Archive for March, 2014

Tenants beware of onerous “make good” obligations


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Lawyers acting for tenants often fail to advise their clients about the burden of the repair obligations imposed by the lease during the term of the lease and the “make good” obligations at the end.

These obligations can be particularly onerous in Victoria because of  cases such as Joyner v Weeks [1891] 2 QB 31.

In Joyner the landlord brought an action against the tenant upon a covenant in a lease that the tenant would leave the leased premises in repair at the end of the lease.

When the lease came to an end the premises were out of repair. The landlord proved before the official referee that the cost of putting the premises into repair was £70; however, the tenant claimed the landlord was entitled only to nominal damages because he had leased the premises to a third party who had covenanted to pull down and rebuild the premises and also to pay a higher rent than the defendant had paid and consequently there was no loss.

The official referee gave the landlord a farthing damages, and gave the tenant all the costs of the action; however, on appeal the Court of Appeal held that the measure of damages was the amount which the landlord proved to be the fair and reasonable sum necessary to put the premises into the state of repair in which he was entitled to have them left, being £70.

What is often referred to as the “rule in Joyner v Weeks” is not an absolute rule, but it is a prima facie rule. The effect of Joyner has been abrogated in some States but not in Victoria. Joyner was applied by the Full Court of the Federal Court in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (2008) FCR 494[1].

In a case similar to Joyner, the Supreme Court of Victoria  recently considered the consequence of a tenant failing to comply with a make good obligation that required it to maintain the premises in good repair during the currency of the lease and to deliver them up to the lessor at the end of the lease in as good condition as they were at the commencement of the lease, fair wear and tear excepted. The tenant breached the obligation to maintain the premises in good repair and failed to deliver them up at the end of the lease in good condition. The landlord conducted a complete refurbishment of the premises, including both internal and external reconfiguration and extensions. The tenant argued that the landlord’s refurbishment rendered the precise works necessary to meet its make good obligations theoretical or irrelevant and therefor the landlord had suffered no loss. Hargrave J rejected the tenant’s arguments and held that the landlord was entitled to recover the cost of performing the precise works which were reasonably necessary to bring the premises up to the state that they would have been in had the tenant complied with its make good obligations during and at the end of the lease. See: Fenridge Pty Ltd v Retirement Care Australia (Preston) Pty Ltd [2013]  VSC 464


[1] The appeal was dismissed by the High Court in High Court Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272.


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Overstatement of amount owed does not make s.76 notice invalid

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Section 76(1) of the Transfer of Land  Act 1958  sets out the procedure to be followed by a mortgagee in the case of default in payment of moneys secured by a mortgage. Section 76(1) provides that the mortgagee may  in the event of default to serve  a “notice in writing to pay the money owing or to perform and observe the covenants (as the case may be)”.

The notice must be served if the mortgagee intends to sell the mortgaged land. See: s.77(1).

In Whild v GE Solutions Ltd [2012] VSC 212 Croft J considered what should be contained in a notice served under s.76(1). His Honour dealt at length with a contention that a notice given under s 76 was invalid because it contained an overstatement of the amount owed.  His Honour drew a distinction between the requirements of the New South Wales provisions and s 76(1).   His Honour said:

[33] At the outset, in considering the authorities, it should be noted that the provisions of s 57 of the New South Wales Real Property Act 1900, provisions which regulate the exercise of the mortgagee’s power of sale of registered mortgages of Torrens system land in that State, require, specifically, that the mortgagee brings to the attention of the mortgagor the particular default which the mortgagee alleges has occurred.  Additionally, these provisions require that the notice specify that it is a notice pursuant to s 57(2)(b) of the Real Property Act 1900.  Thus, the provisions of the corresponding Victorian provisions, s 76 of the TLA, are in marked contrast to the more detailed and prescriptive provisions of s 57 of the New South Wales legislation.  Section 76(1) of the TLA requires “notice in writing to pay the money owing or to perform and observe the convenants (as the case may be)”.  It should also be noted that there is no provision in the Victorian legislation providing for a mortgagee’s statutory power of sale and its exercise, under ss 76 and 77 of the TLA with respect to Torrens title land, which requires the notice to specify that it is a notice to pay under these provisions.  Nevertheless, for reasons which are discussed further below, I do not regard the absence of an express requirement of this kind as decisive with respect to the form and content of such a notice in Victoria.

At [56] His Honour described the form of a valid notice under s.76(1):

Although it is the position that the Victorian legislation, ss76 and 77 of the TLA, does not specify the form or contents required of a default notice, its provisions do, nevertheless, contemplate that something in the nature of a “notice” (whether styled as a notice or demand) must be served on the mortgagor.As the High Court indicated in Barns v Queensland National Bank Ltd,the object of the notice is to guard the rights of the mortgagor. In my opinion, it follows that the “writing” constituting the notice must make it clear that its purpose is not merely to provide information, but that, rather, the mortgagee is taking a step which may result in the exercise of the statutory power of sale under the TLA and that, if the mortgagor wishes to prevent this course being taken, then action needs to be taken to attend to compliance with the notice. This may involve communication with the mortgagee to establish the quantum of any amount or amounts claimed with respect to the default or defaults specified in the notice and, if necessary, the taking of proceedings to enjoin the mortgagee from taking any further steps. Clearly, the exercise of the mortgagee’s power of sale is a very drastic remedy; it is a remedy involving a process of notification and execution which significantly affects, or has the potential to significantly affect, the rights of the mortgagor with respect to his, her or its property the subject of the mortgage. Consequently, although the Victorian legislation does not contain some of the specific requirements with respect to default notices as are contained in s57 of the Real Property Act 1900 of New South Wales, it is implicit in the Victorian provisions that a notice given under sub-s 76(1) of the TLA be drawn as a “notice” (whether styled as a notice or demand) which meets the objective of guarding the mortgagor’s rights by providing a clear indication, and thereby a warning, of the course upon which the mortgagee is embarking.

(citations removed and italics added)

His Honour undertook an extensive review of the authorities and concluded that a notice under s 76 would not necessarily be bad because a greater sum was demanded than was payable.  He held that the position might be different if the notice was, in all the circumstances, misleading.  Croft J concluded:

[47] In my opinion, on the basis of Websdale, Bunbury and the other authorities to which reference has been made, it is clear that a notice which correctly identifies the event of default relied upon but which overstates the amount owed is, nevertheless, valid for the purposes of the TLA provisions.

[48] For these reasons, I find that the notice of default with respect to Loan A overstated the amount owing but did, nevertheless, correctly identify the event of default upon which it relied and did not rely upon any non-default in the relevant sense. Accordingly, the notice of default was valid and the Tribunal was in error in finding that this notice was invalid.

(italics added)

His Honour’s reasoning was applied recently by  Judd J in Equity-One Mortgage Fund Limited v Stoyanov and another [2014] VSC 70 where his Honour rejected a claim that a notice given under s.76(1) was invalid on the ground of ambiguity because it overstated the amount that was owed.


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Section 243 of Australian Consumer Law gives tenants a powerful weapon

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Landlords need to be very careful about what they say when negotiating leases because s.243  of the Australian Consumer Law provides a wronged tenant with a powerful weapon.

That section permits the court to make an order declaring the whole or any part of a contract void or to vary a contract.

The most famous case concerning the sections’s predecessor (s.87 of the Trade Practices Act 1974)  was Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 where the High Court varied a lease.

The Supreme Court of Queensland recently used s.243 of the ACL to set aside a lease and a guarantee. In that case the tenant and guarantors of the tenant’s obligations alleged that they were induced to enter into a 30 year lease by representations that if the tenant  paid rent at a rate of $180,000 per annum for three years and had not purchased the freehold after three years the landlord would cancel the lease and enter into a new lease at a rental of about $120,000 per annum.

The court found that the representation had been made and relied upon and that the tenant and the guarantor had suffered detriment as a result of the conduct of the defendants. The Court declared the lease and the guarantee void ab initio under s 243. The case is Morgo’s Leisure Pty Ltd and others v Morgan v Toula Holdings Pty Ltd and others [2013] QSC 325.

Postcript: the decision referred to above was reversed by the Court of Appeal in Toula Holdings Pty Ltd v Morgo’s v Dante (NQ) Pty Ltd [2014] QCA 201. Thanks to George Tsogas for alerting me to the result of the appeal.


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