Archive for January, 2013

Tenant cannot question the landlord’s title

In Create Invest Develop Pty Ltd v Cooma Clothing Pty Ltd [2012] VCAT 1907  VCAT had to decide the effect of a contract entered into by a tenant with a party that was not the registered proprietor of the leased land but who subsequently became the registered proprietor. The case is a good illustration of the principle that if two parties contract with each other as landlord and tenant, neither of them is entitled to deny the title of the other unless some other person by way of title paramount intervenes and disturbs the possession of landlord and tenant. In Create there was a lease in place the term of which was expiring on 31 January 2011 (“Original Lease”).  In 2010 the land was offered for sale and the Applicant purchaser entered into a contract of sale with the landlord (“Landlord”). Before settlement, the Applicant purchaser offered the existing tenants a lease for a term of three years commencing 1 February 2011 which offer included a clause that permitted the landlord to terminate the lease to demolish or redevelop the premises and contemplated the execution of further documents including a lease that contained a demolition clause and guarantees. The tenants signed the offer (“the Lease Renewal”). Later, in 2010, the Landlord, the tenants and the Respondent signed a document styled “Transfer of Lease” which assigned the term of the Original Lease to the Respondent and contained a special condition in which the Respondents acknowledged being given a copy of the Lease Renewal and consent its terms and conditions.  In late 2010 the transfer of the freehold reversion was registered. In March 2011 the Respondent vacated the property and was sued by the Applicant for damages that comprised mainly rent for the period from 1 February 2011 pursuant to the Lease Renewal. The basis of the damages claim was that the Respondent was obliged to perform the Renewed Lease. The Respondent contended that all that had occurred was that it had an option to renew or extend the Original Lease which option it had not taken up.  The Respondent argued that at the time the Lease Renewal was made the Applicant was not the legal owner of the reversion and not entitled to the rents and profits as a purchaser and therefore there was no privity of estate or contract between the Applicant and the Respondent. The Respondent also argued that what had taken place did not amount to a “renewal” of a lease within the meaning of s 9 of the Retail Leases Act 2003, the 2003 Act did not contemplate leases that were entirely prospective, and the Lease Renewal was not a concluded agreement. All the Respondent’s contentions were rejected by the Tribunal. The Tribunal held that the Respondent as tenant was estopped from questioning the Applicant landlord’s title and therefore it was irrelevant that the Applicant was not the registered prorietor of the land when the Lease Renewal was entered into. The Tribunal also held that while the Lease Renewal contemplated the execution of further documents there was a binding contract, the Lease Renewal was not a renewal but the entry by the parties into a new lease.       

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Option not exercised because of default

Happy 2013 to you all. This blog has been quiet in recent times but that will change this year.

In Computer & Parts Land Pty Ltd v Property Sunrise Pty Ltd [2012] VCAT 1522 the Tribunal was asked to determine whether an option contained in a lease was not exercisable by the tenant because of breaches of the lease that enlivened s.27(2) of the Retail Leases Act 2003 .  Section 27(2) provides that the “only circumstances” in which an option is not exercisable is if the “tenant has not remedied any defaults under the lease about which the landlord has given the tenant written notice” (s.27(2)(a)) or ” the tenant has persistently defaulted under the lease throughout its term and the landlord has given the tenant written notice of the defaults” (s.27(2)(b)). Section 27(2)(b) is ambigous: what is meant by “persistently”, what is meant by “throughout its term”, does a landlord have to give notice of each default or is one notice that describes all the defaults adequate? There have been a number of cases concerning s.27(2) all of which have avoided giving any definitive answers to these questions. See: for example, Westgate Battery  Company Pty Ltd v GCA Pty Ltd [2005] VCAT 2080 and Westside Real Estate Investments Pty Ltd [2011] VCAT 1830. In this case the term of  the lease was four years with two options for four year terms. The landlord relied on s.27(2)(a) and (b) in alleging that the option had not been exercised because at the time of the purported exercise the tenant had not remedied a default and the tenant had persistently defaulted under the lease throughout the four year term of the first option period. Firstly, the  Tribunal held that s.27(2) prevailed over the provisions contained in the lease concerning the exercise of the option.  There had been nine occasions “over two stretches” when the rent was not paid on time and the rent had never been more than five weeks’ late. The Tribunal held that in those circumstances it was not “persuaded that the late payments could be described as ‘persistent’ (in the sense of ‘persevering’ or ‘constantly repeated’)” and that the late repayments had not occurred “throughout” the term of the lease.  Nevertheless, the Tribunal held that the option had not been exercised because when the tenant exercised the option it had failed to provide a bank guarantee as required by the lease and the landlord had given written notice of the default  (s. 27(2)(a)).  Rectification of the default after the purported exercise of the option did not alter the position.

The tenant sought relief against forfeiture of the option. The Tribunal followed the decision of Dixon J in Lontav Pty Ltd v Pineross Custodial Services Pty Ltd (No. 2) [2011] VSC 485 in  holding that VCAT had no power to grant relief against forfeiture of an option.

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