A summary of Synergy Scaffolding Holdings Pty Ltd v Goodman Funds Management Australia Limited as trustee for GAI1 RPF Subtrust of the Hayesbery [2023] NSWSC 538
In this Supreme Court of New South Wales decision, the Summons filed by the Plaintiffs, the sublessees, in respect of relief sought against forfeiture of a head lease under section 130 of the Conveyancing Act 1919 (NSW) (Section 130) was dismissed.
Background
A summary of the salient facts is set out below:
On 12 May 2020, the First Plaintiff, Synergy, was granted a sublease of part of a commercial warehouse property in Heathcote Road, Moorebank (Property).
On 19 October 2020, the Second Plaintiff, MRL was granted a sublease of another part of the Property.
The Second Defendant (The Trust Company Limited) was the registered proprietor of the property and held the legal title of the Property as custodian for the GA/1 RPF Subtrust (Subtrust).
The First Defendant, Goodman Funds Management Australia Limited was the trustee of the Subtrust and the beneficial owner of the Property (together with the Second Defendant as ‘owner parties’ referred to as Goodman).
Ovato Limited (Ovato) held a head-lease (Head Lease) over the Property.
On 21 July 2022 administrators were appointed to Ovato and its subsidiaries.
On 18 August 2022, the Administrators sent a letter and a notice under section 443B of the Corporations Act 2001 (Cth) to Goodman that after 18 August 2022, they did not intend to exercise rights under the Head Lease as Head-Lessee and that they would cease to occupy the Property. The effect of this Notice was that the administrators were not liable for rent or other amounts payable by the company in relation to the property while the notice is in force.
On 12 September 2022, Goodman wrote to the Administrators to inform them that it had accepted the repudiation of the Head Lease and terminated the Head Lease on 19 August 2022. This resulted in the subleases to Synergy and MRL also terminating.
Negotiations for occupation rights proceeded between Goodman and the prior sublessees Synergy and MRL.
The Plaintiffs filed a Summons in the Supreme Court of NSW making numerous submissions that relief was available for the benefit of the sublessees under section 130.
Section 130 and repudiation
First, the Plaintiffs submitted that the issuing of the Notice by the Administrators was not itself a repudiation and that the purported termination by Goodman was ineffective.
The Court disagreed with this submission determining that when objectively construing both the letter and the Notice sent by the Administrators, it was clear that the Administrators evinced an intention to no longer be bound by the terms of the Head Lease, which amounted to repudiatory conduct (see [79]).
Termination by Landlord
Second, the Plaintiffs submitted that Goodman placed reliance on the Administrators’ appointment as an event of insolvency that permitted termination under Clause 20.2 of the Head Lease which was said to demonstrate the exercise of a right of re-entry pursuant to a “covenant, proviso or stipulation” for the purposes of section 130.
The Court disagreed with this submission stating that the fact that contractual and common law rights of termination for breach and common law rights based on repudiation may lead to a similar practical result as express rights of forfeiture and re-entry does not mean they are the same thing (see [83]).
Section 130 and non-payment of rent
Was non-payment of rent one possible reason to proceed to enforce a right of re-entry and forfeiture sufficient to invoke section 130?
Her Honour held:
- there has long been an equitable jurisdiction to relieve against forfeiture for non-payment of rent;
- section 130 is a statute-based remedy for relief against forfeiture, not limited to situations of non-payment of rent; and
- section 130 is not available where the head lessor has elected to exercise common law rights based on repudiation instead of enforcing such a right of re-entry or forfeiture.
Section 130 and works carried out on the Property as re-entry
Another issue considered was whether works described as “landscaping, fire service R&M, and repair and maintenance electrical activity” carried out on the Property by Goodman was an attempt to exercise by the Lessor enforcement of a right of re-entry which would give rise to a remedy under section 130.
Her Honour determined at [91] that the carrying out of those works were not an attempt by Goodman to exercise the right of re-entry as they were limited, and they did not demonstrate a right of re-entry for example, locks being changed or being excluded from the property.
Goodman was found not to be enforcing its right of re-entry of forfeiture, and section 130 relief was not available to the Plaintiffs.
Key takeaways
The key takeaways from this case are:
- A lease may be terminated by reference to 2 sets of rights. The first is the right of re-entry and forfeiture commonly found in leases and available to a landlord to effectively terminate a lessee’s estate and interest for breach of covenant in the lease. The second arises under common law being the right to terminate the lease for repudiation, a right which is available relative to any contract and to both parties.
- This case demonstrates that section 130 is not available where the head lessor has elected to exercise common law rights (termination by acceptance of repudiation) instead of enforcing a contractual right of re-entry or forfeiture
- Where section 130 is available, it is not limited to situations where the lessor is proceeding to enforce a right of re-entry or forfeiture for non-payment of rent, but also under any covenant, proviso or stipulation in a lease.
- If the sublessee successfully seeks relief under section 130, the court has a broad discretion to determine the appropriate lease terms.
- The discretion to grant relief under section 130 is fettered if the lease to be granted would cause significant hardship to the head lessor by making it impossible to deal with the premises as a whole.
Call Mike Ellis, Property Partner, or Esther Ihn, Senior Associate, on (02) 9261 5900 to discuss what this case means for you.