Tenants beware of onerous obligations to make good its obligations under the Lease

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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 therefore 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.

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. 

Author: Robert Hays Barrister subject to copyright under DMCA.

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.

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. 

Author: Robert Hays Barrister subject to copyright under DMCA.

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.


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. 

 Author: Robert Hays Barrister subject to copyright under DMCA.

$1,000,000 in damages for loss of sperm even though purchaser not out of pocket

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A wise senior building barrister once said to me that in analysing a legal problem one should "always start with the money" - that is analyse how the methodology underlying the claim for damages. Too often little thought is given to how damages should be calculated before a proceeding is commenced.  In December 2013 the High Court in Clark v Macourt [2013] HCA 56  gave a decision concerning damages in a breach of contract case that has caused much discussion. A person who provided assisted reproductive technology services to patients purchased the assets and practice of a company providing similar services.

The assets included a stock of frozen donated sperm. A guarantor guaranteed the vendor’s obligations under the contract. The vendor warranted that the identification of donors of the sperm complied with specified guidelines; however, of the stock of sperm delivered, 1,996 straws which the purchaser would have expected to be able to use were not as warranted and were unusable.

The vendor could not buy suitable replacement sperm in Australia but could in the USA. The primary judge found that buying 1,996 straws of replacement sperm from the American supplier would have cost about $1 million at the time the contract was breached. The purchase price for the assets (including the stock of frozen donated sperm) was less than $400,000.

The purchaser could not have made any profit from the frozen donated sperm because ethically she could not  charge, and in fact had not charged, any patient a fee for using donated sperm greater than the amount the purchaser  amount had outlaid to acquire it. The question was, how should the purchaser's  damages for breach of warranty be fixed?

The primary judge gave judgment against the vendor and the guarantor for the costs  incurred in purchasing replacement sperm from the USA.  This was overturned by the NSW Court of Appeal which held that the purchaser had avoided any loss she would have suffered by purchasing replacement sperm and had charged each patient a fee which covered the costs of buying the sperm. The High Court held 4:1 that the appeal should be allowed and reinstated the decision of the primary judge with the consequence that the vendor's loss and therefore the damages were $1 million.

The methodology underlying the decision was entirely uncontroversial:   the principle according to which damages for breach of contract are awarded is that the damages should put the promisee in the same situation, so far as money can do it as it would have been in if the broken promise had been performed. Damages are assessed at the date of the breach.

The case emphasises the importance of carefully considering  how the claim is pleaded: in this case at the date of the breach the purchaser was in the position where she had to buy a $1 million worth of sperm to replace what she had lost.

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. 

Author: Robert Hays Barrister subject to copyright under DMCA.

New Australian edition of classic mortgage text

A new Australian edition of Fisher & Lightwood's Law of Mortgage has just been published by LexisNexis. This is the third Australian edition of the classic English text. The authors of the three Australian editions  have been Professor E.Tyler, the Honourable Justice Peter Young and the Honourable Justice Clyde Croft.  The first English edition (called Fisher on Mortgages) was published in 1856. There have been 13 English editions. The Australian editions are particularly useful because the English editions do not deal with the Torrens system. The third  Australian edition deals with the significant changes made to personal property securities by the Personal Property Securities Act 2009 (Cth).  The chapter on the PPSA was written by Clare Langford, the NSW Supreme Court Equity Researcher. This text is a significant  resource for any person practising in property law.

http://store.lexisnexis.com.au/product?product=fisher-lightwood-s-law-of-mortgage-3rd-edition-ebook&meta_F_and=9780409332605

Published by LexisNexis.

Settlement agreements must be genuine compromises

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Care needs to be taken in resolving disputes in which an allegation is made that an act or proposed act is prohibited by the Retail Leases Act 2003: settlement agreements must be genuine compromises or bona fide settlements and not merely attempts to avoid the Act.  On 24 January 2014 I posted a summary of Spirovski v Univest Asset Merchant Syndicators Pty Ltd [2013] VSC 728 in which Justice Croft refused an appeal against a determination by Deputy President Lulham in VCAT that terms of settlement made at a mediation conducted by the Small Business Commissioner were caught by the prohibition against the payment of “key-money” contained in s.23 of the Retail Leases Act 2003. See: Spirovski v Univest Assett Merchants Syndicators Pty Ltd [2013] VCAT 66. The Deputy President at [76] said that “Terms of Settlement are a form of contract. As such they are subject to the principles and requirements of contract law”.  A provision in a lease or an agreement is void to the extent that it is contrary to or inconsistent with the Act. See: s.94. Thus, terms of settlement that seek to avoid the Act’s provisions are void. When VCAT made its decision a number of practitioners expressed surprise that agreements made at or arising out of a mediation should be open to scrutiny.  Section 86 of the Act prevents statements or admissions made in the course of a mediation from being admitted in a proceeding; however, terms of settlement  made at mediations are not protected from scrutiny.  Provided a settlement agreement is bona fide a court will not re-open a settlement agreement merely because the dispute that has been settled involved legislation that the courts will not allow to be evaded. See: Binder v Alachouzos [1972] 2 QB 151. In Binder the compromise concerned a dispute about whether a party was acting as a money lender in contravention of the Money Lenders Acts. The parties settled the dispute with the settlement including a provision whereby the defendant admitted that the Money Lenders Act did not apply to the transactions.  While the English Court of Appeal  accepted that it was a policy of the courts not to allow the Money Lenders Acts to be evaded, it  held that it was also the policy of the court to encourage compromises and the settlement agreement was bona fide involving an agreement for good consideration and was therefore enforceable.  Justice Croft in Spirovski considered Binder and said at [76]  that:

“….it cannot be said that the evidence in the VCAT hearing indicates that the Terms and the Contract that arose out of the mediation were the fruits of a bona fide compromise, such as might attract the principles in Binder….”

At [79] His Honour said:

“The increasing role that the alternative dispute resolution techniques now play in the justice system cannot be overstated given that both courts and tribunals seek to encourage parties to identify and reach agreement on as many issues as possible to avoid the need for a trial, or to reduce its length and complexity where a hearing is needed. However, none of these considerations provide any basis for courts or tribunals to give effect to agreements that are rendered void or illegal, either by virtue of statute or common law….” (underlining added and citations removed)

In Spirovski, following the mediation, the parties entered into the terms of settlement, a lease and a contract of sale whereby the business allegedly conducted on the premises by the landlord was sold to the tenant. The purpose of the contract of sale was to take advantage of exceptions to the prohibition on the payment of "key-money" in circumstances where  goodwill is claimed from the tenant in relation to the sale of a business operated from the premises by the landlord immediately before its sale (s.23(3)(c)) and where plant, equipment, fixtures or fittings are sold by the landlord to the tenant (s.23(3)(f)).  Deputy President Lulham held at [70] that there was in fact no business to be sold so that the lease was not granted in the course of a sale and therefore the applicant's "device of preparing for execution a Contract of Sale of Business was a sham".

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. 

Settlement terms caught by prohibition on payment of key noney

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Despite the prohibition on the payment of “key-money” landlords persist in seeking the payment of substantial sums of money as the price for granting a lease.  A landlord who seeks or accepts “key-money” is liable to pay a penalty under s.23 of the Retail Leases Act 2003. 

A provision in a lease that requires the payment of “key-money” is void (s.23(2)).  Section 94 of the Act makes  a provision in a lease or an agreement is void to the extent that it is contrary to or inconsistent with the Act. Section 23(3) of the Act contains exceptions to the prohibition on payment of "key-money": among other exceptions  a landlord may seek and accept to payment for goodwill  from the tenant “in relation to the sale of a business that the landlord operated from the retail premises immediately before its sale, if the lease was granted to the tenant in the course of the sale of the business” and for  “plant, equipment, fixtures or fittings that are sold by the landlord to the tenant in connection with the lease being granted”.  See: ss.23(3)(c) and (f). 

Because of the Act parties attempt to disguise “key-money” payments as something else. Cases where the payment of “key-money” is alleged usually result in settlement at a mediation. The Supreme Court of Victoria recently determined a case where the parties had settled a dispute concerning the payment of “key-money” and then had a further dispute about whether the settlement provided for the payment of “key –money”. In Spirovksi v Univest Asset Merchants Syndicators Pty Ltd [2013] VSC 728  the landlords sent a draft lease to the tenant who refused to execute the lease on the basis that it did not accurately reflect the parties’ agreement and that the landlord had purported to charge “key-money”.

The alleged “key-money” was payable in two instalments; $90,000 was to be paid before the tenant took possession; and $90,000 when the first option to renew the lease was exercised. The parties subsequently attended a mediation under the auspices of the Small Business Commissioner where terms of settlement were signed. The terms of settlement provided for the landlords to retain $90,000 that had already been paid and that the tenant would pay a further $90,000 on the exercise of the first option.

The terms also provided that the landlord would sign a transfer of the lease from the tenant to a new tenant.  The parties signed a lease and other documents pursuant to the terms. The first option was exercised. The landlords commenced a proceeding claiming payment of rent arrears and the second instalment of $90,000. VCAT dismissed the landlords’ claim and declared that the terms of settlement were void to the extent that they required the tenant to pay the $90,000 that the landlord had retained and required the second payment of $90,000. 

VCAT also declared void a contract of sale of business and the lease executed by the parties following execution of the terms of settlement insofar as they required the prohibited payments.  The landlords appealed  on the basis that the exceptions to the prohibition on the payment of “key-money” contained in ss.23(3)(c) and (f) applied. 

These sections permits a landlord to seek payment for goodwill  from the tenant “in relation to the sale of a business that the landlord operated from the retail premises immediately before its sale, if the lease was granted to the tenant in the course of the sale of the business”.

Section 23(3)(f) permits the landlord to seek payment for “plant, equipment, fixtures or fittings that are sold by the landlord to the tenant in connection with the lease being granted”. 

The Tribunal had determined that  s.23(3)(c) did not apply because the landlords were not operating a business from the premises and that there was no business to be sold. The Tribunal had also determined that the furniture in the premises was “junk” and “valueless”. Justice Croft dismissed the landlords'  appeal holding that there was no error of law in the Tribunal’s findings.

His Honour also rejected a claim that the tenants were estopped from claiming the benefit of the prohibition contained in s.23 of the Act. As part of that argument the landlord argued that by the terms of settlement the parties had "put to bed" the issue of "key-money".

After an extensive review of the authorities and the provisions of the Act His Honour concluded that it was not possible for the parties to agree to a transaction  which breached s.23.  The decision contains a detailed discussion about the meaning of "goodwill" and the circumstances in which a party seeking to enforce an agreement the terms of which are prohibited can be precluded from relying on principles of estoppel.

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. 

Author: Robert Hays Barrister subject to copyright under DMCA.