Sneakerboy Retail Pty Ltd trading Sneakerboy v Georges Properties Pty Ltd [2020] NSWSC 996 involved an application by Sneakerboy for relief against forfeiture of its retail lease, for default in paying rental. The bank guarantee was for almost $254,000, and the assignment under which Sneakerboy took the lease, required it to reinstate the guarantee, in the event the landlord called on it.
Aside from the adjectival address where the relevant store was situated, viz Temperance Lane, the matter that made the case extraordinary was the backdrop to the application of the Retail and Other Commercial Leases (COVID-19) Regulation 2020, which as we all know, gives effect to the National Cabinet Mandatory Code of Conduct: SME Commercial Leasing Principles during COVID-19 (“The Code”).
Another interesting aspect of the matter was consideration of the relevance to forfeiture of recourse by the Landlord to the Lessee’s security bond.
The principles as to relief pertinent to the facts of the case, were canvassed in over 2 ½ pages or so by Robb J. HH then summarised them in 10 (with respect) succinct principles, which are well worth setting out.
The purpose of this article will be to set out HH’s (with respect) succinct summary of complex forfeiture principles and to then consider how the application of the Code affected the analysis.
HH summarised the principles as to forfeiture at para [75] as follows:
“[75] For the purpose of the determination of the present case, the following propositions emerge from the above consideration of the applicable principles:
- Where a lease is terminated for non-payment of rent, the Court will generally grant relief against forfeiture.
- That is because the power in the landlord to terminate the lease by re-entry is generally regarded as being in substance a security for the rent.
- The power to [grant] relief against forfeiture will generally only be exercised on the condition that the tenant pay the outstanding rent and put the landlord in the position it would have been in if there had been no default in payment of the rent, including that the tenant pay the landlord’s costs of the application.
- The conditions to the grant of relief may include that the tenant reinstate a bank guarantee or other security to which the landlord is entitled under the lease.
- ……………. the remedy is discretionary and not as of right.
- …………….
- ……………..
- …………….the courts have a strong predilection towards granting the relief. ………………..
- It is relevant that the landlord has alternative security such as a bank guarantee that may be required to be renewed as a condition to the grant of relief.
- ………………………….”.
(For those who wish more in depth research into relief against forfeiture, please see my loose leaf service, published by Thomson Reuters, Injunctions: Law and Practice, and in particular, the chapter on Leases).
The honourable Mr justice Rob observed that :
- if relief against forfeiture were granted, the lease would be retrospectively reinstated as from late March 2020; and
- the practical effect of that was that Sneakerboy and the Landlord would be required to negotiate the amount of Sneakerboy’s ongoing rental obligations in accordance with the COVID-19 regime: at [100].
“It seems certain that the amount payable by Sneakerboy to the Landlord under the Lease will be substantially reduced. The amount of the reduction cannot be estimated on the basis of the evidence in these proceedings.”
HH returned to this theme at [118], observing that this feature made the case exceptional, as usually, a term of relief against forfeiture is to oblige the tenant to obey the terms of the lease; but that the Code would impact the timing and amount of rental payment; and also have other effects.
And at [101] :
“ The real relevance of the calling on the bank guarantee by the Landlord is that they have in fact compensated themselves for all of the consequences of Sneakerboy’s default to date, and that they have in their hands all of the rent to which they have become entitled under the lease, and they still have money in hand. It is almost certain that, when the COVID-19 regime is implemented, the Lessors will have a substantially greater amount in hand then they have accepted is the case to date.”
HH observed that any order made by the Court to give effect to relief against forfeiture, would have to include appropriate orders as to the reinstatement of the bank guarantee.
Interestingly, his Honour observed that it would be relevant to the exercise of the discretion to grant relief against forfeiture, if the Landlord could prove that there were good prospects of leasing the premises to an entity which would have the ability to honour rental obligations. However, the instant Landlord’s evidence did not rise to this threshold.
HH considered that a factor militating in favour of relief was that the default in payment of rental that led directly to the Landlord’s decision to terminate the lease was at least to some degree, caused by the initial consequences of the outbreak of COVID-19: at para [111 ].
Another way in which HH considered the outbreak of the pandemic to be relevant to the application for relief, was that it explained to some extent the delay in Sneakerboy bringing its application: para [114].
All in all, HH considered it appropriate to grant relief to Sneakerboy and as part of that, the bank guarantee had to be reinstated. However, fair dealing suggested there was a question as to the timing when that ought to happen, and that was because inter alia the Landlord had money in hand: para [115].
HH invited the parties to seek to agree a process to implement the COVID-19 regime; but unfortunately they were unable to do so, and this led to the Round Two in the litigation: (No 2) [2020] NSWSC 1141.
For the outcome of Round Two, and its practical implications, I invite you to read my next article, which hopefully will be out in 4 -6 weeks.
Sydney Jacobs obtained his Masters Degree in Law from Cambridge and practices in the areas of commercial / equity including real property , partnership disputes and building and construction law. Many contracts he is called to advise on, have mediation / arbitration clauses.
He has acquired in -depth experience in the area of property law including eg sales of property “off the plan”, challenging notices to complete, issuing notices to perform, obtaining easements via applications under Sec 88 K of the NSW Conveyancing Act , advising and drafting papers in applications to remove easements as being obsolete and seeking interim and permanent injunctions against interference with easements. His arbitration experience includes being a NSW Bar accredited arbitrator, appearing in arbitrations and technical references, and being part -author of what is understood to be the definitive loose -leaf arbitration service in Australia, published by ThomsonReuters.
He is the sole author of two other major services for ThomsonReuters , Commercial Damages and Injunctions: Law & Practice
Prior to being called to the Bar, Sydney was a commercial litigator with a construction law focus, at a Minter Ellison and Deacons James & Graham (now Norton Fullbright).
For a full list of his cases ,articles and Thomson Reuters publications , feel free to view
You may connect with Sydney via email sjacobs@13wentworth.com.au or LinkedIn
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