The recent decision of the Supreme Court of Western Australia in Western Choice Pty Ltd v Lenz Corp Pty Ltd [2015] WASC 316 is a timely reminder of the Court’s power to order “relief against forfeiture” (which means the landlord cannot terminate a tenant’s lease).
The facts
The facts of that case can be summarised as follows:
The tenant applied to the Court for relief against forfeiture.
The decision
The Court’s decision can be summarised as follows:
Relief will generally be refused when the tenant is hopelessly insolvent, because in such a case the reinstating of the lease would be futile.
Analysis of the law
At common law, a landlord has the right to enforce forfeiture of a lease where the tenant breaches a term that is expressed as a condition of the lease agreement.
Breach of covenant, on the other hand, does not give a landlord right to forfeit the lease unless such a right is expressly embodied in the lease agreement.
In practice this is rarely an issue as tenancies created by a formal document invariably reserve a right of forfeiture for breach of any covenant, including the covenant to pay rent.
The occurrence of an event that entitles the landlord to forfeit a lease does not of itself amount to a forfeiture of the lease, unless and until the landlord takes action to determine the lease, either by physical peaceable re-entry or by issue and service of a writ proclaiming possession.
The modern doctrine of relief against forfeiture is now enshrined in section 81 of the Property Law Act 1969 (WA) (PLA).
The Supreme Court is the Court that has the power to grant relief against forfeiture.
There is no time limit within which a tenant may seek relief against forfeiture for non-payment of rent. Of course, if the delay to seek relief is unjustifiable it may operate against the grant of relief.
It is, of course, up to the court to determine whether to grant a tenant relief from forfeiture. The purpose of the jurisdiction to grant relief against forfeiture is not to release parties from their bargains.
On the contrary, it is a general principle of law to enforce contractual obligations, except in appropriate circumstances.
The onus is upon the person seeking relief to satisfy the Court that relief ought to be granted.
Where the tenant tenders the outstanding rent and costs, the courts usually, as a matter of course, exercise the discretion in favour of the tenant.
In Greenwood Village Pty Ltd v Tom the Cheap (WA) Pty Ltd [1976] WAR 49, Jackson CJ aptly summarised the judicial attitude as follows
Equity regards a proviso for re-entry on non-payment of rent as merely a security for rent, so that if the landlord can be restored to his position by payment of arrears of rent or other moneys due and any costs and expenses to which he has been put the tenant is entitled to be relieved against the forfeiture of his tenancy. The object of the proviso is to secure to the landlord the payment of his rent; and when the rent has been paid, the tenant should ordinarily be relieved from forfeiting his term.
It has also been held that the courts will not refuse to grant relief against forfeiture to a tenant because he or she has a bad rent history “at least on the first application”.
The courts will not take into account breach of any covenant for which the landlord is required to serve notice under section 81 of the PLA, where no such notice was served.
Another issue that commonly arises is whether tenants who make good their default by payment of outstanding rent nonetheless are not entitled to relief against forfeiture where the breach was wilful. The courts have held that the fact that the default was wilful is just one of the factors the courts will take into account to determine whether it is equitable to grant relief.
Section 81(8) of the PLA expressly excludes the statutory relief:
Generally, the courts will almost certainly grant relief against forfeiture if the tenant makes good the breach and/or any financial loss, and if the tenant is able and willing to fulfil his or her obligations in the future.
However, recent authorities indicate that the fact that a breach is irremediable is not necessarily a bar against the grant of relief, though the courts take a particularly strict view about such breaches.
Even if the breach is wilful and/or serious it does not necessarily preclude judicial relief against forfeiture.
The Supreme Court of WA Full Court case of Old Papa's Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11, illustrates a relatively rare judgement where the Court refused to grant relief against forfeiture.
In this case McLure J found that the wilful nature of the breach of covenant not to assign without consent, in circumstances where both the assignor and assignee were in serious financial difficulties, justified the trial judge’s refusal to relieve the tenant from forfeiture.
Lavan Legal comment
The case law is consistent in that where a tenant is ready and willing to remedy the breach (whether the breach is non-payment of rent or any other covenant) that gave rise to forfeiture, it is almost certain that the Court will grant relief from forfeiture except in exceptional circumstances.
The main reason for this is that forfeiture of a lease more often that not, results in substantial loss to the tenant, which usually is disproportionate to the loss the landlord is likely to suffer due to the breach.
Whether there are “special circumstances” to justify the Court to refuse to grant relief from forfeiture depends on the circumstances of each individual case. There are two grounds landlords tend to plead to show special circumstances:
The case law demonstrates that neither ground by itself is enough to determine the matter, especially, it would seem, where the landlord stands to gain a windfall. The Court takes into account all the circumstances of each case. The circumstances vary so much that previous cases are at best examples and not authority for a particular decision.
