Can a Notice to Remedy Breach of Covenant that omits the statutory re-entry warning be salvaged by a similar caution in accompanying correspondence? That issue fell to be decided by the Supreme Court in the adjudication of a $166k rental default by the owner of Rockhampton’s Ambassador Motel.
Jesbro Enterprise Pty Ltd purchased the motel business for $685 in early 2014. The 15 year lease it negotiated obliged the landlord to progressively refurbish the bathrooms of the motel units at its expense.
“Unsurprisingly the work resulted in dust and noise and of course, the unavailability for rental of the units being refurbished,” noted Justice Duncan McMeekin in the course of his judgement.
Jesbro budgeted for an impact to its business but – distressed by the longer than expected refurbishment process – stopped rent and outgoings payments to landlords Michael and Jan-Maree Tyrrell.
The Tyrrells’ solicitors sent a Property Law Act section 124 “Form 7” notice to Jesbro and then – in the absence of payment of the arrears – purported to terminate the lease in February 2017.
Only trouble being the breach notice left off the mandatory “Note” that appears at the foot of the statutory form when it was served on Jesbro’s David MacDonald. The court noted that “it has long been accepted that a failure to include the note was fatal to its validity”.
For the Tyrrells, it was submitted that words appearing in the narrative and not as a separate note at the foot of the form: “Should you fail to remedy the breach you may be liable to forfeiture and termination of lease”, were sufficient.
Moreover the statement in the covering letter “failure to remedy the breach by the time specified in the notice will give the less all the right to terminate” was sufficient to achieve substantial compliance.
Justice McMeekin rejected any suggestion the defect could be cured by statements in a covering letter: “It is not possible to remedy a defect of notice by such means,” he reasoned.
Neither could anything less than a prominent notice drawing attention to everything specified in PLA s24 including a reference to the section itself and a “reasonable time” nominated by the landlord within which the tenant was required to remedy the default.
The notice was thus incurably deficient. The landlord’s application for a declaration that the lease had been validly terminated was dismissed.
His Honour went on to note that McDonald’s company might well have a claim for an equitable set off in damages for the extent to which its quiet enjoyment had been adversely affected by the landlord’s refurbishment delays.
Could that excuse non-payment of rent?
Not so, said the judge. And without the tenant taking further steps the tenant could not on those grounds alone qualify for relief against forfeiture of the lease if a valid Notice to Remedy was subsequently served.