A landlord would be forgiven for believing that it has an absolute right to terminate a commercial tenancy without repercussion in circumstances where the tenant has failed to attend to payment of rent in accordance with the terms of its Lease. However, the equitable doctrine of relief against forfeiture is a mechanism that allows a tenant to have a lease reinstated if the tenant can establish that the rental defaults have been remedied and payment of rent made.
A recent case of Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd [2020] NSWSC 996 illustrates that this relief granted to a tenant will still exist in circumstances where the tenant has shown a long history of rental defaults and delinquency in relation to payment of rent. The Court also set out a poignant summary of the principles that every landlord should be aware of when considering terminating a lease for non-payment of rent at paragraph 75 of the judgment extracted as follows:
- 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 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 if there had been no default in payment of 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.
- Although it is rare for the Court to decline relief against forfeiture where the tenant is able to meet the conditions for the grant of that relief, the remedy is discretionary and not as of a right.
- The circumstances in which the Court may decline relief against forfeiture will depend upon the facts of each case, but they may include where the relief would be futile because the tenant is incapable of meeting rental payments in the future, so that a later termination by re-entry for failure to pay rent is probable.
- The Court will be disinclined to oblige a landlord to suffer the continuation of the lease to an insolvent tenant.
- However, the instances in which Courts have declined to grant relief against forfeiture show that the Courts have a strong predication towards granting the relief. This has often occurred in cases of relatively extreme doubt about the capacity of tenant to meet the rent payments into the future and where there appears to be some real benefit to the tenant in relieving against forfeiture.
- It is relevant the landlord has alternative security such as a bank guarantee that may be required to be renewed as condition of the grant of the relief.
- The Courts can often be liberal in granting relief against forfeiture because, even though inconvenient to the landlord, the relief does not necessarily finally determine the issue, as the landlord will have a further right to terminate the lease by re-entry if there are later failures to pay the rent. In that case the courts may be less sympathetic to a further application for relief against forfeiture than was the case on the original application.
