When Can the State Forfeit My Lease?

Forfeiture ends a State lease and returns the land to the State. Part XV of the Land Act 1996 sets out when it can happen and what must come first.

Section 122(1) — the five grounds

Paragraph (d)(i) is the workhorse. It captures failure to meet improvement conditions, breach of the section 82(3)(d) bona fide purpose condition, and breach of any special covenant the Minister imposed.

Section 122(2) and (3) — the show-cause requirement

Before forfeiting, the Minister:

• (a) shall serve notice on the lessee calling on him to show cause, within a period specified in the notice, why the lease should not be forfeited on the ground or grounds specified; and
• (b) may — whether or not cause has been shown — serve a further notice requiring compliance within a specified period with the covenants or conditions of the lease or the provisions of the Act.

So forfeiture is not a first step. The Act requires notice, an opportunity to respond, and a failure — either to comply or to show good cause. Where a lease has been forfeited without a valid show-cause notice, that is a ground of challenge.

Section 122(4) — service on everyone with an interest

Copies of a notice of forfeiture, and of a show-cause or compliance notice, shall be served on all persons who, to the knowledge of the Departmental Head, have or claim to have a right, title, estate or interest in, to or in relation to the land — or such of them as can with reasonable diligence be ascertained and found.

That means mortgagees, sublessees, caveators and others with registered or claimed interests. It matters in two directions:

• a mortgagee who is served can intervene, pay the arrears and protect its security; and
• a failure to serve a person the Departmental Head knew of, or could have found with reasonable diligence, is a defect in the process.

Section 122(5) — accepting rent is not waiver

Under the general law of landlord and tenant, a landlord who accepts rent knowing of a breach may be taken to have waived the right to forfeit. Section 122(5) abolishes that for State leases.

The practical consequence: paying your rent does not cure a breach of the improvement or purpose conditions, and the Department continuing to bank rent is not evidence that it has accepted the position. Lessees rely on this to their cost.

Section 123 — revocation of a mistaken forfeiture

Where a lease has been forfeited by mistake, and provided a section 75 notice has not been published in respect of another applicant, the Departmental Head may, by notice in the National Gazette, revoke the notice of forfeiture. The revoked lease is then treated as valid and effectual as if the forfeiture had not occurred.

Section 124 — a fee instead of forfeiture

Where a term, covenant or condition is not complied with, the Minister may — in his discretion, instead of taking action under section 122 — serve a notice to show cause why a non-compliance fee should not be imposed. See a fee instead of forfeiture.

A lessee responding to a section 122 show-cause notice should consider expressly inviting the Minister to proceed under section 124 instead, and should say why that is the proportionate response.

Challenging a forfeiture

Forfeiture is an exercise of statutory power, reviewable in the National Court under section 155(3) and (4) of the Constitution. The grounds most often available are:

1. No valid show-cause notice, or one that did not specify the grounds;
2. Forfeiture before the notice period expired, or where good cause was in fact shown;
3. Failure to serve interested parties under section 122(4);
4. Breach of the principles of natural justice under section 59 of the Constitution — the response not genuinely considered;
5. Irrelevant considerations, or no ground within section 122(1); and
6. Section 41 — forfeiture that is harsh or oppressive, or disproportionate, in the particular case.

See Church of Jesus Christ of Latter-Day Saints Inc v Kimas [2022] PGSC 96; SC2280 and HQH Enterprises Ltd v Wangbao Trading Ltd [2023] PGSC 69; SC2419. Where the State is a defendant, the notice requirements of the Claims By and Against the State Act 1996 also apply.