“Reasonable time” in a s 146 notice – Primary RE Ltd v Great Southern Property Holdings Ltd & Ors [2011] VSC 242

and the lessee fails, within a reasonable time thereafter, or the time not being less than fourteen days fixed by the lease to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach.

The notices specified times of between about 1 an 2 months.

Primary RE:

• argued that a reasonable time was the time necessary to actually undertake and complete the work;
• adduced evidence from a prominent solicitor expert in leasing that obtaining legal advice on the tenant’s rights would take between 19 and 37 working days; and
• adduced evidence that remediation of the alleged breaches may extend beyond a year.

The Receivers of the land owning companies submitted that s 146 required the landlord to give the tenant a reasonable time to consider a response, not to complete the required remediation.

The Court held that:

147. The true purpose of the notice is to give to the tenant an opportunity to consider its position and give a response. If the breach is capable of remedy, that response may be to admit the breach and propose a course of remediation. If compensation is sought, that response may involve agreement to pay reasonable compensation to be assessed. If the breach is not admitted, or the landlord rejected a proposal for remediation, the tenant may then apply for relief against forfeiture. In the present case, having received the notices of default, a sufficient response from the tenant to avoid forfeiture, re-entry or termination, would have been to recommence management of the plantations in compliance with its obligations under each lease and forestry agreement, coupled with a proposal to pay reasonable compensation for any injury to the reversion. In my view it would not have been necessary for the tenant to do more in order to avoid the risk of termination, provided the tenant had the capacity and communicated a genuine intention to do as proposed. Nothing of the kind was communicated by the tenant to any of the landlords. The fact that the remediation work, identified in the notices, might take one or more years was not a determining factor in the calculation of a reasonable time within which to respond.

The Court went on to find that:

• the tenant did not have the financial and other resources to enable it to resume management of the plantations;
• one month was sufficient time to consider a response in any event. The response did not require foliar analysis or complex legal advice. The tenant knew of its obligation to maintain the plantations; and
• the tenant’s Liquidators could have responded in a short period of time by assuring the landlords that they would maintain the plantations and offering reasonable compensation but they failed to do so, constituting a continuing representation that they would not remedy the breaches.

Landlords generally specify the minimum period of 14 days in their notices. Lawyers should consider this part of the judgment when drafting s 146 notices under a lease that does not specify the period of the notice.

The relevant discussion is in paragraphs [137] to [158] of the judgment.