Effect of appointment of receivers and administrators on lessees

The Federal Court's recent decision in Lindholm, in the matter of Munday Group Pty Limited (Receivers and Managers Appointed) (In Liquidation) v Tsourlinis Distributors Pty Ltd [2011] FCA 195 considered the effect of the appointment of receivers and administrators on a commercial lease in circumstances where the landlord sought to terminate the lease relying on the appointment as a ground of termination. The court considered whether relief against forfeiture can be granted in circumstances where the lessee is in default under the terms of the lease following the appointment of receivers and administrators.

The court found that for relief against forfeiture to be granted, the lessee must show, in the face of the lessor's right to terminate the lease, that it is necessary for the court to intervene to avoid the effects of unconscionable or conscientiousness conduct by the landlord in setting up the termination. If the breach can be remedied or made good by the payment of compensation, as it was in this case, relief against forfeiture is appropriate.

This case highlights that the appointment of receivers and administrators to a lessee will not always amount to a breach of lease which cannot be remedied. Lessors should exercise care when seeking to terminate a lease following appointments of external administrators to a lessee. Careful consideration should be given as to whether the payment of damages would be sufficient compensation in each set of circumstances.