Archive for November, 2011

Swanton’s case doubted

In Stone v Leonardis [2011] SASC 153 the Supreme Court of South Australia held at [36] that in principle a registered proprietor could lodge a caveat on title to protect its own interests. In Stone the registered proprietor lodged a caveat preventing a mortgagee of the land settling on a contract of sale.  The registered proprietor’s allegation was the mortgagee had improperly exercised the power of sale by entering into a contract for less than the market value.  It has been held in Victoria that in such circumstances a mortgagor did not have an equitable interest but had a mere equity to set the sale aside. See: Swanton Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672 and Vasiliou v Westpac Banking Corporation (2008) 19 VR 229. White J held that Swanton was “clearly wrong” and that the court should not follow it.  However, in the circumstances  of the case His Honour decided that the caveat should be removed.

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Landlords beat administrators and obtain possession under s.440C of Corporations Act

Division 6 of Part 5.3A of the Corporations Act 2001 provides for the imposition of a moratorium restraining parties from taking steps against a company under administration. According to s 435A the purpose of Part 5.3A is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximizes the chances of the company, or as much as possible of its business, continuing in existence, or if it is not possible for the company or its business to continue in existence, results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.  During the administration the owner or lessor of property which is used by or in possession of the property  cannot take possession of the property or otherwise to recover it, except with the administrator’s written consent or with the consent of the court. See: s440C. The onus is on the lessor wishing to take possession that this is the appropriate course. See: Re Java 452 Pty Ltd (1990) 32 ACSR  507. In IMO Colorado Group Limited [2011] VSC 552 Gadiner AsJ had to consider applications by landlords under s440C to enforce rights to possession of premises located in two shopping centres leased by Colorado.  When the application was made the administration had already proceeded for six months. With respect to one lease, the administrator of Colorado was appointed three days before the expiry of the term.  Upon expiry of the lease the landlord was precluded by s440C from taking possession of the premises. Before the expiry of the lease the landlord had negotiated with a tenant in the shopping centre to lease another site in the centre. The consequence was that three tenants had to relocate including one tenant which agreed to lease the area occupied by Colorado. Because of the moratorium the tenant could not take possession of the premises with the result the landlord lost $17,000 in rent per month and had to contribute $50,000 to the fitting-out of temporary premises for the tenant. Under a second lease, Colorado was due to vacate premises on the expiry of the lease; however, Colorado  went into administration and refused to vacate when the lease ended. The new lessee was unable to take possession of the premises and the landlord was facing a claim for compensation. The administrator opposed the application on the basis that they wished to preserve the businesses and maintain control of the Colorado network in order treduce o implement the proposed sale or restructure and that the grant of leave in respect of the two stores would the likelihood of a successful sale or restructure because key revenue generating stores would have to be closed. They maintained that the new owner would be interested in negotiating with the lessors to take on the leases. After reviewing the caselaw, Gardiner AsJ stated that applications for leave under s440C required a balancing exercise involving the weighing up of the interests of the lessors whose proprietary rights in respect of the premises are substantially qualified by the operation of the section and the object of endeavouring to preserve the business of Colorado.  After engaging n the balancing exercise His Honour granted leave to the landlords to enforce its rights to possession.

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Beware of lease variations

It is trite law that a slight variation to a lease may effect a surrender and re-grant. See: Pascoe-Webbe  v Nuguna Pty Ltd (1985) 3 BPR 97,231 (SC, NSW per Young J).  In Richmond Football Club Limited v Verraty Pty Ltd [2011] VCAT 2104 a variation to a lease had major consequences for an unwitting and unfortunate landlord. The lease, which had been made in 1998, was for a term of 10 years with an option for a further term of 10 years and required the tenant to pay land tax and outgoings. In 2004 the lease was varied: the changes included reducing the rent, amending the bank guarantee and rent review provisions, introducing an obligation to pay GST and extending the lease term by 10 years. The tenant contended that the variation effected a surrender and re-grant with the consequence that from the date of the variation the Retail Leases Act 2003 applied to the lease. By reason of s.50 of the 2003 Act a provision in a lease requiring a tenant to pay land tax is void. Also, by reason of s.46 of the 2003 Act a tenant was not required to contribute to outgoings until given a statement of outgoings. The tenant sought recovery of land tax and outgoings paid after the variation. The landlord claimed that the tenant was estopped from alleging that a surrender and re-grant occurred; this submission was rejected on two bases, namely that the tenant had not been aware of its rights until 2009 and the provisions of the 2003 Act could not be circumvented on the basis of estoppel. The tenant sought recovery of the land tax and outgoings on the basis that they were paid under a mistake because the tenant was unaware that it had no liability to do so. Consequently, there was a total failure of consideration and therefore the landlord was obliged to repay the amount paid by way of land tax and outgoings as money had and received. The landlord’s defences based on estoppel and unconscionable conduct failed. The landlord also relied on Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Pty Ltd (2006)VSCA 6 in alleging that good consideration had been provided by the landlord for the payments; this claim was rejected with respect to land tax because there was no obligation on a tenant to pay land tax and s.50 of the 2003 Act expressly prohibited a tenant from recovering land tax. The landlord’s argument based on The Dog Depot was successful with respect to outgoings because outgoings were part of the consideration payable by the tenant; the tenant received a benefit in exchange for the payment of outgoings and therefore the tenant’s claim for money had and received failed. The landlord also relied on The Dog Depot to claim compensation for lost land tax based on the tenant’s use and occupation of the premises; this claim failed because consideration had not been given for the payment of the land tax. The tenant recovered $125,320 in land tax, being all the land tax paid that was not caught by the Limitations of Actions Act 1958.

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