Supreme Court New South Wales Medium Neutral Citation: Nguyen v Valore [2018] NSWSC 1364 Hearing dates: 21 and 22 August 2018 Decision date: 06 September 2018 Before: Ball J Decision: See paragraphs 62 to 70 of this judgment. Catchwords: LANDLORD AND TENANT – Termination of the tenancy – Validity of notices issued pursuant to s 129 of the Conveyancing Act 1919 (NSW) – Failure to cite s 129 of the Conveyancing Act 1919 (NSW) as source of obligation to issue notice – Failure to identify breaches with sufficient particularity LANDLORD AND TENANT – Renewals and options – Exercise of option – Whether the plaintiff was in breach of the lease when he exercised the option to renew – Whether the Court should grant relief against forfeiture – Power to impose conditions on the granting of relief Legislation Cited: Conveyancing Act 1919 (NSW) Cases Cited: Allsvelte Pty Ltd v Cassegrain Wines Pty Limited [2015] NSWSC 1370; (2015) 18 BPR 35,637 Best and Less (Leasing) Pty Ltd v Darin Nominees Pty Ltd (1994) 6 BPR 13,783 Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd [2012] NSWSC 251; (2013) 16 BPR 31,089 Eastern Telegraph Co Ltd v Dent [1899] 1 QB 835 Et Petroleum Holdings Pty Ltd v Clarenden Pty Ltd [2005] NSWSC 435 Johnson v Senes & Berger [1961] NSWR 566; (1961) 78 WN (NSW) 861 McMahon v Docker (1945) 62 WN (NSW) 155 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 Monas v Perpetual Trustees Victoria Limited [2011] NSWCA 417 Texts Cited: Building Code of Australia Category: Principal judgment Parties: Ken Patrick Nguyen (Plaintiff) Frank Valore (First Defendant) Angela Valore (Second Defendant) Representation: Counsel: S Sykes (Plaintiff) H Altan with P Tiliakos (Defendants) Solicitors: Vo Lawyers (Plaintiff) State Law Group (Defendants) File Number(s): 2017/315352 Publication restriction: None Judgment Introduction 1. By a summons filed on 18 October 2017, the plaintiff, Mr Ken Nguyen, seeks declarations that he is not in breach of a number of provisions of a lease dated 20 January 2015 (the Lease) between him as lessee and the defendants, Mr Frank Valore and Mrs Angela Valore as lessors, of commercial premises known as Shop 2, 111 John Street, Cabramatta (the Premises). Mr Nguyen also seeks relief under s 133F of the Conveyancing Act 1919 (NSW) permitting him to exercise an option to renew the Lease for a further period of three years notwithstanding the alleged breaches. Background 1. Mr and Mrs Valore own approximately 15 residential and commercial properties in various suburbs in New South Wales including Shops 1 and 2 at 111 John Street, Cabramatta, which were acquired by them to earn rental income. They also own a chain of liquor stores, one of which is next to 111 John Street, Cabramatta. 2. Since about 2000, approximately 12 of the properties owned by Mr and Mrs Valore have been managed by their daughter, Ms Loredana Trajkovski, who is responsible for dealing on their behalf with letting agents and tenants. The agent responsible for the Premises is Ms Ann Dam of LJ Hooker, Cabramatta. 3. Originally, the Premises were leased by Mr Nguyen and Si Van Huynh pursuant to a three year lease which commenced on 20 January 2012 (the First Lease). Mr Nguyen conducted a real estate business from the Premises and Si Van Huynh operated a money transfer business. At the time the First Lease was entered into, the Premises were vacant. It included a small office at the back of the premises on the right hand side looking from the front of the premises and a toilet on the left hand side. Mr Nguyen installed a floating floor over the original tiles. He also constructed in the centre of the premises running from the front to the rear a counter made of gyprock which was approximately one metre in height, about two metres in width and several metres in length. There were glass panels from the top of the counter to the ceiling. The counter served to create two separate areas in the Premises and provided a counter from which the money transfer business could be operated. 4. Mr Nguyen says that Ms Dam consented to the construction of the counter. However, Ms Dam denies doing so and she was not cross-examined on that evidence. In the absence of cross-examination, I accept her evidence on this aspect of the case. Ms Trajkovski became aware of the counter in February 2012 and raised it with her parents, who took no action in relation to it. 5. Although the evidence is not clear, it seems that, at some stage, the money transfer business came to be operated by Huy Tang under the name "Hong Vina Money Transfer". However, the First Lease was not amended to reflect the change. Mr Nguyen paid all of the rent due under it and, pursuant to an informal agreement, Mr Tang paid him half of the rent and other expenses. 6. On 20 January 2015, Mr Nguyen entered into the Lease solely in his own name. The Lease was for an initial term of three years expiring on 19 January 2018. It contained an option to renew for a further three years. Under cl 4.4, the option could only be exercised if: 4.4.1 the lessee serves on the lessor a notice of exercise of option not earlier than the first day stated in Item 11D and not later than the last day stated in Item 11E; 4.4.2 there is at the time of service no rent or outgoing that is overdue for payment; and 4.4.3 at the time of service all the other obligations of the lessee have been complied with or fully remedied in accordance with the terms of any notice to remedy given by the lessor. The effect of Items 11D and 11E is that the option had to be exercised no earlier than six months from the termination date and no later than three months from that date. 1. Clause 6.1 of the Lease relevantly provides: 6.1 The lessee must – 6.1.1 use the property for the purpose stated in Item 16 and not for any other purpose; 6.1.2 … 6.1.4 comply with all laws relating to strata schemes and all other laws regulating how the property is used, obtain any consents or licences needed, comply with any conditions of consent, and keep current any licences or registrations needed for the use of the property or for the conduct of the lessee's business there. … Item 16 states the permitted use to be "Commercial Office for Real Estate Agency and Money Transfer". That corresponded to the permitted use under the First Lease. 1. Clause 6.2 of the Lease provides: The lessor can consent to a change of use and cannot withhold consent unreasonably. 1. Clause 6.3.6 of the Lease provides that the lessee must not "without the prior written consent of the lessor and/or the owners corporation, use the common property for any purpose other than for access to and egress from the property". 2. Clause 7.1.1 provides that the lessor must "maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls and external doors and associated door jambs, and the floors of the property and must fix structural defects". 3. Clause 7.2 provides: The lessee must otherwise maintain the property in its condition at the commencement date and promptly do repairs needed to keep it in that condition but the lessee does not have to – 7.2.1 alter or improve the property; or 7.2.2 fix structural defects; or 7.2.3 repair fair wear and tear. 1. Clause 7.6 of the Lease states: The lessee must not make any structural alterations to the property. Any other alterations require the lessor's consent in writing (but the lessor cannot withhold consent unreasonably). 1. Clause 10 relevantly provides: 10.1 The lessee must not transfer this lease without consent. 10.2 The lessor can withhold consent only if – 10.2.1 the proposed transferee proposes to change the use to which the property is put; or 10.2.2 the lessee has not complied with Clause 10.3. 10.3 A request for the lessor's consent to a transfer of lease must be made in writing and the lessee must provide the lessor with such information as the lessor may reasonably require concerning the financial standing and business experience of the proposed transferee. 10.4 Where the lessee has complied with Clause 10.3, and the lessor has not within 42 days after the request was made given notice in writing to the lessee either consenting or withholding consent, the lessor is taken to have consented. 1. Clause 12 deals with termination of the Lease. It relevantly provides: 12.1 This lease ends – 12.1.1 on the date stated in Item 8; or 12.1.2 if the lessor lawfully enters and takes possession of any part of the property; or 12.1.3 if the lessor lawfully demands possession of the property. 12.2 The lessor can enter and take possession of the property or demand possession of the property if – 12.2.1 the lessee has repudiated this lease; or 12.2.2 rent or any other money due under this lease is 14 days overdue for payment; or 12.2.3 the lessee has failed to comply with a lessor's notice under section 129 of the Conveyancing Act 1919; or 12.2.4 the lessee has not complied with any term of this lease where a lessor's notice is not required under section 129 of the Conveyancing Act 1919 and the lessor has given at least 14 days written notice of the lessor's intention to end this lease. 1. In about March or April 2017, Mr Tang moved out and Mr Nguyen arranged for Ms Michelle Ivanov, who carried on a mortgage broking business under the name "Mortgage Choice", to move in in his place. In anticipation of that move, Mr Nguyen, without consent from Mr and Mrs Valore, replaced the counter and glass partition with a gyprock wall. The wall is located in the centre of the Premises, running from the front to the rear. It finishes approximately 600mm short of the front entrance allowing access to both areas from the front door. It stops short of the office at the back of the Premises, again permitting access to both areas. It also includes a partition that is perpendicular to the main wall, which serves to divide the space on the left hand side of the Premises looking from the front. The wall is floor to ceiling in height. It is constructed with a timber frame and lined with gyprock on both sides. It is anchored to the floor and is attached to the false ceiling with glue. 2. Mr Valore noticed the wall on about 4 April 2017. He raised it with his wife and daughter, following which Ms Trajkovski sent an email to Ms Dam asking her to make Mr Nguyen aware that "any renovations, sub lease etc needs to be approved by landlord". 3. On 5 April 2017, apparently unconnected to Ms Trajkovski's email, Mr Nguyen sent an email to Ms Dam in the following terms: I like to keep you inform [sic] that VINA money transfer has moved out. I have decided expense [sic] my business with my friend who is currently running a Finance Broker Business called MORTGAGE CHOICE at Fairfield Office (Level 1, Suite 1, 360-364 The Horsley Drive, Fairfield). Her name is Michelle Ivanou [sic] (Ex-CBA staff). As you know I was Bank Manager CBA for 20 years and Michelle is my ex-staff. Michelle is quite happy to extent [sic] her business to Cabramatta market as well as help me out for existing BA clients. I cant [sic] allowed to operate Real estate and finance business in terms of regulation, therefore Michelle will managed [sic] the Mortgage Choice Finance Broker. MORTGAGE CHOICE IS A BRAND NAME and BUSNIESS WELLK KNOW THROUGH OUT [sic] AUSTRALIA Michelle and I will be JOINT VENTURE businesses, we will share 50/50 rental and offices expenses [sic]. I am happy to introduce Michelle in near future. 1. The following day, Ms Dam sent an email to Ms Trajkovski stating that Mr Nguyen was seeking approval to share the tenancy with Mortgage Choice (which she described as "one of the major financial broker [sic] in Australia") and asking for instructions. 2. Ms Trajkovski replied to that email on 26 April 2017 in the following terms: No we will not alter the lease and make any changes. Between you and me, I am not happy with this tenant. The shop inside and the shop front are disgusting and disgracefully dirty and I am also not happy at all that he chooses to pay his rent late every month. I have had good offers for that shop with much better rental returns. When his lease is up for renewal next year, I will reassess the rent with market value and increase it accordingly. There is no evidence that Ms Trajkovski's decision was ever communicated to Mr Nguyen. Nor is there any evidence that Mr Nguyen was ever late in paying rent. 1. On 5 May 2017, Ms Dam wrote to Mr Nguyen saying relevantly: We refer to your lease of the above mentioned property and has [sic] come to our attention that you have erected a dividing wall inside of your lease premises which is breaching the lease, noted in Clause 7.2 that you must not alter or improve the property without the owner's consent. We are instructed by the owner to advise you to remove the panel within 14 days. Failing to comply with this instruction will leave the owner with no other choice but to terminate your lease. 1. Following receipt of that letter, Mr Nguyen retained solicitors, Vo Lawyers, who responded to Ms Dam's letter on 11 May 2017. They denied that Mr Nguyen had breached cl 7.2 of the lease. 2. Following receipt of that letter, Mr and Mrs Valore retained J A Buda & Associates as their solicitors who sent a letter (the Letter) on the same day replying to the letter from Vo Lawyers. In that response they referred to cl 7.6 of the lease and said: Please note you have stated in your correspondence that the lessee has erected a dividing wall and this is believed to be a structural alteration to what the premises previously held. We note that in accordance with clause 7.6 your client has not obtained landlords [sic] consent nor have the [sic] primarily informed the landlord of such prosed [sic] works. The lessor shall hold and continue to hold your client in breach of the lease, failure to remedy may result in the landlord electing to re-enter and take possession of the premises. Kindly instruct your client to revert the premises back to the state / manner it was without the erection of a dividing wall. 1. Subsequently, on 25 May 2017, J A Buda & Associates served a breach notice (the Notice) on Mr Nguyen in the following terms: NOTICE TO REMEDY BREACH OF LEASE To the tenant: Ken Patrick Nguyen Property: Shop 2/111 John Street, Cabramatta, New South Wales 2166 SCHEDULE 1. Landlord: Frank Valore and Angela Valore 2. Tenant: Ken Patrick Nguyen 3. Commencement date of lease: 20th January 2015 4. Address of Premises Shop 2/111 John Street, Cabramatta, New South Wales 2166 5. Particulars of breach The lessee must not make any structural alternations [sic] to the property. Any other alterations require the lessor's consent in writing. The lessee has failed to reinstate the works, failed to obtain lessor's consent and permission for such works 6. Legal costs: $550.00 (excluding GST) Take notice that you are in breach of the lease referred to in the schedule and that the particulars of breach are specified [in] item 5. Take further notice that the landlord intends to exercise the landlord's contractual and other rights unless: 1. The breach is immediately remedied; 2. Legal costs specified in item 7 [scil 6] are paid. Take further notice that unless the breach is remedied and interest and legal costs paid in accordance with this notice within 14 days of its service upon you, the lease will be terminated pursuant to its terms. We note for the record that you have previously been advised of such breach in writing via correspondence dated the 11th May 2017. 1. Vo Lawyers responded to the Notice by email on 26 May 2017. That email relevantly said: We are instructed that there is [sic] no major structural changes to the premises. The only minor differences is that there was [sic] used to be a Vina Money Transfer firm that operating within the rent premises from day 1 since the Lease started. Now Mortgage Choice is replacing Vina Money Transfer. We kindly advise that from day 1, there was 2 offices that have been operating and until today, there has nothing changed [sic]. We advise that there was a misunderstanding between our client and your clients in the past and our client is offering to pay for your legal costs of $550.00 with the condition that your client will not take any further steps in relation to your letter of 25 May 2017. 1. J A Buda & Associates replied to that email on 2 June 2017. After referring to the Letter and the Notice, the reply said: Please note that in accordance with clause 7 of the head lease you have failed to reinstate works caused by unauthorised structural works to the premises. In accordance with clause 12.5 this remains an un remedied [sic] breach of an essential term of the lease. In accordance with clause 12.7 this permits the landlord to immediately end the lease by entering the premises and taking possession. The lessor shall reserve all rights as to the recovery of damages against the noted lessee. No further notice shall be provided to you as the landlord shall take the appropriate action in accordance with the lease agreement. 1. Vo Lawyers responded to that letter on 7 June 2017 again denying that there had been any breach of cl 7.6 of the lease. In that letter, they referred to cl 6.2 of the lease and said: Clause 6.2 even allows the tenants to seek consent from the landlord for the "change of use" and the "landlord cannot withhold consent unreasonably". But it does not apply in our client's situation. There was no change of use and there were no changes or alterations to the structural [sic] of the premise/building [sic] as mentioned above. In short, even our client wishes to seek consent for the "change of use", the "landlord cannot withhold consent unreasonably". 1. J A Buda & Associates replied to that letter on 8 June 2017. They continued to assert that there had been "significant structural alterations to the premises". In relation to cl 6.2, they said "Your comments in relation to cl 6.2 are not entertained noting that no request has been made by the lessee, again giving rise to a breach of an essential term of the lease". The letter also stated: It is noted that previously the business [sic] have been operating with partitions, your client has caused the erection of a dividing wall, changing the nature of the premises without the lessor's consent. Again a breach of an essential term of the lease. 1. Vo Lawyers replied to that letter on 14 June 2017. In that letter they suggested organising a conference "for the landlords and tenants to discuss face to face or another option is to book the Mediator or Arbitrator at The NSW Small Business Commissioner Dispute Unit". 2. There was no reply to that proposal. Instead, on 19 June 2017, Mr and Mrs Valore purported to retake possession of the premises and installed a padlock on the front door. Mr Nguyen discovered the padlock the following day. He arranged for it to be removed and continued to occupy the Premises. 3. There was further correspondence between the parties and then on 14 July 2017, J A Buda & Associates sent Mr Nguyen a letter stated to be "FINAL NOTICE PURSUANT TO SECTION 129 OF CONVEYANCING ACT 1919". That letter referred to a number of clauses of the Lease and alleged that Mr Nguyen was in breach of those clauses. It stated that, unless those breaches were remedied within 14 days, the Lease would be terminated. 4. On 21 July 2017, Vo Lawyers responded to that letter taking issue with the allegations contained in it and threatening to commence court proceedings unless the letter was withdrawn. The letter was withdrawn by email dated 28 July 2017. 5. On 7 September 2017, Vo Lawyers sent a notice of exercise of the option. 6. On 21 September 2017, State Law Group, who had taken over conduct of the matter on behalf of Mr and Mrs Valore, sent Mr Nguyen and Vo Lawyers a notice pursuant to s 133E of the Conveyancing Act. That notice identified the following "wilful and/or persistent breaches of the lease" as precluding Mr Nguyen's entitlement to exercise the option: i. Failure to comply with the permitted use of the premises in accordance with item 16 and clause 6.1.1 which is an essential term. The permitted use is "Commercial Office for Real Estate Agency and Money Transfer", whereas the Lessee has used the premises as a commercial office for a real estate agency and mortgage broker (latter being known as "Money Choice" [Mortgage Choice]). ii. Failing to comply with restrictions against making structural alterations to the premises in accordance with clause 7.6 which is an essential term. The Lessee's failure is a result of the Lessee erecting a dividing wall through the centre of the Premises. The dividing wall appears to be a stud wall comprising a timber frame, no less than 500 mm, secured by bolts to the floor and ceiling which his [sic] cladded with plasterboard, extending from the front to the rear of the premises and dividing it effectively into two separate narrow premises ('Unauthorised Alterations'). iii. Failure to obtain the Lessors' consent in writing prior [to] performing the Unauthorised Alterations to the premises in accordance with clause 7.6 which is an essential term. The Lessee did not at any time seek the consent of the Lessors nor have the Lessors provided consent to the Unauthorised Alterations. iv. Failure to comply with restrictions against using common property for any purpose other than for access to and egress from the premises in accordance with clause 6.3.6. By performing the Unauthorised Alterations, the Lessee affixed a stud wall to the floor and ceiling which are common property. v. Failure to maintain in a state of good condition and serviceable repair the ceiling and floor of the premises in accordance with clause 7.1.1 which is an essential term. The Lessee, by performing the Unauthorised Alternations [sic], damaged the ceiling and/or floor of the premises. vi. Failing to comply with all laws regulating how the premises is to be used in accordance with clause 6.1.4 which is an essential term. The Lessee's failures to comply include: a. Failing to obtain development approval from the relevant authorities including Fairfield City Council prior to performing the Unauthorised Alterations; and/or b. Failing to install and maintain necessary fire equipment to ensure the premises and its use is compliant with applicable fire safety regulations and standards. vii. Failing to request and obtain the Lessors' consent prior to transferring the lease or sub-leasing the premises in accordance with clauses 10.1 and 10.3. The Lessee has transferred the lease or sub-let the premises, in part or whole, to Money Choice without requesting and obtaining consent from the Lessor. 1. Mortgage Choice moved out of the Premises on 1 May 2018. Following its departure, Mr Nguyen arranged for a friend of his, Mr Michael Feehan, who operates a mortgage/lending business called ITIJ Securities, to move into the Premises. He did so for a short period of time, but left on or about 18 July 2018. At present, no other business occupies the Premises. 2. Mr Nguyen commenced these proceedings on 18 October 2017. Provisions of the Conveyancing Act relating to options 1. The provisions of the Conveyancing Act governing the exercise of options are ss 133E and 133F. Section 133E relevantly provides: 133E Breach of certain obligations not to preclude option except in certain circumstances (1) This section applies to a lease that contains: (a) an option exercisable by the lessee, and (b) provision by which the lessee's entitlement to the option is made to depend on performance by the lessee of any specified obligation, whether such performance is required before, or after, or before and after, the giving of any notice by which the option is exercised. (2) Despite any provision of the kind referred to in subsection (1)(b), no breach by the lessee of any relevant obligation precludes the lessee's entitlement to the option unless: (a) the prescribed notice has been served on the lessee in respect of the breach, and (b) the lessee's rights are extinguished in relation to the notice. (3) … (4) For the purposes of subsection (2)(b), the lessee's rights are extinguished in relation to a prescribed notice: (a) if an order for relief against the effect of the breach in relation to the lessee's entitlement to the option is not sought from the court within one month after service of the prescribed notice, or (b) if proceedings in which such relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief, or (c) if such relief is granted on terms to be complied with by the lessee before compliance by the lessor with the order granting relief, and the lessee fails to comply with those terms within the time stipulated by the court for the purpose. 1. Section 133F relevantly provides: 133F Court may grant relief from breach of certain obligations (1) Relief referred to in section 133E may be sought: (a) in proceedings instituted in the court for the purpose, or (b) in proceedings in the court in which: (i) the existence of an alleged breach by the lessee of the lessee's obligations under the lease, or (ii) the effect of the breach from which relief is sought, is in issue. (2) The court may, in proceedings in which relief referred to in section 133E is sought: (a) make such orders (including orders affecting an assignee of the reversion) as it thinks fit for the purpose of granting the relief sought, or (b) refuse to grant the relief sought. (3) The court may, in proceedings referred to in subsection (2), take into consideration: (a) the nature of the breach complained of, (b) the extent to which, at the date of the institution of the proceedings, the lessor was prejudiced by the breach, (c) the conduct of the lessor and the lessee, including conduct after the giving of the prescribed notice referred to in section 133E(2), (d) the rights of persons other than the lessor and the lessee, (e) the operation of section 133G, and (f) any other circumstances considered by the court to be relevant. Section 133G provides that, subject to certain exceptions that are not relevant to the present case, the lease in existence at the time the option was exercised continues in force until the matter is resolved. The issues 1. It is common ground that Mr Nguyen served a notice to exercise the option within the period specified in the Lease. It is also common ground that the notice served by Mr and Mrs Valore on 21 September 2017 complied with the form prescribed for the purposes of s 133E of the Conveyancing Act. However, Mr Nguyen takes issue with the contents of the s 133E notice and seeks declarations that each of the breaches relied on by Mr and Mrs Valore are not breaches of the Lease. As I have said, he also seeks relief under s 133F. Mr and Mrs Valore take issue with both aspects of Mr Nguyen's case – that is, they maintain that he was in breach of the Lease and deny his entitlement to relief under s 133F. In addition, in final submissions, Mr and Mrs Valore submitted that Mr Nguyen was not entitled to exercise the option because the Lease had been terminated before he purported to do so by Mr and Mrs Valore's re-entry on 19 June 2017. It is convenient to deal with that issue first. Had the Lease been terminated before the option was exercised? 1. Section 129(1) of the Conveyancing Act provides: A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice: (a) specifying the particular breach complained of, and (b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and (c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same, and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach. The notice must be "in the form set out in the Sixth Schedule or to similar effect": s 129(9). 1. Mr and Mrs Valore accept that they had to give a notice that complied with s 129 before exercising a right of re-entry. However, they submitted that the Letter and the Notice complied with the requirements of that section. Following expiration of the 14 day period allowed for in the Notice, they re-entered the Premises by padlocking the entrance. In accordance with cl 12.1.2 of the Lease, that brought the Lease to an end. 2. There is a question whether Mr and Mrs Valore were entitled to raise that issue. There were no pleadings. They did not file a cross-summons seeking a declaration that the Lease had come to an end before Mr Nguyen exercised the option. The issue was not raised in their opening submissions. It clearly caught Mr Nguyen by surprise. Quite apart from the question whether the Letter and the Notice complied with s 129 of the Conveyancing Act, the issue raises the question whether Mr and Mrs Valore were disentitled from relying on those documents by their subsequent conduct, which was not addressed by the parties. 3. Leaving that issue to one side, Mr Nguyen submitted that neither document complied with the requirements of s 129 because neither document specifically said that it was given under that section. The form set out in Sixth Schedule of the Conveyancing Act contains a note at the bottom which states: Note. The lessor will be entitled to re-enter or forfeit the lease in the event of the lessee failing to comply with this notice within a reasonable time–see section 129 of the Conveyancing Act 1919. However, all that is required of the Notice is that it be to similar effect of the notice set out in the Schedule. It is plain that any notice must state that the lessor will be entitled to re-enter or forfeit the lease in the event that the lessee fails to comply with the notice within a reasonable time: see, for example, Johnson v Senes & Berger [1961] NSWR 566; (1961) 78 WN (NSW) 861. There is no decision holding that the notice must specifically refer to s 129. In Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268, it was not suggested that the notice considered in that case was invalid because it failed to refer to s 129, although it was held invalid for other reasons. Moreover, in Et Petroleum Holdings Pty Ltd v Clarenden Pty Ltd [2005] NSWSC 435, White J at [37] held that a notice was valid notwithstanding that it erroneously referred to s 129(8). 1. In my opinion, the mere failure to refer to s 129 does not render the Notice invalid. The source of the right does not appear to me important. Rather, what is important is that the Notice clearly set out the breaches and the consequences if those breaches are not remedied within a reasonable time. 2. Consequently, a notice that fails to identify with sufficient particularity the breaches about which the lessor complains and the steps that must be taken to remedy them so that the lessee fairly understands what must be done so as to avoid re-entry by the lessor and forfeiture of the lease will be invalid. As Hodgson JA (with whom Allsop P and Macfarlan JA agreed) explained in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [323]-[324]: [323] In my opinion, the above authorities clearly indicate that a notice under s 129 must not only allege breach, but must also describe the particular acts or omissions constituting the alleged breach; and the notice must indicate the acts of the tenant which the landlord would consider sufficient for the lease to continue, and upon completion of which the landlord would abandon its claim to forfeit. The standard of particulars or degree of specificity depends upon the circumstances, including the nature of the covenant alleged to be breached, the tenant's actual or constructive knowledge, and whether the landlord claims reasonable compensation. To use the example of Lord Buckmaster LC, where there are several options open to a tenant to waterproof a leaking ceiling, then that choice is at the tenant's discretion. Thus s 129 is, in my opinion, directed at allowing the tenant to bring about (within a reasonable time) a state of affairs under which the landlord would not pursue forfeiture. [324] In particular, the lessee should not be left to speculate as to whether, if it took whatever action it could to remedy the specified breaches, the lessor might nevertheless proceed to terminate the lease on the basis that the breaches were not capable of remedy or that, because what the lessee did was insufficient to eliminate loss caused to the lessor by the late performance of the lessee's obligations, the lessee was still in breach. See also Monas v Perpetual Trustees Victoria Limited [2011] NSWCA 417 at [39] per Young JA (with whom Beazley and McColl JJA agreed). 1. In my opinion, neither the Letter nor the Notice complied with the requirements of s 129. 2. The difficulty with the Letter is that it does not clearly identify the breach, what Mr Nguyen had to do to remedy it, how long he had to do so or what the consequences would be if he did not. The Letter refers to cl 7.6 of the Lease. However, it is not clear from the Letter whether the complaint was that the wall that had been erected was a structural wall or whether it was some other alteration that required written consent. The Letter asked Mr Nguyen's solicitors to "Kindly instruct your client to revert the premises back to the state/manner it was without the erection of a dividing wall". However, it was not clear whether what was required was that Mr Nguyen remove the wall or that he remove the wall and reinstate the counter. Mr Nguyen was not told that the work had to be undertaken within a reasonable time. Although the Letter stated that "failure to remedy may result in the landlord electing to re-enter and take possession of the premises", it was not clear that that would be an immediate consequence of a failure to do what was asked (whatever precisely that was) or whether the threat was that if Mr Nguyen did not do what he was asked, Mr and Mrs Valore might carry out their threat by issuing a notice under s 129. The vagueness of the Letter and the imprecision with which it was drafted gave the impression that it was the latter. 3. There are two main difficulties with the Notice. The first is that it does not identify with clarity what the relevant breach was and how it had to be remedied. The Notice refers to a failure "to reinstate the works" and a failure "to obtain lessor's consent and permission for such works". However, it does not state what the "works" were; and the word "works" itself was used to refer both to what had to be reinstated and what required permission. Second, the Notice did not make it clear that under s 129, Mr Nguyen had a reasonable time in which to remedy any breach. Rather, it appeared to suggest that the Lease by its own terms would terminate if the breach (whatever it was) was not remedied within 14 days. 4. It follows that the Lease had not been terminated at the time Mr Nguyen purported to exercise the option. Was Mr Nguyen in breach of the lease at the time the option was exercised? 1. In all, the notice served on 21 September 2017 identified seven breaches of the Lease. However, in substance what was alleged was that there were two. One was permitting Mortgage Choice (incorrectly referred to in the notice as "Money Choice") to carry on a mortgage broking business from the Premises. It is alleged that that was a change of use of the Premises without consent in breach of cl 6.1.1 of the Lease and involved a transfer or sub-letting of the premises in breach of cls 10.1 and 10.3. The other was the erection of the wall. That was said to be a structural change or other change made without the lessors' consent in breach of cl 7.6. It was also said to involve an impermissible use of common property in breach of cl 6.3.6, a failure to maintain the Premises in a state of good condition and serviceable repair in breach of cl 7.1.1 and a failure to comply with planning and fire safety regulations in breach of cl 6.1.4. 2. I am not satisfied Mr Nguyen breached the Lease by permitting Mortgage Choice to occupy part of the Premises. The prohibition in cl 10.1 of the Lease is only a prohibition on the transfer of the Lease. Plainly, Mr Nguyen did not do that. He remained the lessee under the Lease and in possession of the Premises. In my opinion, the proper characterisation of what he did was to licence part of the Premises to Mortgage Choice. There was nothing in the Lease preventing him from doing so. 3. The permitted use under the Lease was as a real estate agency and money transfer business. I accept that there was a partial change in use when Mortgage Choice commenced operating from the Premises. However, it appears that Mr and Mrs Valore (or at least their agent) treated Mr Nguyen's email dated 5 April 2017 as a request for consent to the change in use that was declined by Ms Trajkovski on 26 April 2017. There is no evidence to suggest that that decision was communicated to Mr Nguyen. Moreover, in my opinion, the decision was unreasonable. From the point of view of the lessors, there was no substantive difference between the two uses. Both involved the use of the Premises to carry out a real estate agency with a commercial business that might be seen as an adjunct to that business. A mortgage broker was an obvious and suitable business to have as an adjunct to the real estate agency business. It was not suggested that Ms Ivanov was an unsuitable person to carry on that business. It appears to be accepted that where consent to an assignment is sought and withheld unreasonably, it is not a breach of a term in the lease preventing assignment without consent for the lessee to assign the lease: McMahon v Docker (1945) 62 WN (NSW) 155 at 157 per Herron J. There is no reason why the same principle should not apply to a term preventing a change in use without consent. 4. In my opinion, Mr Nguyen breached cl 7.6 of the lease by erecting the wall without consent. It was not suggested that he ever asked for consent. Consequently, the question whether consent was withheld unreasonably does not arise: see Eastern Telegraph Co Ltd v Dent [1899] 1 QB 835 at 839 per Romer LJ; McMahon v Docker (1945) 62 WN (NSW) 155 at 157 per Herron J. However, I do not think that erection of the wall involved any of the other alleged breaches. Mr Craig Nisbett, an expert building consultant retained by Mr Nguyen, gave evidence that the wall was not structural in nature. He described it as a "partition". That description appears to be apt. The wall did not provide any support to the floor above it. Its installation did not involve any structural change to the building. Mr Nisbett was not cross-examined on his opinion. In my view, it should be accepted. 5. It is difficult to see how the construction of the wall involved the "use" of the common property in breach of cl 6.3.6 of the Lease. The suggestion appears to be that common property was used because the wall was affixed to the ceiling and the floor. No attempt was made by Mr and Mrs Valore to prove what the boundaries of the common property were. Moreover, in my opinion, the affixing of the wall to the ceiling and the floor, assuming that the lower side of the ceiling and the upper side of the tiles formed part of the common property, did not involve a "use" of common property in the sense contemplated by cl 6.3.6. That clause is obviously concerned with the use of that part of the common property that is available for use by anyone who occupies the strata scheme. It is not concerned with the use of the inner boundaries that form part of a lot. 6. There is no evidence from which it can be concluded that by erecting the wall Mr Nguyen has failed to maintain the ceiling and floor in good condition and serviceable repair. It may be that when the wall is removed, that will cause some damage to the ceiling and floor or expose some damage to the floor. However, the suggestion that that damage exists at the moment is simply speculation. And if there is damage or damage results from the removal of the wall, it is not disputed that Mr Nguyen is required by the Lease to make it good. 7. As to the question of planning approval, Mr Nguyen relies on an expert report prepared by Mr Jason Storer, who has expertise in building regulation, auditing and certification services. Mr Storer gave evidence, which was not contradicted, that the wall would not have required development approval, but that it would have required building approval from either the local council or a private certifier, who would have had to have certified that the work had been performed in accordance with the Building Code of Australia. That opinion was given on the basis that development consent had been given in 2002 for use of the Premises as two separate businesses. Mr Storer was cross-examined on whether various conditions for the effectiveness of that consent had been satisfied, such as whether the development for which consent had been granted had commenced by 31 October 2004 and whether an occupation certificate had been issued. However, the Premises have been used for a substantial period of time for two businesses. It was plainly occupied. In the absence of any evidence to suggest the contrary, it is reasonable to infer that the conditions had been satisfied. Mr Storer gave evidence that was un-contradicted that the wall did not raise any fire safety issues or questions concerning compliance with fire safety regulations. 8. Following receipt of Mr Storer's report, Mr Nguyen has sought to lodge an application for building approval for the wall. However, that application must be signed by the lessor. Mr and Mrs Valore have refused to do so. 9. The result is that Mr Nguyen breached cl 6.1.4 of the Lease when he erected the wall and remains in breach of that clause. Should the Court grant relief under s 133F of the Conveyancing Act? 1. The granting of relief under s 133F is discretionary and the power is to be exercised in a way that will best achieve justice between the parties in the circumstances of the particular case: Best and Less (Leasing) Pty Ltd v Darin Nominees Pty Ltd (1994) 6 BPR 13,783 at 13,788 per McLelland CJ in Eq. 2. The relevant principles were described in these terms by White J in Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd [2012] NSWSC 251; (2013) 16 BPR 31,089 at [212]-[213]: [212] The principles of relief against forfeiture of a lease are discussed in Shilo Spinners Ltd v Harding [1973] AC 691 at 724 and 725. The question is whether: (1) the primary object of the bargain embodied in the lease can be effectively attained when the matter comes before the court on the application to be relieved against forfeiture of the option; (2) whether the lessee's default was wilful or persistent; (3) the gravity of the breaches; and (4) any disparity between the value of the property of which forfeiture is claimed compared with the damage caused by the breach. [213] These considerations are also engaged by s 133F(3). 1. The Court may also take into account the general relationship between the parties and may in some cases refuse relief where the relationship "has soured and is likely to remain disputatious": see Allsvelte Pty Ltd v Cassegrain Wines Pty Limited [2015] NSWSC 1370; (2015) 18 BPR 35,637 at [76]. 2. In the present case, I have concluded that it is appropriate to grant relief under s 133F. I have reached that conclusion for a number of reasons. 3. First, Mr Nguyen has in substance only committed one breach of the Lease, which is the construction of the wall, although on the conclusions I have reached that conduct involved the breach of two separate clauses of the Lease. That breach was not inadvertent and it has been persistent in the sense that, despite a number of requests, Mr Nguyen has not removed the wall. However, his conduct is mitigated by a number of factors. The wall replaced a previous partition that had been constructed during the term of the First Lease. Mr and Mrs Valore had not raised any objection to the construction of that partition and Mr Nguyen might reasonably have concluded that Mr and Mrs Valore were not concerned about the erection of partitions that were consistent with the dual use of the Premises. 4. When the issue was first raised with Mr Nguyen, various assertions were made that were not correct. So, for example, Ms Dam originally asserted that Mr Nguyen was in breach of cl 7.2 of the Lease. However, that clause states that the lessee does not have to alter or improve the property. It does not state that the lessee is forbidden from doing so. Subsequent correspondence complained that the wall was structural, when it is not, and much of the debate between the parties centred on that issue. Mr Nguyen says, and there is no reason to doubt, that he has acted on legal advice. He proposed a mediation which was refused by Mr and Mrs Valore. When it became apparent that he required building approval for the wall, he sought to obtain that approval. During the course of the hearing Mr Nguyen through his counsel indicated that he was prepared to undertake to remove the wall if the Court concluded that that should be a condition of relief. There is no reason to think that Mr Nguyen will engage in similar breaches, or other breaches, of the Lease in the future. 5. Second, Mr Nguyen gave evidence that he would lose substantial business if he were forced to move. That evidence was not seriously challenged. It was put to him that there were other places in Cabramatta where he could move his business. However, no specific place was put to him and Mr Nguyen's evidence was that if he had to move out of John Street he was likely to lose some passing business. He also said that it was important to have a shopfront to display properties for sale and lease. The effect of his evidence was that an alternative location was unlikely to offer the same advantages as his current location in that respect. I accept that evidence. 6. Third, and in contrast to the second point, there is no evidence that Mr and Mrs Valore have suffered or will suffer any loss as a consequence of the erection of the wall. Mr Valore gave evidence that the Premises were unsightly because of the wall. I accept that that is his view and that that is a matter he would be entitled to take into account in refusing permission to erect it. However, it is not suggested that Mr and Mrs Valore have suffered any financial loss as a consequence of the wall. It appears that the main reason they have taken the position they have is because Ms Trajkovski believes that she will be able to get a higher rent from a different tenant. 7. Fourth, this is not a case where there has been a breakdown in the relationship between the parties and continued co-operation is necessary for the proper functioning of the Lease. The Lease is a commercial one. The property is let through an agent and there are no personal dealings between Mr and Mrs Valore and Mr Nguyen. The property was bought by Mr and Mrs Valore to earn rental income. The evidence is that Mr Nguyen has always paid rent on time. 8. I should add that my conclusions would be the same even if it was a breach of the lease for Mr Nguyen to have changed the use partially by permitting Mortgage Choice to operate from the Premises. That appears to me to be such a trivial breach of the Lease that it should carry little weight in considering the question whether the discretion given by s 133F of the Conveyancing Act should be exercised in Mr Nguyen's favour. It is true that after Mortgage Choice moved out Mr Nguyen allowed ITIJ Securities to move in for a short period of time. However, it has now moved out. Again, any breach was trivial. Mr Nguyen struck me as someone who was anxious to comply with what he understood were his obligations under the Lease. In the light of what has happened, there is no reason to think that he will change the use of the Premises in the future without first seeking consent. 9. Under s 133F, the Court has power to impose conditions on the granting of relief. In my opinion, it would be appropriate for the Court to impose a condition that Mr Nguyen remove the wall within a specified time, or such further time as is allowed by the Court. Mr Nguyen required Mr and Mrs Valore's consent to erect the wall. It is plain that they are not prepared to give their consent. As I have explained, it appears that their objection to the wall is that it makes the Premises look unattractive. In my opinion, that is a matter that they are entitled to take into account in refusing permission. In those circumstances, such a condition on the granting of relief would be reasonable. Orders and costs 1. The parties should bring in short minutes of order to give effect to these reasons for judgment, and costs if costs can be agreed, within 14 days of today's date. If the parties cannot agree on the terms of the short minutes of order, or if the parties cannot agree on costs, within that time, the matter should be relisted by contacting my Associate to deal with any outstanding issues. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 06 September 2018