Over the last 18 months we have provided many updates in relation to the Covid Leasing Regulations. The recent case of Todarello Property Investments Pty Ltd v GJA Kalra Pty Ltd involved the application of that legislation.The Applicant was the registered proprietor of land where a lease of a service station and motel premises had been registered for 10 years, with options for renewed terms of 5 years each. The original lessees under the lease transferred the lease to GJA Kalra Pty Ltd and the dispute was about whether GJA had validly exercised the option to renew.

The Applicant terminated the lease on the basis of $117,702.94 of unpaid rent and operating expenses constituting a breach of contract and GJA disputed the validity of termination. 

The Court found that the breaches did not preclude the respondent’s entitlement to the option because regardless of whether breaches are continuing, only breaches that occur up to the date of the expiry of the lease can preclude a lessee from exercising an option to renew. Hence the respondent had validly exercised the option to renew the lease for a further term of five years. 

Additionally, the Applicant was not entitled to take or continue ‘prescribed action’ against respondent on grounds of breach of lease during the ‘prescribed period’ under the Regulation because they failed to negotiate in good faith, which was mandated under the Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (NSW). Therefore, the termination of lease by the landlord was invalid. 

This case demonstrates the importance of complying with the Covid Leasing Regulations. We note that Compulsory Mediation provisions in the Regulations have been extended beyond 13 March 2022 for specific lessors, as described in another article this month. 

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