental waivers must constitute no less than 50% of the total reduction in rent payable under Principle #3 over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease agreement. However, regard must also be had to the Landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement: Principle 4.

  1. As noted, the Landlord did offer the Tenant a waiver of $49,494.00 in rent up to and including October 2020, and a deferral of $17,997.82 of rent. The Tenant did not accept this offer, did not volunteer any counter-offer and did not engage in any settlement negotiations under the auspices of the Small Business Commissioner.

  2. The only information that had been provided to the Landlord was that provided in the letter of the Tenant’s accountant stating that the Tenant’s business had an annual turnover of $75,000, but had had a decline in turnover of 98% as of the date of the letter. Based on that information, the offer of the Landlord appears not to have been proportionate to the Tenant’s stated loss of income. However, that statement of annual income cannot be correct. I say that as the monthly rent according to the Lease was $22,000 plus GST, that is $240,000 per annum plus GST. It seems unlikely therefore that the annual income could only be $75,000.00. Furthermore, as noted, there is evidence before the Tribunal in the form of the BAS Statement that for the period January to March 2020 the annual turnover of the Tenant’s business was $190,385.00. If that information is correct, the annual turnover of the business was in the order of $760,000.00.

  3. All this to say, I am not satisfied that the Landlord has failed to make an offer to the Tenant inconsistent with the Leasing Principles, and this matter does not cause me any hesitation in refusing to grant relief against forfeiture.

  4. In MIR Holdings the Court said at [61] that the difficulty for the plaintiffs in that case was that “their default under the leases was persistent and significant”.

  5. In my view, the breach of the Lease by the Tenant in relation to rent has been also been persistent and significant. I have no confidence that the Tenant is able to pay any rental arrears or rent in the future. There has been no suggestion from the Tenant that it would undertake to pay any rental arrears at all in order to re-enter the Premises. There is no any evidence to suggest that the Tenant has any financial capacity whatsoever to pay those arrears or any part of them, or to pay ongoing rent.

  6. Finally, I note that the Lease comes to an end in a matter of weeks.

  7. As noted above, a Court (or here the Tribunal) will usually grant relief against forfeiture upon payment of rent, costs, interest and other expenses. If those terms are offered, it is only in a rare case that the Court (or Tribunal) would refuse relief against forfeiture. However, this is one of those cases referred to in par [60] of Mir Holdings where the Tenant appears unable to pay future rent, or rental arrears, and there is a sufficiently serious risk that the Tenant will not be able to perform its obligations in the future. Accordingly, it is not unconscionable for the Landlord to insist on its legal right to re-enter the Premises.

  8. For these reasons, I decline to grant the Tenant relief against forfeiture.

Is the tenant entitled to damages for breach by the Landlord? If so, how much?

  1. This claim only arose in the event that the Tribunal found that the Landlord breached the Lease and unlawfully terminated it. Therefore the question does not arise.

What orders should be made in light of the above matters?

  1. The Tribunal makes the following orders:

  1. The application is dismissed.

  2. Orders 3(a) and (c) of the Tribunal made on 11 January 2021 in matter AP 21/00887 are set aside.

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.


Registrar

Decision last updated: 02 September 2021

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MIR Holdings Pty Ltd v Marina Square Retail Pty Ltd [2020] NSWSC 1418
First Renewable Pty Ltd v Nastevski [2020] NSWSC 1508