Beware national lease registration system

Victorian landlords and tenants should be slow to embrace the draft Uniform Torrens Title Act that has just been published. At present there is no requirement in Victoria to register leases and s.42(2)(e) of the Transfer of Land Act 1958 provides that the interest of a tenant in possession of land is an exception to the rules regarding indefeasibility of title: in effect the interest of a tenant in possession is protected when land is sold despite the lease not being registered. The non-registration of leases in Victoria has worked well and landlords and tenants have not had to bear the cost of establishing and maintaining a registration system. Under the draft Act the exception to indefeasibility will apply only to leases of not more than 3 years (s.34(1)(g)).  Many real estate agents will be delighted by the change because one of their complaints is that it is difficult for them to determine “market rents” in the absence of a database of leases. However, I have not heard any compelling arguments for registration of leases in Victoria.  If registration is required, landlords and tenants can expect delays in the Titles Offer and inevitably rising registration fees.  Apart from the national “neatness” argument, the proponents of lease registration seem to have difficulty in pointing to its benefits.  The draft Act is the product of the Property Law Reform Alliance.

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Tenants need the protection of s.146 of the Property Law Act

I have had a number of queries about a recent post concerning N.C.Reid & Co v Pencarl Pty Ltd [2011] VCAT 2241. In Reid Judge O’Neill held that before re-entering leased premises the landlord did not have to serve a notice that complied with s.146 of the Property Law Act 1958. The lease permitted the landlord to re-enter if the guarantor became bankrupt.  Section 146 requires service of a notice where a right of re-entry or forfeiture under any proviso or stipulation in a lease or otherwise arising by operation of law for “a breach of any covenant or condition in the lease, including a breach amounting to a repudiation”. Judge O’Neill held that there was no “breach” and therefore a notice under s.146 was not required. If Reid stands it has major implications for tenants who will lose the protection afforded by s.146. Judge O’Neill does not appear to have been referred to authorities that might have persuaded him to adopt a different interpretation of s.146. For example, the application of the reasoning applied by McLelland J in Della Imports Pty Ltd v Birkenhead Investments Pty Ltd (1987) NSW Conv R 55-538 might have resulted in a different outcome.  McLelland J had to consider a lease that permitted the lessor to enter premises and determine the lease without notice if the lessee entered into liquidation or was wound up. His Honour held that the right of re-entry under the lease was a “right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any….condition in the lease”, within the meaning of s.129 of the Conveyancing Act 1919 (being the NSW equivalent of s.146) which could not be enforced unless and until the lessor gave notice  under s.129 and in respect of which the tenant could apply for relief against forfeiture. His Honour held that a provision in a lease that provided for re-entry on the happening of an event, regardless of whether or not there was any obligation on the lessee to prevent that even happening, was a “condition” within the meaning of s.129 and that the word  “breach” in s.129 was equivalent to non-fulfilment”.  His Honour held that this interpretation was supported “by the evident policy of the provision [ie s.129 in NSW or s.146 in Victoria] which would otherwise be manifestly inadequate for the protection of lessees which it obviously is intended to confer”.  If Reid is the law in Victoria s.146 will need to be amended.

Collateral contract not a disposition of an interest in land

Earlier today I referred to two recent cases in which tenants successfully claimed that they had entered into collateral contracts with the operator of the Melbourne Casino and Entertainment Complex that entitled them to a further 5 year term following the 5 year term provided for in the lease. See: Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Limited and Fish and Company (Vic) Pty Ltd v Crown  Melbourne Limited (VCAT, unreported, 24 February 2012). I have been asked whether the collateral contracts were in writing and signed by Crown and, if no, why they were not caught by the Statute of Frauds. The collateral contracts alleged were oral. Crown alleged that the tenants could not succeed because there was nothing in writing signed by Crown as required by the Statute of Frauds (ie s.126 of the Instruments Act 1958). VCAT held that the oral contracts did not relate to a  disposition of an interest in land because all they required Crown to do was send a notice that it would renew the lease. The collateral contracts were effectively an option exercisable by the tenant: that is an offer to grant a further term which Crown was contractually precluded from withdrawing while the option remained exercisable; there was no disposition of an interest in land until the tenant exercised the option; if the tenant did not exercise the option there was no disposition of an interest in land. See: BS Stillwell & Co v Budget Rent a Car System [1990] VR 589 at 594. The cases contain an interesting discussion about the circumstances in which a collateral contract can be effective.

Tenants win claim for new 5 year term

Despite no mention being made of additional terms in their leases, the operators of two restaurants in the Melbourne Casino and Entertainment Complex have succeeded in claims that they were entitled to additional 5 year terms. In Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Limited and Fish and Company (Vic) Pty Ltd v Crown  Melbourne Limited (VCAT, unreported, 24 February 2012) the tenants, who operated the restaurants “Waterfront” and “Cafe Greco” successfully contended that Crown had breached a collateral contract that they would be granted an additional 5 year term after the expiry of the 5 year term provided for in their leases. The prinicipal of both tenants, Nicholas Zampelis, claimed that the tenants were induced to spend millions of dollars on fit-outs because of a promise that there existing leases would be renewed for a further term of 5 years. At the end of the intial 5 year term Crown refused to renew the leases and the areas occupied by “Waterfront” and “Cafe Greco” were leased to new tenants. Crown denied the existence of any collateral contract. Damages are to be assessed. In an article published in the Sunday Age on 4 March 2012 a representative of Crown is reported to have said that Crown will appeal.

Michael Redfern

Michael Redfern died last Thursday night. Many readers will know Michael either personally or as one of Australia’s leading property lawyers. Michael had been ill for a number of years. Michael was a fine lawyer, a gentlemen, a mentor to many, generous and kind.  Any person who knew Michael could not help but like him. Apart from his many years as a solicitor, Michael made major contributions to the law in Australia as co-author of  ‘Australian Tenancy Practice and Precedents’, the author of many articles and the presenter of many seminars. Michael will be sadly missed.   Michael’s funeral will be held on Friday 9 March, 2:30pm at Le Pine, 1048 Whitehorse Rd Box Hill.