"Claw back" of lease incentives thrown into doubt

Landlords often offer incentives to a tenant to encourage the tenant to enter a lease. Common incentives are rent free periods and contributions to the fit out. The logic behind the inducement is that the landlord will benefit because the tenant will occupy the premises for the term of the lease. Landlords sometimes require a “claw back” provision in the lease so that if the landlord terminates the lease before the expiry of the term the lease incentive (or part of the lease incentive) must be repaid.

The enforceability of “claw back” clauses has been thrown into doubt by the decision of the Queensland Supreme Court in GWC Property Group Pty Ltd v Higginson [2014] QSC 264.

In GWC the tenant and the landlord entered into a lease and on the same day entered into an incentive deed. The incentive deed was recited to “supplement the lease” and recited that the landlord had agreed to, among other things, contribute to the tenant’s fit-out and  grant a rent abatement. The incentive deed also provided for repayment of part of the landlord’s contributions if the lease was terminated (other than by expiry of the term or the lessor’s default) or if the tenant parted with possession without the landlord’s consent. The obligation to repay was guaranteed by guarantors.

The landlord terminated the lease after the leased premises were abandoned by the tenant. The court decided that:

(a)          the lease and the incentive deed had to be construed as if they were one document;

(b)          the obligation to repay only arise if there a termination;

(c)           the tenant could be obliged to repay the landlord’s contributions for reasons other than the tenant’s breach – for example where the tenant went into liquidation or following a natural disaster;

(d)          the repayment obligation should not be viewed as a restitutionary payment;

(e)          in addition to contractual damages for breach of the lease, the  landlord was entitled, by the repayment clauses, to recover substantial additional payments;

(f)           the repayment obligation were not a genuine pre-estimate of damage.

The court decided that the obligation to repay landlord’s contributions was a penalty and was therefore not enforceable.

The case contains a good discussion about the law of penalties. Thanks to Tony Burke of Burke & Associates Lawyers Pty Ltd for alerting me to GWC.

Tenant cannot question the landlord's title

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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 proprietor 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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Author: Robert Hays Barrister subject to copyright under DMCA.

Land area of no consequence in determining whether premises are "retailpremises"

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Occasionally I am asked whether premises are "retail premises" under s 4(1) of the Retail Leases Act 2003 where a retail business is conducted on a small piece of a substantial area of leased land. This issue arose in Bretair Pty Ltd v Cave [2012] VCAT 1039.  The premises were used as a service station and road house restaurant business. The landlord contended that the premises were not “retail premises” because the leased land comprised 7.5 acres only part of which was used by the businesses conducted there. The Tribunal rejected the landlord’s claim holding that “The RLA does not distinguish between retail and non-retail premises based on the size of the land demised”.  The Senior Member said:

 ….the fact that the buildings, canopies and driveways are surrounded by 7½ acres of land is of no consequence in deciding whether the RLA applies to the current lease agreement between the parties because there is no evidence that the surrounding land is used for any specific purpose other than it is simply being part of the leasehold interest.

 The Senior Member also held that even if he were wrong, VCAT had jurisdiction to hear and determine the matter as a “consumer and trader dispute” under the Fair Trading Act 1999 or the Australian Consumer and Fair Trading Act 2012.

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Can a landlord pass to the tenant the costs of complying with theBuilding Act?

I recently presented a short paper at the Law Institute of Victoria's Property Law Conference on the topical question of  whether a landlord can recover from a tenant the costs of complying with the Building Act.

The paper is available. at this link

Property Law Conference ( August 2012)(3)

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Can the landlord pass on the costs of complying with the Building Act?

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Some of Melbourne’s finest legal minds are spending long hours trying to solve the question of whether a landlord can recover from a tenant the costs of complying with the landlord’s obligations under the Building Act 1993 (Act) and regulations.

Much of the debate concerns s 251  which provides that:

“(1)    If the owner of a building or land is required under this Act or the

          regulations to carry out any work or do any other thing and the owner does not carry out the work or           do the thing, the occupier of that building or land or any registered mortgagee of the land or the land               on which the building is situated, may carry out the work or do the thing.

(2)        An occupier may-

(a)        recover any expenses necessarily incurred under subsection (1) from the owner as a debt due to the              occupier; or

(b)        deduct those expenses from or set them off against any rent due or to become due to the owner.

.....

(6)        This section applies despite any covenant or agreement to the  contrary.”

             Underlining added

In my  the view the effect of s.251 is that if the owner is required by the Act or the regulations to carry out any work or do any other thing and does not carry out the work or do the thing:

(a)        the tenant can do the work that the landlord was obliged to do and  recover the costs from the                      landlord owner as a debt; and

(b)        the tenant can set-off the costs of doing the work that the landlord owner was obliged to do against                the rent; and

(c)        the usual rent covenant that rent must be paid "without deduction" will not assist the landlord if it fails             to comply with s.251 and the tenant does the work that the landlord was obliged to do (Chen v                    Panmure Hotel Pty Ltd[1]). 

However, s 251 does not answer the question whether a building owner can recover from the tenant the owner's costs of complying with its obligations under the Act and regulations. In other words, can the tenant be obliged to pay the owner’s costs of complying with the Act and regulations when s 251 has not been enlivened?

Section 39 of the Retail Leases Act 2003 (2003 Act) permits a landlord to recover outgoings from the tenant by appropriately drawn provisions in a lease. Section 41(1) of the 2003 Act makes void a provision in a lease that requires the tenant to pay an amount in respect of capital costs. Thus it is clear that the tenant could never be required to pay an amount in respect of capital works.

In my view, if s 251 is enlivened by the owner failing to do works that it was required to do under the Act and the tenant does that work, the owner cannot, pursuant to provisions in a lease, recover from the tenant the costs that the owner pays to the tenant under s 251.

But where 251 of the Act has not been enlivened and the owner seeks to recover from the tenant the costs that it has incurred in complying with the Act, it is not clear to me why the landlord should not be able to recover those costs from the tenant. Proponents of the view that the landlord cannot recover the costs will refer to Café Dansk Pty Ltd v Shiel[2] where Deputy President Macnamara (as his Honour then was) held that a landlord could not recover from the tenant the costs of complying with s 52 of the 2003 Act. In my view there are good arguments as to why Café Dansk is not correct, but even if it be assumed that the decision is correct the logic applied in Café Dansk does not necessarily apply when considering the Act. The Act and the 2003 Act are directed at different things. The Act is concerned with ensuring the safety of persons using buildings; its provisions are directed solely to that end; and it says nothing about the ultimate allocation of the costs of complying with the Act while the 2003 Act,  and s 52 in particular, is remedial leglislation concerned with restoring the balance of rights as between landlords and tenants. In my view it is not at all clear that there is anything in the Act that rebuts the presumption that an Act is not to be construed as taking away existing common law rights unless the legislative right to do so is clear[3]. I am not convinced that it is clear that Parliament intended to take away the contractual right to pass on the costs of compliance.    

---

[1] [2007]VCAT 2463

[2] [2009]VCAT 2009.

[3] Pearce, D.C and Geddes, R.S, Statutory Interpretation in Australia, 7^th ed, LexisNexis, 2011, paragraphs 5.27, 5.28 and 5.35.

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Author: Robert Hays Barrister subject to copyright under DMCA.

Beware of lease variations

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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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.

Author: Robert Hays Barrister subject to copyright under DMCA.

Can a landlord's failure to comply with s.52 consitute repudiatoryconduct?

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Does a landlord's failure to comply with its obligations under s.52 of the Retail Leases Act 2003 to maintain premises in "a condition consistent with the condition of the premises when the retail premises lease was entered into" constitute repudiatory conduct?

This issue was raised in C & A Delaveris Pty Ltd  v Bretair Pty Ltd  [2009]VCAT 1663 [28], [79] and [80] but not ultimately decided.  The implication of a statutory obligation as a lease covenant “invites the application of the full range of the general law principles with respect to competing covenant obligations” (Croft and Hay Retail Leases Victoria, para  [70,005]).

In Delvaris the Tribunal considered the relationship between the usual “no deductions” rent covenant and a statutory repair covenant.  The tenant withheld rent because of a failure to carry out urgent repairs.  Delvaris concerned ss25 and 47 of the predecessor to the 2003 Act but those provisions are the same as ss.52 and 94 of the 2003 Act.   Section 94 renders void any provision that is contrary to or inconsistent with the Act. In refusing an application for possession the Tribunal said at [84]:

“It is in accordance with well established practice to allow a setoff of the liquidated sum incurred by a tenant in meeting a repair obligation owed by the landlord and reducing the rental liability accordingly Lee-Parker v Izzet [1971] 1 WLR 1688, 1692-3 per Goff J. The amount of the outlay is liquidated and so the complication relating to unliquidated setoffs do not exist.”

 By reason of s.94 of the Act, where set-off and similar arguments are raised with respect to s.52, the section’s terms or operation cannot be abrogated by lease provisions such as a rent clause that requires the payment of rent "without deduction". Deputy President Macnamara said the following about this issue at [79]:

 “It seems to me arguable first, that the withholding or at least delay of the payment of rent was justified and secondly, that there were no threats of illegal action which could be regarded as economic duress in the circumstances. It will be recalled that the covenant to pay rent under this lease was a covenant to pay ‘without deductions’. 

The authorities are not at one as to whether the inclusion of these words is sufficient to prevent any equitable setoff being relied upon to impeach the demand for rent. For the reasons which I gave in Wytell Pty Ltd v Glowinski [2006] VCAT 454 the balance of authority in Victoria favours the view that the words ‘without deduction’ exclude a tenant from relying upon equitable set offs to impeach the demand for rent. 

Here, however, the covenant which the tenant alleged was being breached was one which in accordance with Section 25 of the 1998 Act as amended, the lease was ‘taken to provide’, that is, it was a statutory implied covenant. 

Section 47 of the 1998 Act provides that a provision in a retail lease is void to the extent that it claims to ‘exclude the application of any provision of this Act’. In my view, the inclusion of the words ‘without deduction’ in the covenant to pay rent is avoided by Section 47 to the extent that it limits the effect that the statutory implied covenant to repair would otherwise have, hence a breach of the repair covenant would be available as a setoff in the present case….it is clear that withholding rent in the circumstances described or delaying its payments was not a flagrant breach of the terms of the lease and obviously illegal. 

More pertinently since this step was taken to compel the lessor to do what I have held it was obliged to do any way under the terms of Section 25.”

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Put in repair obligations not contrary to s.52 of the Retail Leases Act2003

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In Retail Leases Victoria (Croft and Hay, LexisNexis) expressed the view (at para [70,005]) that a repair obligation imposed on a tenant that went beyond the obligation imposed on a landlord under s.52 of the Retail Leases Act 2003 would not be void under s.94 on the basis that it was contrary to or inconsistent with s.52.

The authors suggest that a provision in a lease that imposed a “put in repair” obligation on the tenant and which obliged it not to pick up the landlord’s "keep in repair" obligation under s.52, but rather, to place the premises, plant and equipment and fixtures and fittings in a higher standard of repair than they were in “when the retail lease was entered into” would be effective. Croft and Hay state (at para [70,005]) that a repair covenant that required the tenant to make up the "gap" between the fruits of a landlord's "keep in repair" covenant and a "put in repair" covenant" might be effective provided the lease provisions clearly established a capital works obligation on a tenant at its expense for the purposes of s.41(2).

In the authors' view there appeared to be no reason why the landlord could not enforce this obligation and, if necessary, recover the cost of the tenant's repair obligations as an "outgoing" (as defined in s 3) under s 39 . Croft and Hay's views were adopted by VCAT in Computer & Parts Land Pty Ltd v Aust-China Yan Tai Pty Ltd [2010] VCAT 2054 (at para [199] to [205]; see in particular para [203]) in deciding that a clause in a lease which required the tenant to contribute $3300 towards the cost of an air-conditioning system was a “put in repair” obligation with the consequence that the tenant had to reimburse the landlord for that cost.

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Goods left on premises after the expiry or termination of a lease

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On 1 September 2011 the law governing goods left on leased premises following the termination of a lease will be governed by Part 2D of the Fair Trading Act 1999. Part 2D replaces the repealed ss.42A to 42F of the Landlord and Tenant Act 1958. Part 2D applies to “goods under bailment” (s.32ZS(1)).

A landlord is not usually the voluntary recipient of goods left on leased premises. The drafters of the legislation have assumed that a bailment exists in the absence of a conscious and willing assumption of the possession of the goods; they do not appear to have been concerned about Palmer’s statement that the approach of the English courts has been to deny that the involuntary recipient of goods is a bailee (Palmer, N.P, Palmer on Bailment, 2009, Sweet & Maxwell, page 703).  

Part 2D also fails to include a satisfactory definition of “bailment”. Section 32ZP of the proposed Part 2D of the Fair Trading Act defines  “bailment” as including:

“bailment for reward, bailment in the course of business, gratuitous bailment, involuntary bailment and any sub-bailment”. (underlining added)

 Unfortunately the expression “involuntary bailment” is not defined. Part 2D would have no application at all if VCAT or a court were to determine that a bailment relationship did not arise between a landlord and a tenant with respect to uncollected goods in premises following the expiry or determination of the lease.

A landlord could face the risk of being liable in conversion if it disposed of the goods. The legislation appears to be mainly concerned with ensuring that the bailee is paid moneys owing in respect of goods; however, a landlord is not usually owed money with respect to goods: the landlord is usually owed rent or outgoings. Part 2D establishes different regimes for the disposal of goods with each regime dependent on the value of the goods. The relevant values are: less than $200; less than $5000 and more than $5000. Part 2D does not affect the right of parties to a lease to make an agreement about the disposal of uncollected goods (Section 32ZS(6)).

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Further elaborations on s.52 of the Retail Leases Act

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Section 52 of the Retail Leases Act 2003 implies into a retail premises lease a term that:

"The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into -

(a)     the structures of, and fixtures in, the retal premises lease; and

(b)     plant and equipment at the retail premises; and

....." (s.52(2))

In Savers INC (ARB 075 452 185) v Herosy Nominees [2011] VCAT 1160 the  tenant claimed that the landlords of two premises that the tenant operated as a single shop had failed to maintain the premises in good repair: in particular it was alleged that the roof, drainage and floors had fallen into poor repair and caused consequential damage within the premises.

Breaches of the leases and s.52 of the Retail Leases Act 2003 were alleged. The tenant sought orders that the landlords undertake repairs.   The leases (and earlier leases to which the landlords and tenant were parties) contained terms that obliged the landlords to undertake certain repairs to the premises; these terms were more onerous than those imposed by s.52 (“the good repair and condition terms”).

The landlords contended that s.52 limited their obligations - that is because of  s.94 of the Act it was not possible to “contract out” of s.52 and the good repair and condition terms were either contrary to or inconsistent with s.52 and therefore void.

The Tribunal rejected this argument. It was also argued that s.52 did not extend to that that part of a building “including common areas (such as the roof or perhaps the sub-floor) that is not part of the premises demised to the lessee”.

The Tribunal rejected this submission on the basis that a “canny landlord”  could attempt to get around s.52 by expressly excluding areas such as the external structure from the definition of demised premises but at the same time impose a separate obligation upon the tenant to maintain those exterior parts of the building which did not form part of the demise.

Because the good repair and condition terms had appeared in earlier leases the Tribunal was able to determine what state the premises should have been in and it was this standard that was applied in determining what the condition of the premises were when the lease was entered into for the purpose of s.52; the landlords could not take advantage of their failure to comply with the good repair and conditions terms by seeking to rely on the condition the premises were in fact in when the lease was entered into.

The Tribunal also held that an agreement to settle a dispute between a landlord and a tenant was not “contemplated by section 94”; it appears that the Tribunal was saying that s.94 cannot be relied upon to void a provision in terms of settlement.

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Setting off damages claims against the rent

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At common law a tenant may not set-off a damages claim against a landlord’s claim for rent (Meagher, Gummow & Lenane’s Equity Doctrines and Remedies, 4^th ed, para [37,045], p1056).

However, a tenant may claim an equitable set-off provided that the tenant’s equity “impeaches” the landlord’s title to the demand for rent. See: British Anzani (Felixstowe) Ltd v International Management (UK) Ltd [1980] QB 137; Walker v Department of Social Security (1995) 56 FCR 356; Forsyth v Gibbs [2009] 1 Qd R 403.

The case of MEK Nominees Pty Ltd v Billboard Entertainment Pty Ltd (1993) V ConvR 54-468 is a classic example of the application of the principle. In MEK the tenant was in arrears of rent.

The tenant alleged that the landlord had breached the covenant of quiet enjoyment with the consequence that its business had fallen away to the extent that it had a damages claim that  exceeded the arrears of rent.

The tenant successfully resisted an application for summary judgment for possession on the ground that it had an equitable set-off; that is its damages claim had such a nexus to landlord’s claim as to impeach the landlord’s claim.

A tenant’s right of equitable set-off against rent may be excluded by clear words. See: Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689.

Victorian courts have generally held that a lease that requires the payment of rent “without deduction” precludes a tenant from claiming an equitable set-off. See: Beach J’s decision in Citibank Savings Pty Ltd v Simon Fredericks Pty Ltd [1993] 2 VR 168 (‘without any deduction whatsoever’); see also MEK Nominees v Secure Parking [2000] VSC 406; Novawest Constructions Pty Ltd v Taras Nominees Pty Ltd [1998] VSC 205.

There are decisions to the contrary in other jurisdictions: See: Connaught Restaurants Limited v Indoor Leisure Limited [1994] 1 WLR 501; Re Partnership Pacific Securities Limited [1994] 1 Qd R 410.  This week the Full Court of the Federal Court held obiter that a rent covenant requiring the payment of rent “without any deductions whatsoever” precluded the availability of equitable set-off. See: Norman; in the matter of Forest Enterprises Limited v FEA Plantation Limited [2011] FCAFC 99 at [180] – [202]. Norman contains a comprehensive discussion concerning the principles governing equitable set-off.

In VCAT, Beach J's decision in Simon Fredericks has been followed. See: Wytell Pty Ltd v Glowinski [2006] VCAT 454.

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Quirk in s.64 nothing to get excited about

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A quirk in s.64 of the Retail Leases Act 2003 has caused some excitement. recently.

Section 64 applies where a retail premises lease does not have an option to renew the lease for a further term. At least 6 months and no more than 12 months before the lease term ends the landlord must give written notice to the tenant either offering the tenant a renewal of the lease or informing the tenant that the landlord does not propose to offer the tenant a renewal ("initial notice")(s.64(2)) .

If the landlord fails to give the initial notice the landlord must give the tenant a notice containing the same information as the initial notice ("the second notice") and the lease continues until the day specified in the second notice which must be at least 6 months after the second notice is given or the tenant gives the landlord a notice under s.64(5) ("the tenant's notice") (s.64(4)). If the landlord fails to give the initial notice the tenant may, irrespective of whether the landlord has given the later notice, give the tenant's notice terminating the lease "from a day that is not earlier than the day on which the term of the lease expires" (s.64(5)).

The section does not specify the latest date by which the tenant can terminate the lease.

The question arises whether the tenant's notice can nominate a day many years in the future for the termination of the lease. In my view, the answer is no: if the tenant gives a tenant's notice after the landlord has given the second notice the tenant's notice  can terminate the lease from a date earlier than that specified in the second notice, but cannot extend the date referred to in the second notice; in my view the purpose of the tenant's notice is to enable the tenant to terminate the lease from a day earlier that that specified by the landlord.

If the landlord does not serve the second notice and the tenant serves a tenant's notice the date specified in the tenant's notice will be the date the lease expires; however, if the landlord then serves the second notice the date specified for termination of the lease will be the relevant date provided it is at least 6 months after the second notice is given.

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Deemed assignments and landlord's consent

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Leases commonly deem there to be an assignment of the term of the lease if change in the principal shareholding of the tenant or the directors of the tenant takes place that that alters the effective control of the tenant.

The landlord's written consent is usually required to such an assignment. If there is a term in the lease that excludes the operation of s.144 of the Property Law Act 1958 the following question arises:  does the landlord have an absolute right to refuse consent or is it subject to any duties in considering whether to grant or withhold consent to the assignment?

In Lindholm v Tsourlinis Distributors Pty Ltd [2011] FCA 195 Finkelstein J held at [49] that a landlord in considering whether to grant or withhold consent is "bound to act in good faith".

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

s.42(2)(e) of Transfer of Land Act 1958

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Traditionally leases in Victoria have not been registered because of the protection afforded by s. 42(2)(e) of the Transfer of Land Act 1958 which provides that :

"....land which is included in any folio of the Register or registered instrument shall be subject to -


(e)   the interests of (but excluding any option to purchase) of a tenant in possession of the land;"

Because of s.42(2)(e) any purchaser of the relevant land was bound by the lease.


The reference to "tenant in possession" means a person in actual possession of the land. See: Burke v Dawes (1937-38) 59 CLR 1 at 17-18;  Balanced Securities Ltd v Bianco [2010] VSC 162 at [79].

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

Section 146 notices

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There is a common misconception that receipt of a valid notice under s 146(1) of the Property Law Act 1958 requires the tenant to rectify the defaults alleged   within the time specified. 

The purpose of a notice is to give the tenant an opportunity to consider its position and give a response: See: Primary RE Limited v Great Southern Property Holdings Limited [2011] VSC 242 [147].

If the breach is capable of remedy, an adequate response may be to admit the breach and propose a course of remediation. See: Primary RE [147].  In Primary RE the tenants had failed to comply with lease and forestry agreements. At [132] Judd J said that a “sufficient response” by the tenant to the notices would have been to undertake to recommence management of the plantations and perform its obligations under each lease and to agree to pay compensation for any damage to the reversion. At [147] His Honour said:

 “…having received the noticed of default, a sufficient response from the tenant to avoid forfeiture, re-entry or termination, would have been to recommence management of the plantations in compliance with its obligations under each lease and forestry agreement, coupled with a proposal to pay reasonable compensation for any injury to the reversion. In my view it would not have been necessary for the tenant to do more in order to avoid the risk of termination, provided the tenant had the capacity and communicated a genuine intention to do as proposed. Nothing of the kind was communicated by the tenant to any of the landlords. The fact that the remediation work, identified in the notices, might take one or more years was not a determining factor in the calculation of a reasonable time within which to respond.”

As to what is a "reasonable time" for the lessee to respond to a statutory notice, Judd J said at [140} that this “depends upon the purpose for which the notice is given, the nature of the breaches alleged and what is required to be done to avoid forfeiture”.

A reasonable time is not the time necessary to actually undertake the work.

 The reference in s 146(1)  "compensation"  is directed to loss suffered as a consequence of damage to the reversion and is not “intended a substitute for remediation” ([133]). The landlord need not specify in the statutory notice the amount of "compensation" necessary to satisfy the demand.

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

The fog is beginning to clear

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Section 52 of the Retail Leases Act 2003 implies into a lease a term that the "landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into:

"(a)      the structure of, and fixtures in, the retail premises; and

(b)      plant and equipment at the retail pemises; and

(c)      the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services.

The section was considered in  Computers & Parts Land Pty Ltd [2010] VCAT 2054 where it was held that a landlord was not required to maintain premises in “state of disrepair" that was "identical" to the state of disrepair when the lease was entered into; the state of repair "need not be any better than at the commencement of the lease" but had to be "the same benefit to the lessee as was agreed to be provided by the demise" (para [75]).  Section 52 was a "keep in repair" obligation as opposed to a "put in and keep in repair" obligation (paras [84] and [85]). The expression “keep in repair”:

 “…could mean, in extreme circumstances, that the only course open to a landlord is to replace some aspect of rented premises, but only to the degree that it is necessary to give the tenant the same conditions as at the commencement of the tenancy.”

If parts failed they had to be replaced with replacement parts that  "in the absence of adequate second hand parts, might need to be new" (para [85]). While s 52 did not mandate compliance with any legislative standard, a landlord could not contravene "a building or related law or regulation" and if there were an "aspect of the building that was legal at the date of its construction but is no longer legal, repair of that aspect of the building would not be a betterment for the Tenant."(para [88]). 

The Tribunal rejected contentions that a landlord had to re-design an air conditioning system to remove design flaws or anomalies (para [90]) and replace the  system with one that operated better than the original system (para [96]) but accepted that there might be circumstances where a roof had to be replaced rather than repaired if it were to survive the duration of the tenancy (para [127]).

My clerk can be contacted via this link for bookings http://www.greenslist.com.au/