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Parties Disputes Lessee's Payment of Rent
The parties are in dispute regarding Lessee’s payment of rent. Clause 21.1 of the lease entitled the Lessee to a reduction in Base Rent where its business was materially adversely affected by reason of any law, policy or action of authority. The Lessee invoked cl 21.1 to claim reduction in rent due to the effect of COVID-19 Public Health Orders. However, the Lessor refused to recognise Lessee’s entitlement to reduction in rent.
Facts:
The proceedings concern a registered lease (AN368706) of a car park at 131 Macquarie Street, Sydney. The plaintiff, H.T.H Nominees Pty Ltd (“HTH”), was the Lessor. The defendant, Secure Parking Pty Ltd (“Secure”), was the Lessee. The lease was for a term commencing on 1 June 2015 and terminating on 31 May 2022. The lease contained an option to renew for a further term of 5 years, but the option was never exercised.
HTH is the trustee of the Hudson Property Trust. It entered into the lease in that capacity pursuant to a Deed of Novation, made in about July 2015 following the resignation of the former trustees of the trust and the appointment of HTH as trustee. Both parties contend that the lease was terminated in June 2020. They differ, however, as to when and how the termination was effected.
HTH claims that it terminated the lease on 11 June 2020 by exercising a right to re-enter and repossess the premises, such right arising either from: (a) breach by Secure of essential terms of the lease concerning the payment of rent; or (b) repudiation of the lease by Secure. Secure claims that HTH was not entitled to re-enter and repossess the premises on 11 June 2020. Secure claims that the conduct of HTH in that regard constituted a repudiation of the lease, which Secure accepted on 16 June 2020, thereby effecting the termination of the lease. By its Statement of Claim filed on 20 August 2020, HTH seeks damages against Secure on two bases, namely: (a) for the amount of rent claimed to be outstanding as at the date of termination; and (b) for loss of the bargain upon termination for breach by Secure, or following repudiation by Secure.
Secure brings its own claim pursuant to a Cross-Claim which rests upon a Deed of Licence dated 2 June 2015 that was entered into by Secure as Licensor, Hudson Pacific Group Ltd (“HPG”) as Licensee, and the former trustees of the Hudson Property Trust as Guarantor. Again, HTH became a party to the Deed of Licence in its capacity as trustee of the trust, pursuant to a Deed of Novation made in about July 2015. The Deed of Licence concerned 50 car parking bays within the car park that is the subject of the lease. The term of the licence expired upon the termination of the lease in June 2020.
Secure seeks to recover outstanding Licence Fees of $158,664 from both HPG (as Licensee) and HTH (as Guarantor). Liability to pay that sum is denied by both HPG and HTH on the grounds of an alleged oral agreement, or estoppel, to the effect that Licence Fees in respect of a month did not become due or payable until Secure had first paid, in full, all of the rent due or payable under the lease in respect of the month.
Issues:
Whether or not payment of reduced rent amounted to breach of the lease or repudiation of the lease.
Applicable law:
Civil Procedure Act 2005 (NSW), s 21 - provides that if there are mutual debts between a plaintiff and a defendant in any proceedings, the defendant may, by way of defence, set off against the plaintiff's claim any debt that is owed by the plaintiff to the defendant and that was due and payable at the time the defence of set-off was filed, whether or not the mutual debts are different in nature.
Public Health Act 2010 (NSW) - pursuant to which the first of a series of public health orders was made by the Minister for Health.
Public Health (COVID-19 Places of Social Gathering) Order 2020 (NSW) - required the closure to the public of certain premises including pubs, clubs, restaurants and entertainment venues (although pubs and clubs could sell takeaway food or beverages).
Public Health (COVID-19 Restrictions on Gathering and Movement) Order 2020 (NSW) - included a direction that a person must not, without reasonable excuse, leave the person’s place of residence, and prohibited gatherings of more than two persons in public places.
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 - provides that a commercial contract should be construed as a whole, and, if possible, so as to render its terms harmonious.
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 - provides that the Court is required to consider the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.
Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190 - held that the Deed of Licence is the whole agreement and that there are no other understandings, arrangements, promises or collateral agreements between them that in any way modify, change or enhance the rights and obligations of any of the original parties under the Deed of Licence.
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 - relied upon by the Court in being satisfied that, in re-entering the premises and claiming to terminate the lease, without having an entitlement to do so, HTH evinced an intention no longer to be bound by the lease; it was conduct that objectively conveyed a disavowal of the whole contract.
McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 - where both parties were discharged from further performance. However, it remains open to the parties to recover amounts pursuant to the lease in accordance with rights that had accrued prior to the discharge.
Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 - held that in certain circumstances equitable set-off may be available even where there is a lack of mutuality.
Analysis:
In re-entering the premises and claiming to terminate the lease, without having an entitlement to do so, HTH evinced an intention no longer to be bound by the lease; it was a conduct that objectively conveyed a disavowal of the whole contract. It was open to Secure to accept the repudiation and thereby terminate the contract.
Secure did that by the letter sent by its solicitor on 16 June 2020. It was not submitted that if HTH had so repudiated the lease, Secure was not entitled to accept it on 16 June 2020.
Once the payment was made on 7 May 2020, Secure could not be said to be in breach of its obligations in respect of the April 2020 rent. Secure remained under an obligation to continue to make monthly payments of rent, within a reasonable time and in good faith, calculated to take into account the reduction claimed under cl 21.1, pending the determination of the reduction (if any).
Such a payment should have been made in respect of the May 2020 rent prior to 11 June 2020, when HTH took possession of the car park. The purported exercise by HTH of the right under cl 10.1 of the lease, to re-enter following default and terminate the lease, was not based upon any failure to pay the May 2020 rent (or the June 2020 rent).
The dispute resolution process required by cl 23 was incomplete. It had not even reached the point where the expert had been appointed. In those circumstances, it was not open to HTH to terminate the lease or take any other action on the basis of the alleged breach by Secure of its obligation to pay rent. In particular, it was not open to HTH, based on that alleged breach, to seek to exercise a right of re-entry and terminate the lease.
Conclusion:
HTH was not entitled to re-enter and terminate the lease of the car park on 11 June 2020. Its claim for damages in the nature of loss of bargain damages fails.
The conduct of HTH in re-entering the premises and purporting to terminate the lease amounted to a repudiation of the lease. Secure accepted the repudiation on 16 June 2020. Secure nonetheless remained liable for outstanding rent in the sum of $183,631.72.
Judgment will be entered in favour of HTH against Secure in that amount, together with interest at court rates from 1 May 2020. The Statement of Claim will otherwise be dismissed. An order should be made that HPG and HTH pay Secure’s costs of the Cross-Claim.
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