Leases. Cameron Stewart (thanks to Jim Helman and Shae McCrystal – errors are mine). Definition. A lease is an agreement to allow someone to use land for a period
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Leases Cameron Stewart (thanks to Jim Helman and Shae McCrystal – errors are mine)
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.
Types of tenancies • Fixed term – certain starting date and period
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.
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.
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.”
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
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).
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 1991. 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.
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.
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.
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.
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).
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 3rd parties • Agreement to lease - Waltons Interstate (Stores) v Maher (1988) 164 CLR 387
Types of tenancies • Concurrent tenancies – a lease of the reversion A (lessor) B (tenant) Reversion Leasehold C (lease of reversion) • During 3 yrs C is the landlord, then for next 2 becomes the tenant 3 years 5 years
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
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.
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
Types of tenancies • 5Certain 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.
Types of tenancies • 6AApplication of Act to short-term leases • (1) Generally, Act not to apply to short-term leasesSubject 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 yearIf 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.
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.
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.
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 : • “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.
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  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.
Certainty of term • The rule does not apply to: • tenancies at will • tenancies at sufferance • periodic tenancies
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 ¶55-916. • 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).”
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”.
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
Intention to create a lease? • In the English decision of Errington v Errington  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  AC 809.
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 1948-1952 • 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.
Exclusive possession • Isaac v Hotel de Paris  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.
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.
Exclusive possession • Street v Mountford  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
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.
Exclusive possession • Fisher J, the Court said:  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. ...  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. . . .  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. . . .
Exclusive possession • Bruton v London and Quadrant Housing Trust  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.
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.
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.
Exclusive possession • Problems with Brunton: • How can the Housing Trust create a lease when it only has licensee rights?
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, ...
Exclusive possession and Retail Leases • Retail Leases Act 1994 s 3 • Exclusive possession not necessary
Creation of leases Legal Leases under Old System Section 23B of the ConveyancingAct 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  VLR 153. The term must include any options eg 2 yrs +2 yrs = 4 year lease
Creation of leases • Equitable Leases • Part performance, Walsh v Lonsdale (1882) 21 Ch D 9. • Agreement • Consideration • Specific Performance
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?)
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:
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 Dimondbecause 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.
Creation of leases • Torrens – s 53 RPA • 53Land 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.
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
Creation of leases • RM Hosking Properties Limited v Barnes  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.
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