Jack Ironside Has Come to You for Advice Regarding a Torrens Title Property He Owns At

PROBLEM 1

Jack Ironside has come to you for advice regarding a Torrens Title property he owns at 123 Pacific Highway, Crows Nest. It consists of two contiguous single storey shops comprised in Folio Identifier 14/67894.

(1)  Jack is thinking of auctioning the property in the near future but a couple of issues have arisen and he wants your advice regarding these issues, which are set out below. As well as giving general advice about the issues, raise with him any matters or additional information you might need. Do not discuss any aspect of the proposed auction sale or preparation of a contract for sale. Discuss only the arrangements with the local community organisation and Vincent Parry Enterprises Pty Limited.

·  Shop 1: Jack has a casual arrangement with a local community organisation to use shop 1 on an ad hoc basis for meetings. It pays $50 each time it holds a meeting and this money is paid in cash to Jack when the key is collected from Jack. There is no documentation for this arrangement. Jack wants to know if he should terminate this arrangement before he offers the property for sale and how he should go about terminating. He is concerned that any potential purchaser might not want the arrangement to continue after purchase.

·  Shop 2: Jack has a tenant, Vincent Parry Enterprises Pty Limited, which runs a café in shop 2. Jack entered into a lease in the Law Society form of lease (assume the same terms as set out in Annexure B in Course Documents) about 2 years ago. There are 3 years still to run on this lease and there is one option to renew for a further term of five years. Unfortunately, the tenant has for the past six months been late in the payment of the rent (it is payable monthly in advance), has failed to give insurance details and has commenced selling books as a sideline. (The tenant thinks this will attract more customers as the patrons can also read while they drink and eat.) Jack wants to know what his rights are and how he should deal with the tenant. You may assume that Vincent Parry as a director of Vincent Parry Enterprises Pty Limited is a guarantor under the lease.

(2)  For this question only, assume that you prepared the lease for shop 2. What enquiries and steps did you take to ensure a valid and enforceable lease?

ISSUES TO CONSIDER:

(1)  Shop 1: the local organisation

·  Shop 1 –nature of the arrangement – lease, licence or contractual arrangement.

Raises the issue of the distinction between a lease and a licence.* (see below for notes)

·  Here, there might be no licence. Key is permission only granted from time to time.

·  Maybe mere right to occupy on a casual basis, each meeting constituting a fresh right to occupy. Jack could refuse the local organisation permission at any time without notice. The local organisation would have no further right to hold meetings. Probably advise Jack that he would not have to give any notice prior to offering to sell the property as shop 1 would be offered for sale with vacant possession.

·  Would Retail Leases Act apply? Look at definitions of retail shop and retail shop lease under Retail Leases Act:

"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.

Note: Section 5 limits the retail shops to which this Act applies.

Note: Clause 17 of Schedule 3 provides that the businesses specified in Schedule 1 are taken to be prescribed for the purposes of paragraph (a) of this definition until regulations prescribing businesses and repealing Schedule 1 are made.

"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.

Not a retail shop lease – not a Schedule 1 retail business for the purpose of the definition of retail shop under Retail Leases Act. Nor is the shop part of a retail shopping centre. Retail Leases Act will not apply.

Shop 2 Vincent Parry Enterprises P/L

·  Determine if the lease is a retail shop lease under Retail Leases Act. Look at definitions of retail shop and retail shop lease under Retail Leases Act above. Purpose would be a Schedule 1 business. Unlikely any exception would apply.

·  Determine if there have been breaches of the lease:

·  Look at cl 6 of the Law Soc lease for ‘use’ – in particular cl 6.1.1. 6.2 and 6.3. How is ‘use’ defined in the lease? Cl 12.5.3 – cl 6.1 is essential term. Has Jack ever given consent to expand the use of the premises?

·  Look at cl 5 for payment of ‘rent’. Cl 12.2.2 and Cl 12.5.1 – essential term. When was the rent paid and what are the subsisting arrears, if any? What is the nature of the arrears in the past? Consider s129 CA.

In Parallel Lines International Pty Limited v Video Drama Pty Limited (No. 2) [2007] NSWADT 160, the issue was whether the tenant’s consistently late payment of rent was a basis for the landlord to terminate the lease and lock the tenant out of the premises. The Tribunal held that the tenant’s consistently late payment of rent did not amount to a breach of an ‘essential term’ of the Lease as defined in clause 12.5.1. The tenant had not repudiated by being consistently late in payment of rent and therefore the landlord was not entitled to terminate the lease.

·  Look at cl.8 for ‘insurance’ – particularly cl 8.1. Jack should request evidence of payment of premium and policy, if he hasn’t already.

·  Look at cl 13 for obligations of ‘g/tor’. Is there a limit to the guarantee?

·  Enquire if there is a bank guarantee or security deposit under lease – cls. 16 and 17. Jack may have recourse.

·  Look at cl 12 for rights of Jack on termination – see cl 12.1, 12.2 and 12.5. Cl 12.6 (damages).

·  Need to ask Jack to bring in a copy of the executed lease to check g/tee provisions, clauses and execution; details of former rent payments and evidence of insurance premiums.

·  Would need to do a co. search of Vincent Parry Enterprises P/L and an ITSA search for Vincent Parry.

·  Would also need to do a title search of the property to check registration of lease – RPA s 53.

·  Would also check ‘zoning’ at local council and development consent.

·  Overall, and depending on results of further enquiries, would advise Jack that he could exercise rights to terminate lease before he offers property for sale. Service of a document must be in manner provided by s170 CA.

·  Jack might decide, commercially, that he will discuss breaches with l/ee to try and get l/ee to remedy breaches and keep lease on foot.

·  Also, consider dispute resolution provisions of RLA.

·  If breaches subsist and Jack sells with l/ee in possession, the breaches will be problems for the new purchaser. Jack would have to sue for arrears of rent after settlement –cl 24 of the Contract for Sale.

* notes The following are some of the major differences between leases and licences:

A lease must confer on the occupant the legal right to exclusive possession, whilst a licence does not confer such an entitlement. A lease is an interest in land and confers rights in rem over it, whilst a licence is only contractual and confers rights in personam.

The lessor can only enter premises covered by a lease with the lessee's permission, or pursuant to lease covenants, or after the lease has been effectively terminated. Entry by a licensor during the term of a licence cannot constitute trespass, as the licensor has retained the right to possession; although it may constitute breach of the licence conditions and render the licensor liable in an action for damages for breach of contract.

A leasehold estate is assignable, subject to limitations which may be imposed as conditions of the lease. A licence is personal to the licensee and is not assignable, unless an entitlement to assign is expressly provided in the licence. On the assignment of a licence, a new contractual relationship is formed between the licensor and the assignee. On the assignment of a lease, the leasehold estate continues uninterrupted, with only a change in one of its parties.

Licences to occupy can be grouped in three categories; bare licences, contractual licences and licences coupled with an interest.

A bare licence is a personal licence to occupy. A bare licence is revocable at will, and revocation terminates the occupier's licence to occupy. A licence coupled with an interest is usually not revocable whilst the interest continues to exist. It is an interest in land, and may be terminated in the event of breach of its condition. More difficult questions arise regarding the termination of contractual licences. The entitlement to terminate a contractual licence and the method of termination, including the length of notice required to be given, all depend on the terms of the contract. The contract can prescribe the form and the content of the notice. When there is no express termination term, it can be implied, and the usual implication is that reasonable notice of revocation is required. In Australia, the current position is that a contractual licence may be terminated effectively even if the termination constitutes a breach of contract. (Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 605). When a licence is terminated by notice, it converts the licensee into a trespasser.

(2)  For this question only, assume that you prepared the lease for shop 2. What enquiries and steps did you take to ensure a valid and enforceable lease?

·  Prepare costs disclosure

·  Consult with client and take instrons.

·  Search title. (Any mortgagee consent, restrictive covenants.)

·  Draft lease to comply with RL Act. Explain lease terms to client.

·  Prepare lessor’s disclosure statement. (Offer premises for lease.)

·  Submit to prospective lessee (or solicitor) the draft lease, disclosure statement and copy retail tenancy guide. Also, bill of costs for disbursements.

·  Search lessee and guarantors to check solvency/bankruptcy.

·  Negotiate any amendments with the lessee’s solicitor. Get further instrons. from client.

·  Obtain any mortgagee’s consent to the lease.

·  Receive the lessee’s disclosure statement.

·  Obtain signature by lessor after the lessee has returned signed lease and cheque for any costs and disbursements.

·  There may also be a deposit bond/ bank guarantee.

·  Lodge lease for registration. (Mortgagee will produce CT.)

·  Receive reg’d lease. Send copy of reg’d lease to lessee’s solicitor.

·  Report to client. Send bill of costs.