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(c) Cameron Stewart 2009 Leases Cameron Stewart (thanks to Jim Helman and Shae McCrystal – errors are mine)

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1 (c) Cameron Stewart 2009 Leases Cameron Stewart (thanks to Jim Helman and Shae McCrystal – errors are mine)

2 (c) Cameron Stewart 2009 Definition A lease is an agreement to allow someone to use land for a period The granter of the lease is called a lessor (or landlord); the person that takes the lease is called the lessee (or tenant). The lessors interest during the currency of the lease is called a reversion. You may also come across an older term used for lease and that is a demise. This simply means a lease.

3 (c) Cameron Stewart 2009 Types of tenancies Fixed term – certain starting date and period

4 (c) Cameron Stewart 2009 Types of tenancies Periodic tenancies – for a term which continues to roll over The maximum duration of the periodic tenancy is unascertainable (will continue as long as the tenant pays rent and the landlord accepts rent). Tenancy can be determined by the giving of notice equivalent to the tenancy period the tenancy is considered to be capable of being rendered certain - and each tenancy period is certain in and of itself.

5 (c) Cameron Stewart 2009 Types of tenancies The common law will recognise an implied periodic tenancy if a tenant has gone into possession of property and started paying rent. This might arise where the parties have agreed to create a tenancy (they may or may not have agreed on a term) but have not complied with the formalities or have created a void agreement, or where a tenant ‘holds over’ - remains in possession and pays rent after the expiration of a fixed term lease.

6 (c) Cameron Stewart 2009 Types of tenancies The duration of a periodic tenancy will depend on how often the rent is paid. If the rent is paid weekly, then you will generally have a weekly periodic tenancy –which is determinable through giving one weeks notice. The same applies for fortnightly payments – notice equates with the period for which rent is paid. However, if the method of calculation of the rental payments incorporates a yearly measure, then the court implies that the tenancy is yearly: Chan v Cresdon (1989) 168 CLR 242 per Mason CJ, Brennan J, Deane J and McHugh J at 248 – “It is well settled that entry into occupation followed by payment of rent … brings into existence a common law tenancy from year to year, so long as the payment of rent is referable to a yearly tenancy.”

7 (c) Cameron Stewart 2009 Types of tenancies Why? Landlord were ripping off tenants and the common law judges became activist Eg Agricultural tenant at will – plants crops and is ejected

8 (c) Cameron Stewart 2009 Types of tenancies The other circumstances in which a yearly tenancy will arise is where the parties had agreed on a fixed term lease exceeding a year but had not fulfilled the requirements to enforce that obligation in law. The High Court in Moore v Dimond (1929) 43 CLR 105 held that in these circumstances the courts will infer an intention to create a yearly tenancy (so the yearly tenancy is the longest, the common law will recognise outside a legally enforceable contract).

9 (c) Cameron Stewart 2009 Types of tenancies The period of time for termination of a yearly tenancy is different from other periodic tenancies. The common law states that an implied yearly tenancy may be terminated by six-months notice ending at the end of the year term. However this position has been affected by the Conveyancing Act Section 127(1) provides: No tenancy from year to year shall, after the commencement of this Act, be implied by payment of rent; if there is a tenancy, and no agreement as to its duration, then such tenancy shall be deemed to be a tenancy determinable at the will of either of the parties by one month's notice in writing expiring at any time.

10 (c) Cameron Stewart 2009 Types of tenancies The words ‘no agreement as to duration’ were interpreted in the case Dockrill v Cavanagh (1944) 45 SR (NSW) 78 to mean ‘no agreement as to duration that complies with legal formalities’. Therefore section 127 applies where the parties have agreed to a longer term but have not created an enforceable agreement.

11 (c) Cameron Stewart 2009 Types of tenancies Tenancy at sufferance - a tenancy at sufferance will arise if the tenant holds over after the expiration of a fixed term lease without the consent or dissent of the landlord, and will only last until the tenant pays rent and the landlord accepts it or the landlord informs the tenant that they must quit the premises. The tenancy at sufferance arises where the courts assume that there is a lack of agreement to the continued occupancy of the tenant (because the landlord has not consented or dissented to the ongoing occupation of the tenant). This means that such tenants cannot be obliged to pay rent but equally can be evicted at any time. Some authors suggest that the tenancy at sufferance is a legal fiction to prevent a finding that the tenant in occupation in these circumstances is a trespasser.

12 (c) Cameron Stewart 2009 Types of tenancies Tenancy at will - the common law will recognise an implied tenancy at will if the tenant has gone into possession and the parties have impliedly or expressly agreed that either party can terminate the tenancy at any time. While the lessor is entitled to compensation for the period of occupancy, generally speaking the tenant does not pay rent. Tenancies at will can be created by agreement, but they usually arise by implication when for example a tenant holds over after the expiration of their fixed term lease – with the consent of the landlord – but before they pay rent; or where a tenant is let into possession before the creation of a lease and payment of rent. These tenancies usually arise where the parties are undergoing a period of transition from one state to another.

13 (c) Cameron Stewart 2009 Types of tenancies If a tenant holds over as a tenant at will after the expiration of the lease, unless the lease expressly provides for the terms that will apply to any tenancy at will, the terms of that lease will apply to the tenancy at will – as appropriate (covenant to maintain premises; landlord to repair).

14 (c) Cameron Stewart 2009 Types of tenancies Tenancy by estoppel – 2 kinds Tenancy by want of title – if the landlord discovers that he/she has no title agreement is still binding between landlord and tenant (but not against 3 rd parties Agreement to lease - Waltons Interstate (Stores) v Maher (1988) 164 CLR 387

15 (c) Cameron Stewart 2009 Types of tenancies Concurrent tenancies – a lease of the reversion A (lessor)B (tenant) ReversionLeasehold C (lease of reversion) During 3 yrs C is the landlord, then for next 2 becomes the tenant 3 years 5 years

16 (c) Cameron Stewart 2009 Types of tenancies Reversionary leases – a lease of the reversion that comes into being at a future time S 120A(3) CA – cannot be longer than 21 year wait

17 (c) Cameron Stewart 2009 Types of tenancies Retail Leases Act 1994 s 3 retail shop lease or lease means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop: (a) whether or not the right is a right of exclusive occupation, and (b) whether the agreement is express or implied, and (c) whether the agreement is oral or in writing, or partly oral and partly in writing.

18 (c) Cameron Stewart 2009 Types of tenancies retail shop means premises that: (a) are used, or proposed to be used, wholly or predominantly for the carrying on of one or more of the businesses prescribed for the purposes of this paragraph (whether or not in a retail shopping centre), or (b) are used, or proposed to be used, for the carrying on of any business (whether or not a business prescribed for the purposes of paragraph (a)) in a retail shopping centre. Sched 1 - Adult books and toy shops thru to Writing materials shops

19 (c) Cameron Stewart 2009 Types of tenancies 5 Certain retail shops excluded from the operation of this Act This Act does not apply to any of the following retail shops: (a) shops that have a lettable area of 1,000 square metres or more, (b) shops that are used wholly or predominantly for the carrying on of a business by the lessee on behalf of the lessor, (c) any shop within premises where the principal business carried on on those premises is the operation of a cinema, bowling alley or skating rink and the shop is operated by the person who operates the cinema, bowling alley or skating rink, (d) any premises in an office tower that forms part of a retail shopping centre, (e) premises of a class or description prescribed by the regulations as exempt from this Act.

20 (c) Cameron Stewart 2009 Types of tenancies 6A Application of Act to short-term leases (1) Generally, Act not to apply to short-term leases Subject to subsection (2), this Act does not apply to a lease of a retail shop for a term of less than 6 months without any right for the lessee to extend the lease (whether by means of an option to extend or renew the lease or otherwise). (2) Exception for successive, extended or renewed leases for more than one year If the lessee has been in possession or entitled to be in possession of the retail shop without interruption for more than one year (whether by means of a series of 2 or more leases or by means of an extended or renewed lease or leases, or by any combination of those means), this Act applies to: (a) the lease on and from the day on which the lessee has been in possession or entitled to be in possession of the shop for more than one year, and (b) any succeeding lease or leases of the shop to the lessee, where possession or entitlement to possession is not interrupted.

21 (c) Cameron Stewart 2009 Types of Tenancies The Residential Tenancies Act 1987 sets out the rights and obligations of landlords and tenants with respect to residential premises. The definitions of “residential premises” and “residential tenancy agreement” in section 3 should be noted. In particular that the definition of “residential premises” is: “Any premises or part of premises... used or intended to be used as a place of residence...” Sections 5 and 6 deal with the application of the Act and set out some agreements to which the Act does not apply. In particular where the tenant is a party to an agreement made in good faith for sale or purchase of the premises, where the person is a boarder or lodger, and, where premises are rented for purposes of holidaying. It should also be noted that the Act does not apply to any part of a hotel or motel, any part of a club, and some other premises and institutions.

22 (c) Cameron Stewart 2009 Requirements for a lease A leasehold interest is created in circumstances where a landlord or lessor grants to a tenant or lessee: for a term which is certain or capable of being made certain the right to exclusive possession of the land for a period less than the term of the landlord’s interest, and with the intention of giving the tenant an interest in land rather than a personal privilege.

23 (c) Cameron Stewart 2009 Certainty of term Leases must commence on dates which are certain or capable of determination. Usually a date is set out in the lease, but this is not necessary and the commencement date can be determined by reference to some event. In the text Butt refers to several examples in [1506]: – “from completion of the building” – “when the gas is connected” – “when a certificate issues” The duration of the lease must be obvious from its terms. Usually the term is expressed in years or sometimes in years and months or days. The need for a certain term is not a requirement for leases for life, tenancies at will, tenancies at sufferance or periodic tenancies, e.g. a tenancy from week to week or month to month.

24 (c) Cameron Stewart 2009 Certainty of term The lease may be of any length so long as the length is capable of being rendered certain and is less than the landlord’s estate. The requirement that the duration of the lease be ‘capable of being rendered certain’ applies before the lease takes effect. This means that if the duration of the lease is to be determined by reference to an external event, that external event MUST have occurred before the commencement of the lease. Lace v Chandler [1944] KB 368: A lease “for the duration of the war” was invalid lease because the period of time was uncertain and not capable of being rendered certain before the commencement of the rental term. The simplest way to get around this problem is to have a length of time attached to the external event. For example a lease that says - duration for 10 years or to the end of the war (whichever comes first). So here, the fact that the maximum term is certain means that the fact that it could be brought to an end sooner does not render it void. Examples of this are where the lease contains provisions allowing either party to terminate the lease earlier upon giving notice.

25 (c) Cameron Stewart 2009 Certainty of term The rule does not apply to: – tenancies at will – tenancies at sufferance – periodic tenancies

26 (c) Cameron Stewart 2009 Certainty of term It is quite common, but not good practice) for tenants to sign leases at a date much later than the date on which possession was given by the landlord. The problem that arises in relation to leases under the Retail Leases Act 1994 is highlighted by the case of Aspromonte Pty Ltd v Zagari (1999) NSW ConvR ¶ Retail Leases Act, s 8 provides that a lease is entered into when “a person enters into possession of the retail shop as lessee under the lease or begins to pay rent under the lease (whichever happens first).”

27 (c) Cameron Stewart 2009 Exclusive possession Wik Peoples v Queensland (1996) 187 CLR 1 per Toohey J at 116 – “the point is not so much that a ‘lease’ confers exclusive possession; it is that the conferring of exclusive possession is an indication that the arrangement in question is a lease”.

28 (c) Cameron Stewart 2009 Lease or Licence? The test of exclusive possession is important because it allows the court to distinguish between a person who has been granted a licence to access property and a person who has been granted a lease. A licence does not create an interest in land and does not have the protective covenants contained in a lease. Licences are in personam/contractual not proprietorial

29 (c) Cameron Stewart 2009 Intention to create a lease? In the English decision of Errington v Errington [1952] 1 KB 290, the English court said that you need to find both exclusive possession AND and intention to create the relationship of landlord and tenant. This approach was rejected by the High Court in Raidaich v Smith and was also rejected by the House of Lords in England in Street v Mountford [1985] AC 809.

30 (c) Cameron Stewart 2009 Exclusive possession In Radaich v Smith (1959) 101 CLR 209 the High Court was asked to consider whether a document which was expressed to be “the sole and exclusive licence and privilege to supply refreshments to the public” was a lease or not. The document provided for payment of a licence fee, for the licensee to pay for gas and electricity connected to the premises. The licence also contained a provision: 10. The License herein granted shall be deemed to be a Lease as defined in the Landlord and Tenant (Amendment) Act The High Court came to the conclusion that if the right conferred on the occupant of the premises is one of exclusive possession for a set period of time then it creates a leasehold interest, and not a licence.

31 (c) Cameron Stewart 2009 Exclusive possession Isaac v Hotel de Paris [1960] 1WLR 239 the Privy Council considered an appeal from the Federal Supreme Court of Trinidad. The Hotel de Paris owned an hotel and leased two floors of premises on the other side of the road. At some point the company allowed Isaac to occupy the first of the two floors across the road from their hotel premises to establish what was referred to as a “night bar”. Isaac took out a liquor licence in his name and purchased a stock of liquor at his own expense. At some point of time differences arose between them and no contract between Isaac and the Hotel de Paris was ever concluded. Isaac paid rent and all expenses in connection with the running of the night bar. He retained all profits from the operations of the bar for his own use. The question before the Court was whether the circumstances of the arrangements entered into, despite the contract not having been concluded were sufficient to create a tenancy rather than a licence. After considering the evidence and the law the judgment of the Court was delivered by Lord Denning.

32 (c) Cameron Stewart 2009 Exclusive possession The circumstances and conduct of the parties show that all that was intended was that the defendant should have a personal privilege of running a night bar on the premises, with no interest in the land at all. It was at first only a privilege to be there pending the execution of a formal contract. Later, when the contract fell through, and notice was given to him to remove his belongings, even that privilege came to an end.

33 (c) Cameron Stewart 2009 Exclusive possession Street v Mountford [1985] AC 809: Street granted to Mountford the right to occupy two rooms at a weekly payment and subject to conditions set out in a document referred to as “Licence Agreement”. The Court found that on its true construction the agreement between the parties had the effect of creating a tenancy despite the use of the words “Licence Agreement”. In coming to this conclusion the House of Lords accepted the High Court’s decision in Radaich

34 (c) Cameron Stewart 2009 Exclusive possession Fatac Limited (In Liquidation) v Commissioner of Inland Revenue (2003) ANZ ConvR 243, the Court of Appeal considered the distinction between a tenancy and a licence. The facts are of no great significance as they related to an argument about whether a sale constituted a sale of a going concern for the purposes of the GST legislation in New Zealand. In determining that issue however the Court found it necessary to determine whether an arrangement for occupation of premises was a lease or a licence.

35 (c) Cameron Stewart 2009 Exclusive possession Fisher J, the Court said: [29] In its conventional sense a tenancy is an interest in land conferring the right to possess it for a limited period. A licence is a mere permission to be on the land, with or without additional permission to perform specified acts there. The former creates an estate in the land; the latter does not.... [38] In our view first principles support the right to exclusive possession as the litmus for tenancies. Exclusive possession allows the occupier to use and enjoy the property to the exclusion of strangers. Even the reversioner is excluded except to the extent that a right of inspection and/or repair is expressly reserved by contract or statute. A tenant enjoys those fundamental, if temporary, rights of ownership that stem from exclusive possession for a defined period.... [39] Because the tenancy/licence distinction turns on those substantive rights granted to the occupier, it remains unaffected by the label which the parties choose to place upon their transaction....

36 (c) Cameron Stewart 2009 Exclusive possession Bruton v London and Quadrant Housing Trust [2000] 1 AC 406. This case involved a block of flats that was owned by Lambeth Borough Council. They were going to tear the flats down and redevelop the land, but until they raised the money, they granted to London Housing Trust a licence to use the building as short term accommodation for homeless people. The London Housing Trust, acting pursuant to this licence, entered into a contract with Bruton. The contract stated that Bruton had a licence to use the premises on payment of a set amount per week. It said that he would vacate at any time upon being given four week’s notice and that he would allow the Trust to have access to the flat during business hours for the purposes of the trust.

37 (c) Cameron Stewart 2009 Exclusive possession Bruton brought an action under UK tenancy legislation to try and force the Trust to undertake repairs. The relevant legislation relied upon the common law definition of a lease and imposed an obligation to repair premises on lessors. In response to Bruton’s argument that he was a tenant under a lease, the Trust pointed to the licence document which said Bruton was a licensee, that they had all intended for Bruton to be a licensee and any other outcome would be absurd because the Trust itself only had a licence.

38 (c) Cameron Stewart 2009 Exclusive possession The court found that the Trust had, in effect, made a grant of exclusive possession to Bruton as against the Trust; that despite their stated intentions re licence, they had still intended to make a grant of exclusive possession and that the clauses in the lease about access for the Trust supported this – because if it was only a licence, you didn’t need such clauses. This meant that Mr Bruton could force the Trust to effect repairs under the relevant Statute.

39 (c) Cameron Stewart 2009 Exclusive possession Problems with Brunton: How can the Housing Trust create a lease when it only has licensee rights?

40 (c) Cameron Stewart 2009 Exclusive possession and Residential Tenancies It should be noted that a “residential tenancy agreement” means “any agreement” under which a person occupies premises for residential purposes: – (a) whether or not the right is a right of exclusive occupation, – (b) whether the agreement is express or implied, and – (c) whether the agreement is oral or in writing, or partly oral and partly in writing,...

41 (c) Cameron Stewart 2009 Exclusive possession and Retail Leases Retail Leases Act 1994 s 3 Exclusive possession not necessary

42 (c) Cameron Stewart 2009 Creation of leases Legal Leases under Old System Section 23B of the Conveyancing Act Section 23D (2) of the Conveyancing Act allows for the creation of parol (or oral) interests in land by way of lease if the conditions in 23D are met. These conditions are: 1. that the lease must be at the “best rent which can reasonably be obtained without taking a fine” 2. the lessee has taken effect in possession 3. the term of the lease including any option does not exceed 3 years. A fine is a lump sum. Taking effect in possession includes a right to immediate possession: Haselhurst v Elliiot [1945] VLR 153. The term must include any options eg 2 yrs +2 yrs = 4 year lease

43 (c) Cameron Stewart 2009 Creation of leases Equitable Leases Part performance, Walsh v Lonsdale (1882) 21 Ch D 9. Agreement Consideration Specific Performance

44 (c) Cameron Stewart 2009 Example Sam, the owner of the fee simple in Blackacre (old system) agrees to lease it to Dean for 5 years for a monthly rental of $1000. No deed is executed. Dean goes into possession and pays the agreed rent. After 2 years Sam discovers that he can earn higher rent, and serves notice of termination of the lease on Dean. Advise Dean of his rights. To enter this question use a three-step process: Is the agreement to lease legally enforceable? If it is not legally enforceable, will equity specifically enforce the lease? If it is not legally enforceable and equity won't specifically enforce it, what type of lease will the common-law recognise? (ie - what is left over?)

45 (c) Cameron Stewart 2009 Example Is the agreement to lease legally enforceable? Deed? – No; s23D(2) – No – longer than three years. If it is not legally enforceable, will equity specifically enforce the lease? - we don't know if they have created a written agreement which equity would enforce; if they haven't, then Dean’s act of going into possession may be considered to be a sufficient act of part performance for equity to enforce the agreement. If it is not specifically enforceable (tenant has delayed or not ‘done equity’) go to the third point:

46 (c) Cameron Stewart 2009 Example If it is not legally enforceable and equity won't specifically enforce it, what type of lease will the common-law recognise? (ie - what is left over?) Here on the basis of Dean’s possession of the premises and his payment of rent there will be an implied periodic lease. The least will be for a period of one year due to the rule in Moore and Dimond because they had agreed on a fixed term of years. In New South Wales Section 127(1) of the Conveyancing Act makes legal yearly leases terminable on one months notice, so Sam may terminate this agreement with one month’s notice.

47 (c) Cameron Stewart 2009 Creation of leases Torrens – s 53 RPA 53 Land under the provisions of this Act—how leased (1) When any land under the provisions of this Act is intended to be leased or demised for a life or lives or for any term of years exceeding three years, the proprietor shall execute a lease in the approved form.... (3) A right for or covenant by the lessee to purchase the land therein described may be stipulated in such instrument, and in case the lessee shall pay the purchase money stipulated and otherwise observe the lessee’s covenants expressed and implied in such instrument, the lessor shall be bound to execute a transfer of the said land to such lessee. (4) A lease of land which is subject to a mortgage, charge or covenant charge is not valid or binding on the mortgagee, chargee or covenant chargee unless the mortgagee, chargee or covenant chargee has consented to the lease before it is registered. (5) Subsection (1) does not apply in relation to land the subject of a social housing tenancy agreement within the meaning of the Residential Tenancies Act 1987.Residential Tenancies Act 1987

48 (c) Cameron Stewart 2009 Creation of leases Leases of more than 3 years must be registered. Leases for less can be registered Unregistered interests for more than 3 years may be equitable Unregistered lease for less than 3 years are legal but not indefeasible

49 (c) Cameron Stewart 2009 Creation of leases RM Hosking Properties Limited v Barnes [1971] SASR 100. The registered proprietor of the piece of land entered into a lease with Mr Barnes. The lease was for a 2 year period with an option to renew for a further 2 years. The lease was not registered on the title. Before the expiry of the first 2 year period under the lease, the registered proprietor sold the land to Mr Hosking. Hosking allowed Barnes to stay in the property and accepted rent from Barnes after the sale. But when Barnes sought to exercise the option to renew the lease for a further 2 years, Hosking sought to evict Barnes. Barnes defended the action arguing that Hosking was subject to the lease and was therefore subject to the option to renew.

50 (c) Cameron Stewart 2009 Creation of leases Is the lease registered? No - unregistered lease. Does the lease fall within the express lease exception to indefeasible title? No – option not yet exercised – 4 years (exceeds 3 in NSW). What was left at law? Legal lease based on possession; failed four year term – Moore v Dimond – 1 month notice. Is there another exception that might apply? Fraud - notice of a prior interest does not amount to fraud (s 43) and no evidence of dishonesty in the time leading up to the transfer. No in personam

51 (c) Cameron Stewart 2009 Implied Covenants in leases Common law Implied covenants on the lessor: – Quiet enjoyment – Not to derogate from grant – (for furnished dwellings) that the premises be fit for human habitation Common law implied covenants on tenant: – To use the premises in a tenant-like manner – To yield up the premises – (for agricultural land) to use the premises in a husband-like manner No others will be implied: Warren v Keen [1954] 1 QB 15

52 (c) Cameron Stewart 2009 Quiet enjoyment Right to occupy without disturbance Karaggianis v Malltown Pty Ltd (1979) 21 SASR 381. In this matter, premises on the sixth floor of a city building were leased to the tenant with access being provided by four lifts and by two escalators. The common areas which included the lifts and escalators remained under the control of the landlord with the lease providing that the tenant should have the use of the lifts and escalators subject to the other terms of the lease. After carrying on the business of a cafeteria on the sixth floor for nearly a year the landlord reduced the access to the sixth floor by stopping the escalators at the second floor and reducing the lifts service from four lifts to two. The landlord indicated that this had occurred because the third, fourth and fifth floors of the building were vacant and there was a risk of vandalism if members of the public had access to these floors. The tenant argued that by ceasing to operate the lifts and escalators as he had done at the commencement of the lease that a breach had been committed of the covenants in the lease and sought a mandatory injunction requiring the landlord to restore the services.

53 (c) Cameron Stewart 2009 Quiet enjoyment After considering the matter in detail Wells, J held that a covenant should be implied in the lease that the landlord would maintain and operate the lifts and escalators substantially as they were when the lease was executed. He came to this conclusion for three reasons: – (a) Upon the terms of the lease itself. – (b) Upon the ground that such a covenant was necessarily to be implied to give business efficacy to the transaction between the parties. – (c) Upon the ground that the landlord should not be permitted to derogate from his grant.

54 (c) Cameron Stewart 2009 Quiet enjoyment In Kazas and Associates Pty Limited and Multiplex (Mountain Street) Pty Limited (2003) ANZ ConvR 302 the plaintiff (Kazas) sought a declaration to restrain the defendant from carrying on a redevelopment arguing that it would be a breach of the covenant for quiet enjoyment contained in the lease.

55 (c) Cameron Stewart 2009 Quiet enjoyment Palmer, J referred to the implication of terms in a Contract and said: Translated into the context of a lease, the test will be: in the light of all relevant factual circumstances at the time of grant of the lease: – is the alleged term reasonable and equitable; – is it necessary to give business efficacy to the lease, “business efficacy” in this context meaning implementation in a practical and businesslike way of the intended use of the demised premises by the lessee consistently with the reasonable use of the whole property by the lessor and any other occupiers; – is the term so obvious that it goes without saying; – is it capable of clear expression; – does it contradict any express term of the lease.

56 (c) Cameron Stewart 2009 Quiet enjoyment In the present case, the implied term is said to be: the lessor will not, during the term of the lease, remove or change the loading dock, the goods lift, the first floor corridor, the passenger lift or the foyer as they were at the commencement of the lease in such a way as will substantially interfere with the conduct of the plaintiff’s business in the demised premises, without first providing alternative facilities to substantially the same standard. In the light of the circumstances existing at the commencement of the lease, does this term satisfy the test for necessary implication? His Honour went on to find that “the term is reasonable and equitable.”, and that the term “is necessary to implement, in a practical and businesslike way, the use of the demised premises by the plaintiff.”, and that the term is capable of clear expression and does not contradict any express term of the lease. For these reasons his honour went on to say: – In the present case, I am firmly of the view that removal of the goods lift and any obstruction to the first floor corridor will be a substantial interference with the plaintiff’s rights, in breach of the implied term

57 (c) Cameron Stewart 2009 Non-derogation from grant Did the landlord undermine the prupsoes for which the property was let? Similar to quiet enjoyment in many cases Harmer v Jumbil (Nigeria) Tin Areas Ltd [1921] 1 Ch 200 – lease for area to store explosives derogated from when landlord rented out adjoining area which jeopardised license for storage Kazas – goods lift Karaggianis – escalator No breach if no knowledge of use

58 (c) Cameron Stewart 2009 Fit for habitation Only implied into lease of furnished dwellings Issues – the elements, pests Overridden by Residential Tenancies Act to a large degree, for eg 25 Landlord’s responsibility for cleanliness and repairs (1) It is a term of every residential tenancy agreement that: (a) the landlord shall provide the residential premises in a reasonable state of cleanliness and fit for habitation by the tenant, and (b) the landlord shall provide and maintain the residential premises in a reasonable state of repair, having regard to the age of, rent payable for and prospective life of the premises. (2) In this section: residential premises includes everything provided with the premises (whether under the residential tenancy agreement or not) for use by the tenant.

59 (c) Cameron Stewart 2009 Tenant-life use Act like a reasonable tenant Duties to clean, small repairs Duties to refrain from damage, apart from fair wear and tear

60 (c) Cameron Stewart 2009 Fair wear and tear In Warren v Keen [1954] 1 QB 15 the English Court of Appeal was asked to consider whether covenants were implied into the arrangement between the landlord and tenant. The tenant occupied premises on a weekly tenancy and during the time of the occupation the landlord had carried out various repairs to the property. The landlord was served with a notice by a local authority requiring work to be carried out to make the premises “wind and water tight” and after the work was performed sued the tenant arguing that there was an implied covenant that the tenant would keep the premises in a good and tenantable repair. No implied covenant except for use in tenant-like manner Tenant not liable for natural wear and tear caused by seepage through brickwork, underlying natural forces

61 (c) Cameron Stewart 2009 Fair wear and tear In Haskell v Marlow [1928] 2 KB 45 a widow who occupied premises pursuant to a life estate was responsible for allowing the house to fall into disrepair. The argument in his case was slightly different as the house had been occupied by her pursuant to a life estate for 42 years. The provision in the Will obligated the widow to keep the house insured against loss by fire and “in good repair and condition (reasonable wear and tear excepted)”. The widow did nothing active to damage the premises but did nothing to counteract the natural processes of decay. She had failed to replace a broken tile and water damage was caused So fair wear and tear can include some small active repairs

62 (c) Cameron Stewart 2009 Yielding up More than just leaving but making sure that there is vacant possession The landlord can claim costs of evicting sub- tenant: Anderson v Bowles (1951) 84 CLR 310

63 (c) Cameron Stewart 2009 Husband-like manner Cultivate in accordance with local usage Overridden by Agricultural Tenancies Act A Compensation for deterioration (1) It is a term of a tenancy that the tenant must pay the owner fair compensation for any deterioration of the farm during the tenancy owing to the failure of the tenant to manage the farm in accordance with good farm management or the provisions of any agreement creating the tenancy, or both. (2) For the purposes of determining the compensation payable for any deterioration of the farm, the amount of compensation is an amount representing the decrease in the value of the farm as a result of the deterioration. (3) The compensation is payable when the deterioration is evident. (4) The rights of an owner under this section are displaced by an agreement: (a) to the extent that those rights are expressly waived by the agreement, or (b) to the extent that the management of the farm (being management that is material to any claim for compensation under this section) is expressly authorised by the agreement.

64 (c) Cameron Stewart 2009 Conveyancing Act Implied Covenants In addition to the common law there are terms implied by the CA – Covenant to repair – Covenant to pay rent – Covenant to allow the landlord to inspect and repair – Covenant to re-enter for non-payment of rent – Covenant to re-enter for breach of non-rental covenants

65 (c) Cameron Stewart 2009 Repair Section 84 CA: (1)(b) That the lessee or the lessee’s executors, administrators and assigns will, at all times during the continuance of the said lease, keep and, at the termination thereof, yield up the demised premises in good and tenantable repair, having regard to their condition at the commencement of the said lease, accidents war damage and damage from fire, flood, lightning, storm and tempest, and reasonable wear and tear excepted.

66 (c) Cameron Stewart 2009 Repair In Proudfoot v Hart (1890) 25 QBD 42 a house had been let for three years under a written agreement with a covenant that the tenant would “during the said term keep the said premises in good tenantable repair, and so leave the same at the expiration thereof.”. At the expiration of the term the landlord commenced an action to recover the cost of repairs carried out to repaper walls, repaint internal woodwork, whitewash ceilings and staircases, and replace a kitchen floor.

67 (c) Cameron Stewart 2009 Repair The English Court of Appeal considered the obligations of tenants under covenants to keep in “good tenantable repair” and came to the following conclusions: – Such a state of repair that the premises might be used and dwelt in not only with safety, but with reasonable comfort, by the class of persons by whom, and for the sort of purposes for which, they were occupied. – “Good tenantable repair” is such repair as, having regard to the age, character, and locality of the house, would make it reasonably fit for the occupation of a reasonably- minded tenant of the class who would be likely to take it.

68 (c) Cameron Stewart 2009 Repair The extent of the repair extends to the repair or replacement of "subsidiary parts" of the premises but not to the renewing or reconstructing of the premises themselves. It is common for covenants in leases to refer to the obligation to repair in some detail but to then exclude any obligation for "structural repairs". This can be different if the use of the premises is such as to require the tenant to make structural alterations to the premises for the tenants use.

69 (c) Cameron Stewart 2009 Rent Section 84- (1)(a) That the lessee or the lessee’s executors, administrators and assigns will pay the rent thereby reserved at the time therein mentioned: Provided, however, that in case the demised premises or any part thereof shall at any time during the continuance of the lease be destroyed or damaged by fire, flood, lightning, storm, or tempest or shall suffer war damage so, in any such event as to render the same unfit for the occupation and use of the lessee, then and so often as the same shall happen, the rent thereby reserved, or a proportionate part thereof, according to the nature and extent of the damage sustained shall abate, and all or any remedies for recovery of the rent or such proportionate part thereof shall be suspended until the demised premises shall have been rebuilt or made fit for the occupation and use of the lessee, and in case of any dispute arising under this proviso the same shall be referred to arbitration under the provisions of the Commercial Arbitration Act 1984.Commercial Arbitration Act 1984

70 (c) Cameron Stewart 2009 Inspection (a) That the lessor, the lessor’s executors, administrators or assigns, or the agent of the lessor, the lessor’s executors, administrators or assigns, may, twice in every year during the term at a reasonable time of the day upon giving to the lessee two days’ previous notice, enter upon the demised premises and view the state of repair thereof, and may serve upon the lessee, the lessee’s executors, administrators, or assigns, or leave at the lessee’s or the lessee’s executors, administrators or assigns last or usual place of abode in New South Wales, or upon the demised premises, a notice in writing of any defect, requiring the lessee or the lessee’s executors, administrators or assigns, within a reasonable time, to repair same in accordance with any covenant expressed or implied in the lease.

71 (c) Cameron Stewart 2009 Re-entry Section 85 (d) That, in case the rent or any part thereof is in arrear for the space of one month (although no formal demand therefor has been made), or in case default is made in the fulfilment of any covenant, condition, or stipulation, whether expressed or implied in the lease, and on the part of the lessee to be performed or observed, and such default is continued for the space of two months, or in case the repairs required by such notice as aforesaid are not completed within the time therein specified, the lessor or the lessor’s executors, administrators or assigns may re-enter upon the demised premises (or any part thereof in the name of the whole) and thereby determine the estate of the lessee, the lessee’s executors, administrators, or assigns, therein, but without releasing the lessee or the lessee’s executors, administrators or assigns from liability in respect of the breach or non-observance of any such covenant, condition, or stipulation.

72 (c) Cameron Stewart 2009 Covenants against Assignment or Subletting Absolute or qualified? Interpretation against the landlord An absolute covenant bars the right to assign or sub-lease – S10 an 123 allow a landlord to permit and assignment or sublease in the face of an absolute bar S 133B – applies to qualified covenants eg without the landlord’s permission Permission cannot be unreasonably withheld

73 (c) Cameron Stewart 2009 Covenants against Assignment or Subletting In Re Gibbs and Houlder Brothers & Company, Limited’s, Lease [1925] Ch 198 the English Court of Chancery laid down what is referred to by Butt as the “narrow test”. The reason for the landlord refusing consent to an assignment was set out in a letter as: – My sole reason for withholding my consent is on the reasonable ground that by the assignment I should lose Roneo, Ld., as good tenants of No. 12, and because I shall have great difficulty in finding any tenant for No. 12. The Court found that the reason for withholding consent was unconnected with the person of the assignee or the user occupation of the premises and was not reasonable. Narrow test: must relate to use of premises or new lessee

74 (c) Cameron Stewart 2009 Covenants against Assignment or Subletting Broad test: Bickel v Duke of Westminster [1977] QB 517 Lord Denning – court should not restrict the number of factors that may be relevant What was the purpose of the clause and what are the surrounding circumstances?

75 (c) Cameron Stewart 2009 Covenants against Assignment or Subletting Intermediate test In International Drilling Fluids Ltd. v. Louisville Investments (Uxbridge) Ltd. [1986] Ch 513 the English Court of Appeal set out the following propositions (quoted from Butt page 348 at [15126]): 1. The purpose of a covenant against assigning [or subleasing] without the landlord’s consent, such consent not to be unreasonably withheld, is to protect the landlord from having the premises used or occupied in an undesirable way, or by an undesirable assignee. 2. As a corollary to 1, a landlord is not entitled to refuse consent on grounds unconnected with the relationship of landlord and tenant as it relates to the leased premises. 3. The tenant bears the onus of proving that consent was refused unreasonably.

76 (c) Cameron Stewart 2009 Covenants against Assignment or Subletting 4. The landlord does not have to justify the conclusions which led to consent being refused, if they were conclusions that a reasonable person in the landlord’s position could have reached in the circumstances. 5. It may be reasonable for a landlord to refuse consent on the ground of the purpose for which the proposed assignee intends to use the premises, even though the lease does not forbid that purpose. 6. Usually, landlords need consider only their own interests; but there may be cases of such imbalance between the benefit to the landlord and the detriment to the tenant if consent is refused, that for the landlord to refuse consent would be unreasonable. 7. Subject to the above propositions, whether the landlord’s consent is withheld unreasonably is a question of fact, depending on all the circumstances.

77 (c) Cameron Stewart 2009 Covenants against Assignment or Subletting In this case property was leased with a proviso that it was not to be used “for any purpose other than as offices”. The lease also contained a provision against assignment without consent but that consent would not be unreasonably withheld. The premises were vacated and the tenant sought an assignment of the lease to a company intending to use the premises as serviced offices. The landlord formed the view that this would be detrimental to the investment value and refused consent. The judge held that the evidence did not justify a refusal of consent and the Court of Appeal dismissed an appeal.

78 (c) Cameron Stewart 2009 Covenants against Assignment or Subletting Creer and Another v P. & O. Lines of Australia Pty. Limited (1971) 125 CLR 84. In this case the lease provided that if the lessee desired to assign the lease then “the lessee shall before doing so offer in writing to the lessor to surrender this lease... without any consideration on any subsequent monthly rent day within two months of the making of such offer as shall be selected by the lessor...” The lessee sought consent from the lessor to an assignment but did not offer to surrender the lease as required by the clause. The lessor refused an assignment and advised that if an offer of surrender was made then the offer would be accepted. The Court held that consent was not unreasonably withheld in the circumstances of this case as the lessee had not offered to surrender the lease as required by the lease provision.

79 (c) Cameron Stewart 2009 Covenants against Assignment or Subletting S 132 CA No fine can be made payable for consent – may be overridden by express clause RTA s33 – tenant may assign or sublet with permission but no implied term that consent cannot be unreasonably withheld RLA s 39 – consent can be withheld on basis of use, financial resources and retail skills. RLA s 40 key money is banned RLA s 42 lease may contain an absolute bar to subletting

80 (c) Cameron Stewart 2009 Enforcement of covenants in assignment Privity of contract: Beswick v Beswick Privity of estate : the relationship of landlord and tenant

81 (c) Cameron Stewart 2009 Enforcement of covenants in assignment LR TA STAST L and T –privity of contract and estate Assignment of reversion to R – privity of estate bw R &T Assignment of lease to A – privity of estate between A and R Sublease from A to ST – privity of contract and estate bw A and ST and R and A srill have privity of estate ST assigns sublease – privity of estate bw A and AST

82 (c) Cameron Stewart 2009 Assignment of the leasehold and the question of the tenant’s covenants Burden of covenants; Spencer’s case – covenants will run if they touch and concern the land Covenants which effect use value or the relationship of landlord and tenant EG pay rent, repair, insure, not to assignment without consent S 70A and intention for the burden of covenants to pass

83 (c) Cameron Stewart 2009 Assignment of the leasehold and the question of the tenant’s covenants Benefit of covenants: Spencer’s case Benefits also pass if they touch and concern the land Section 70 – intention for the benefit to pass to successors

84 (c) Cameron Stewart 2009 Assignment of the reversion and the question of the tenant’s covenants No equivalent of Spencer’s case Benefit s 117 – rent and benefit is annexed to the reversion and goes with it All benefits of re-entry or forfeiture also annexed to person entitle to the income fro the land Must touch and concern the land – “ having reference to the subject matter of the lease”

85 (c) Cameron Stewart 2009 Assignment of the reversion and the question of the tenant’s covenants Burden – s 118 Touch and concern No liability for breaches prior to assignment

86 (c) Cameron Stewart 2009 Torrens title and assignment Section 117 and 118 apply to RPA land S 51 RPA – on registration of transfer transferee is subject to same liabilities S 52 – right to sue on instrument passes to transferee S 53 – an option to purchase freehold does not ordinarily touch and concern the leased land, but s 53 enables this to happen in registered leases.

87 (c) Cameron Stewart 2009 Remedies for breach Damages Injunction Termination Clauses for re-entry on breach Repudiation Recovery of possession – not possible for dwelling house Landlord and Tenant Act 1899, s 2AA

88 (c) Cameron Stewart 2009 Relief against forfeiture For non-payment of rent – equity jurisdiction Need to show ability to repay S 129 – for brach of covenant other than to pay rent Court will consider applicant’s conduct, gravity of breaches and difference between value of lease and damage caused


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