Termination of leases and relief from forfeiture – Lontav Pty Ltd v Pineross Custodial Services [2011] VSC 278

In the decision of Lontav Pty Ltd v Pineross Custodial Services [2011] VSC 278, handed down last Thursday, a tenant applied to the Supreme Court seeking orders that the landlord of a retail premises lease had wrongly purported to terminate the lease and, in the alternative, sought relief from forfeiture.

There are a couple of interesting findings in Hargraves J’s reasons:

• the s 146 notice expired on a public holiday (Good Friday). The tenant argued that the time for compliance should extend to the next business day. The Court rejected that argument on the grounds that there is no general extension for compliance until the next working day where the contracted time to perform an act falls on a weekend or public holiday unless the contract provides otherwise (see paragraph [61]). This is important for practitioners advising tenants who have received a s 146 notice, particularly as the tenant has to pay the landlord’s costs of a relief from forfeiture application, usually on a solicitor and client or indemnity basis;

  ---

• the tenant was in arrears of rent and certain outgoings. The tenant paid some of the arrears of rent under a note designating the payment as a rental payment. The landlord purported to re-allocate that money to outgoings in what the court described as a deliberate attempt to increase the rental arrears that it could rely on. The court found that the landlord cannot re-allocate a payment to a different debt if the tenant has already done so (see paragraphs [64] and [65]). Practitioners should be aware that receiving rent after a right to terminate has accrued affirms the lease and waives the landlord’s ability to terminate; and
• the tenant had tried to sell its business and assign its lease but had not obtained the landlord’s consent to the assignment. The tenant then became very ill and appointed the purchaser as agent to manage the business. The landlord argued that the tenant had breached the covenant not to part with possession. The Court considered some cases on this topic and concluded that, in the particular circumstances of this case, the appointment of a manager did not breach the covenant against parting with possession (see paragraphs [77] to [98]).