Section 32 statements should disclose leases

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It has long been a vexed question whether a vendor of land needs to include details of a lease affecting the land in the vendor statement provided to a purchaser pursuant to s.32 of the Sale of Land Act 1962.  Section 32 requires the disclosure of, among other things,  mortgages and charges affecting the land but does not expressly require disclosure of a lease. The vendor is required to include in the statement  a “a description of any easement, covenant or other similar restriction affecting the land (whether registered or unregistered) and particulars of any existing failure to comply with the terms of that easement, covenant or restriction”. See: s.32(2)(b). It is established that s.32 should not be given a “narrow, restrictive construction having regard to the evident reformatory object of the leglislation”. See: for example, Vouzas v Bleake House Pty Ltd [2013] VSC 534 at [49].  In Krakowski v Eurolynx Properties Ltd (1992) V ConvR 54-436 ( BC9200732) O’Bryan J did not consider that s.32(2)(b) required a vendor to disclose the existence of a lease affecting the land. However, in IGA Distribution Pty Ltd v King [2002] VSC 440 at [252] Nettle J (as he then was) doubted that O’Bryan J was correct but did not specifically decide the issue. In Vouzas the vendor had disclosed the existence of the lease but had not disclosed that the tenant had entered into a conditional agreement to assign the lease. Macaulay J had to decide whether s.32(2)(b) required the vendor to disclose  that the tenant of the land being sold had entered into the conditional agreement to assign the lease.   The vendor knew about the conditional agreement to assign the lease. Macaulay J expressed the view that “the doubts expressed by Nettle J in the IGA case" concerning whether a lease need be disclosed were "well founded". However,  his Honour held that the vendor had not breached s.32(2)(b)  because that section did not oblige a vendor to disclose a conditional agreement to assign a lease. His Honour also said that “he was not convinced that an assignment of lease would need to be disclosed under s.32(2)(b").

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Author: Robert Hays Barrister subject to copyright under DMCA.

VCAT not bound to refer matters to arbitration

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On 17 October 2013 I posted a note about Subway Systems Australia Pty Ltd v Ireland [2013] VSC 550 which concerned a dispute between a franchisor and a franchisee. The franchise agreement contained an arbitration clause.  VCAT refused to refer the dispute to arbitration pursuant to s.8 of the Commercial Arbitration Act 2011 which provides that:

“A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when the submitting party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

Justice Croft held that VCAT was not a “court” within the meaning of s.8 and therefore the dispute could be heard and determined in VCAT.

The decision is significant because many agreements, particularly franchising agreements, contain arbitration clauses. The effect of the judgment is that if a proceeding is commenced in VCAT concerning an agreement that contains an arbitration clause a party to that agreement cannot request the Tribunal to refer the matter to arbitration pursuant to s.8.  If the same proceeding were commenced in the Magistrates’ Court, the County Court or the Supreme Court, the Court could refer the proceeding to arbitration. According to Justice Croft this did not produce an absurdity because VCAT was intended to be a forum for speedy and inexpensive resolution of disputes.

Justice Croft noted that a party to a proceeding in VCAT could still apply under s.77 of the VCAT Act to have the matter referred to the arbitral tribunal on the basis that it was a more appropriate forum.

In the earlier post about Subway  the Commercial Arbitration Act 2011 was erroneously referred to as a Commonwealth Act; the reference should have been to a Victorian Act.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Management fees - Practice Note for LIV's November 2012 lease revision

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The Law Institute of Victoria is issuing a Practice Notice concerning the reference to the amount of, and the calculation of, management fees in item 10 of  the schedule in the November 2012 Revision. The Practice Note says:

"When using the LIV Commercial lease for a retail premises lease containing an option to renew and under which management fees will be payable, it is recommended that:

• Item 10 of the Schedule be modified by deleting the paragraph beginning ‘If the Act applies’ and ending ‘section 49(4)’.


• The information relating to the amount of the management fee and the method of calculating the amount payable by the tenant, for the first accounting period of the lease term, be specified in the disclosure statement rather than the lease.  This will satisfy section 49(1)(b) without creating potential issues where an option is exercised.  When an option is exercised, the disclosure statement for the new term should also specify the management fee and the method of calculating the amount payable by the tenant for the first accounting period of the new lease."

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Author: Robert Hays Barrister and Derry Devine subject to copyright under DMCA.

The Practice Note was drafted by Derry Davine and Robert Hay.

Arbitration clause ineffective to oust VCAT's jurisdiction

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In a fascinating decision given today the Supreme Court of Victoria held that an arbitration clause in a lease could not oust VCAT’s jurisdiction under the Retail Leases Act 2003 (2003 Act).  In Subway Systems Australia  Pty Ltd v Ireland [2013] VSC 550 Croft J held that VCAT was not a “court” within the meaning of the Commercial Arbitration Act 2011 (Cmlth).  The matter came before Croft J after a VCAT member declined to find that the Tribunal was bound to refer the dispute to arbitration under s.8 of the CAA. In broad terms s.8 of the CAA requires a court before which an action is brought in a matter which is the subject of an arbitration agreement to  refer the matter to arbitration if one of the parties  makes that request.  Croft J held that VCAT was not a “court” for the purpose of s.8(1) of the CAA and therefore VCAT was not bound to refer the dispute to arbitration.  His Honour also accepted that  by the time s.8 of the CAA might be said by a party to a lease to be engaged, s.94 of the 2003 Act  had already rendered void the clause requiring disputes under the lease to go to arbitration. Section 94(2) of the 2003 Act provides that a provision in a retail premises lease is void to the extent that it purport to exclude the application of a provision of the 2003 Act  or to limit the right of a party to a lease to seek resolution of a retail tenancy dispute under Part 10 of the 2003 Act.

Author: Robert Hays Barrister subject to copyright under DMCA.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience.

Most tenants who provide services engaged in retail provision of services

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Many readers will be familiar with the "ultimate consumer" test that is commonly used to determine whether premises are "retail premises" within the meaning of s.4(1) of the Retail Leases Act 2003. If the premises are "retail premises" the Act applies; if premises are not "retail premises" the Act does not apply. Premises are "retail premises" if "under the terms of the lease relating to the premises" they "are used, or are to be used, wholly or predominantly for.....(a) the sale or hire of goods by retail or the retail provision of services". See: s.4(1). Nathan J in Wellington v Norwich Union Life Insurance Society Limited [1991] VR 333 held that patent attorneys (and other professional businesses such as solicitors, architects and medical specialists) conducted a business providing retail services.  His Honour held that the  "essential feature of retailing" was the provision of an item or service "to the ultimate consumer for fee or reward".  The end user might be a member of the public but was not necessarily so. The problem has been to identify the "ultimate consumer". Nathan J did not regard it as significant that a patent attorney's advice might pass through the hands of an intermediary on the way to the ultimate consumer. But what would the position be if the patent attorney's advice was used as "input" into a solicitor's advice to the solicitor's client? Would the solicitor be the "ultimate consumer"?

It will be much easier to answer these questions following the recent decision of Fitzroy Dental Pty Ltd v Metropolitan Management Pty Ltd [2013] VSC 344. The effect of the decision is that most tenants whose business provide any sort of service will be engaged in the "retail provision of services" and the Act will apply.

In Fitzroy Dental the landlord leased premises premises comprising a cafe/restaurant and a conference centre and facilities to a tenant who in turn received bookings from conference or function providers to conduct functions and conferences. The cafe/restaurant was used only for the provision of food and drink to the attendees at the functions and conferences. The landlord commenced a proceeding against the tenant in the Supreme Court. The tenant contended that VCAT had exclusive jurisdiction to hear and determine the  dispute because it was "retail tenancy dispute" within the meaning of s.81(1) of the Act. See: s.89(4). The permitted use under the lease was "Conference Centre, Cafe/Restaurant Area and associated office and storage area".

Justice Croft held that the dispute between the landlord and the tenant was a "retail tenancy dispute" that had to be determined by VCAT. The conference facilities were open to the public in the sense that a member of the public (ie the conference provider) could approach the tenant to book the conference facilities. After reviewing the authorities His Honour held that conference provider was the "ultimate consumer" of services provided to him by the tenant. Those services were in turn an "input" into the different services provided to the attendees at functions and conferences.  Thus, there were two transactions involving the retail provision of services. The transaction between the tenant and the conference organising entity was for monetary consideration while the second transaction with the attendees did not always involve a fee or reward for the provision of services. It did not matter that the bodies organising the conferences and hiring the premises from the tenant were governmental authorities or public bodies such as a university, the Metropolitan Fire Brigade, the Police Federation or an industry association because such bodies had the capacity to enter into ordinary commercial agreements.

The case contains a helpful analysis of the relevant caselaw.

Author: Robert Hays Barrister subject to copyright under DMCA.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience. Green

Advisers must consider registration of leases

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Lawyers acting for landlords of non-retail premises where the proposed lease term exceeds 3 years need to seriously consider whether to register the lease. This is one of the consequences of the Court of Appeal’s decision in Cooma Clothing Pty Ltd v Create Invest Develop Pty Ltd [2013] VSCA 106.   If the lease is not registered, the term of the lease is assigned and the landlord is not a party to the assignment document, the assignee of the term will have the benefit of the contract but be excused from the burden of the contract.

In Victoria, a lease for a term in excess of 3 years may be registered. See: s.66 of the Transfer of Land Act 1966.  A lease made by deed for a term of less than 3 years is also a legal lease. However, an unregistered lease for a term exceeding 3 years is a lease in equity.

In Cooma the facts were:

• the owner (Landlord) entered into a contract to sell land to a purchaser (Purchaser) which land was also leased to a tenant (Tenant) for a term of less than 3 years (Lease). The term of the Lease was close to its expiry date.


• Before settlement and before expiry of the term of the Lease, the Purchaser’s  agent wrote to the Tenant (Agent’s Letter) offering a new for a term of 3 years commencing upon expiry of the Lease . The Tenant accepted the agent’s offer by signing the Agent’s letter (Agreement for Lease)


• thereafter the Landlord, the Tenant and a third party (New Tenant) signed a documented entitled “Transfer of Lease” that assigned the balance of the term of the Lease to the New Tenant (Transfer).


• The Transfer contained a special condition in which the New Tenant acknowledged receiving the Agent’s Letter (ie the letter from the Purchaser to the Tenant) “in relation to the Lease renewal” and in which the New Tenant acknowledged and consented to the terms and conditions for the renewal of the Lease.


• The New Tenant occupied the land before the expiry of the Lease and the Purchaser became the registered owner of the leased land before the expiry of the Lease.


• Shortly after the expiry of the Lease the New Tenant vacated the premises. The Purchaser contended that the New Tenant was obliged to comply with the  covenants contained in the Agreement for Lease. The New Tenant contended that it had the benefit of an option to renew or extend the Lease for a further 3 years which option had not been taken up. The Purchaser was successful in VCAT and in the Court of Appeal.

The Court of Appeal held:

(a)        the Lease was a legal lease because it was for a term not exceeding 3 years;

(b)        the Tenant’s signing of the Agent’s Letter gave rise to an equitable lease between the Purchaser and the Tenant (ie the Agreement for Lease);

(c)        it was irrelevant that when the Agreement for Lease was made there was no privity of estate between the Purchase and the Tenant (ie because the Purchaser was not the owner of the land) because it was well established that a if two parties contract as landlord and tenant neither of them can deny the title of the other;

(d)        a party to a contract for a lease that is not a legal lease (ie such as the Agreement for Lease) may assign the benefit of the contract but may not assign the burden;

(e)        thus, the Transfer (which transferrred the Agreement for Lease from the Tenant to the New Tenant) was incapable of subjecting the New Tenant to the burden of the Agreement for Lease and under the general law this remained so ever after the New Tenant entered into possession under the Lease;

(f)         after the Purchaser was registered as proprietor of the land it became, by reason of ss.141 and 142 of the Property Law Act 1958, entitled to the benefit and the burden of the Lease;

(g)       however, the assignment of the Agreement for Lease from the Tenant to the New Tenant had the effect of assigning the benefit of the contract to the New Tenant but not assigning the burden.

Thus, the position at general law was that the New Tenant had the benefit of the Agreement for Lease but was not subject to the burden of the Agreement for Lease.

Fortunately for the Purchaser the Agreement for Lease was a “retail premises” lease within the meaning of s.4 of the Retail Leases Act 2003 (2003 Act). See also s.3 of the 2003 Act.  Section 8 of the 2003 Act provides that an assignment of a lease results in a continuation of the lease as opposed to creation of a new lease. Accordingly, despite the lack of privity of contract and estate between the New Tenant and the Purchaser, the transfer of the executory contract for a new lease (ie by the Transfer the Agreement for Lease was assigned) was in effect deemed by s.8 to have created privity of contract between them and thus conferred on the Purchaser a direct right of enforcement against the New Tenant.

The most important points arising from this case are that serious consideration needs to be given to whether a lease should be registered and, if the lease is not to be registered, ensuring that the clause governing assignments requires the landlord to be a party to the assignment document so as to ensure there is privity of contract between the landlord and the assignee of the term.

I will be doing a further blog concerning this case (stay tuned)

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Changes to excluded retail premises

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The Retail Leases Act 2003 excludes from the definition of "retail premises" premises in respect of which the "occupancy costs" under the lease is more than the amount prescribed by the regulations. See: s.4(2)(a). Before 22 April 2013 the amount prescribed by the regulations was $1,000,000 per annum. From 22 April 2013 the amount prescribed is $1,000,000 per annum "exclusive of GST". See: regulation 6 in the Retail Leases Regulations 2013. The effect of the change will be to bring more premises within the definition of "retail premises".

Author: Robert Hays Barrister subject to copyright under DMCA.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience