QLD Commercial lease - tenant on payment plan query - matter of contract

[BettyBoop]

There is a commercial lease, and a tenant falls behind in rent. The landlord elects not to terminate the contract, but instead accept a payment plan for rental arrears, with a right to terminate if the tenant deviates from payment plan (plus, of course, retaining right to terminate for any new breaches).

The tenant, being in breach of the lease, gives the landlord certain other rights, e.g. can withhold permission to assign the lease.

Question: Whilst the tenant is still on a payment plan - hasn't caught up all arrears - is the tenant in breach or not? Can the landlord withhold permission to assign the lease on the basis that the tenant is in breach of the condition to pay rent on time?

Argument for no: The tenant is not in breach and the landlord has no right to refuse permission to assign. The contract has been varied with payment terms per the payment plan, and provided the tenant is complying with the payment plan, the tenant is compliant with the contract as amended and not in breach.

Counter argument: The tenant is in breach, the payment plan is not a contract variation, but the agreement for payment of liquidated damages for the breach, and until they've completed payment, they haven't made good their breach. It would be a contract variation if the landlord agreed to a varied payments schedule ahead of time; as it is, the landlord is simply trying to make the best of an election they were forced to make as a result of the tenant's breach.

I've had a good look through cases on Laws of Australia and Westlaw and couldn't find anything directly on point. My thinking is mostly influenced by reading Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57 and trying to imagine how the principles therein might be applied to what is admittedly quite a different factual scenario.

Thoughts?

I suspect the former view will prevail. If it does, would it make any difference how you worded the agreement to enter into the payment plan? e.g. 'The Parties acknowledge that entering into this payment plan does not vary the lease agreement and the Tenant remains in breach of the Lease until the final payment has been received by the Landlord'?

 

[Rob Legat - SBPL]

Is this a homework question?

Because the simple answer for a real life scenario is this: a standard landlord condition for consenting to an assignment of a lease is for there to be no outstanding defaults and all payments made up to date.

 

[BettyBoop]

Is this a homework question?

Because the simple answer for a real life scenario is this: a standard landlord condition for consenting to an assignment of a lease is for there to be no outstanding defaults and all payments made up to date.

Sort of homework. I'm a new graduate, it is a real-life scenario, and my boss has asked me as an exercise. After a few days research and thought, I'm still really torn about the answer... if they're on a payment plan and compliant with the payment plan, do they technically have outstanding defaults or not?

I want to say 'yes', because we represent the landlord - ha! - and what Kirby said about needing to clearly waive rights before losing them in the referenced judgment encourages me to do so, but I also vaguely remember case law in my studies that courts are more likely to view acceptance of a payment plan as constituting a contractual variation, thus my hesitation.

 

[Rob Legat - SBPL]

The rights aren't waived, they're effectively 'stayed'. Therefore the default still exists, it's just agreed not to be actioned while the plan is adhered to. You'd need to carefully examine the nature of the agreement not to take action - my comments are assuming this has been done correctly (in line with what you've mentioned). If not, then there could be an argument for waiver. Most times in this sort of situation, there's an acknowledgment of default and an agreement not to take action on it so long as x, y, and z happen. But, if they don't then action can be taken on the original default without further notice.

In terms of now requiring the default to rectified: While there's an argument of an estoppel-type nature because of the agreed payment plan, the request for consent is an interceding act that changes the nature of the agreement. There will likely also be a clause in the lease about what is required for consent, and this (or another clause) will likely set out that all defaults must be rectified in that situation.

 

[BettyBoop]

Thanks a million, this aligns with what I was thinking, but I didn't have the vocabulary. And yes, I expected everything would hinge on precisely what is said in the lease, and what was said when agreeing to the payment plan. Excellent, thanks for getting me on track.