Leases - Summary notes that can be used for the exams PDF

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Summary notes that can be used for the exams...

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Leases There are two substantive requirements (elements) of a lease: 1. Exclusive possession 2. Certainty of duration Types of Leases Fixed term leases: Fixed term leases, also referred to as a lease for a term of years, are leases of a specified duration. Such leases may be for any length of time but cannot be granted in perpetuity. In the usual case, a lease will be entered into for a fixed, continuous term. The lease will commence, run its course and expire at the end of the stated term. Sometimes, however, the lease may be for several discontinuous periods which combine to make up a single term.

Periodic tenancies: Despite the terminology, a discussion of periodic leases does not concern a series of separate tenancies. A lease which continues from period to period, without break or renewal, and continues until it is determined at the end of any period by either party to the lease is a periodic lease. The length of the term is referable to a specific period of time, for example a weekly, monthly or yearly tenancy. At the end of each term the lease is automatically renewed and this process continues until such time as either party serves notice and terminates the lease. Periodic tenancies satisfy the certainty requirement because the period specified, that is a week, month or whatever term is nominated, is definite and the lease simply contains the added proviso that it will continue for successive periods of the same duration until termination. Therefore, a periodic tenancy is ‘a single tenancy which continues until duly determined’ and the succes sion of terms is deemed by way of a legal fiction to be part of an original, inclusive term. A fixed term lease involves one term and upon expiry the lease will terminate. Extension can only be achieved through the exercise of a valid option. Initially, periodic leases also only involve one term but contain a provision by which the lease is renewed automatically at the end of each term unless appropriately terminated.

Tenancy at will: It is possible for a tenancy at will to be created by express agreement although such but in most cases arise by implication. A tenancy at will permits the tenant to occupy the land and some form of action must be taken by the landlord or tenant to terminate that right. Such a tenancy most commonly occurs where a tenant remains in possession (holds over) after the expiry of a fixed term lease with the consent of the landlord. No rental is payable but the tenant must compensate the landlord for use and occupation. Payment and acceptance of rent will usually convert the tenancy at will to a periodic tenancy. A tenancy at will can be determined where: there is an attempt to assign the lease; the landlord or tenant die; the landlord sells the land; the tenant commits waste; or the tenant parts with possession.

Tenancy at sufferance: A tenancy at sufferance arises by operation of law and arises where a tenant remains in possession (holds over) after the expiry of a fixed term lease without the consent

or objection of the lessor. Although there is no obligation to pay rent, the tenant is liable to compensate the landlord for use and occupation. The lessor can determine the lease and eject the tenant at any time. Where the landlord consents to the occupation, the tenancy will convert to a tenancy at will and if rent is paid the lease will be regarded as periodic.

Tenancy by Estoppel: A tenancy that occurs when the conduct of the parties is such that one party cannot deny the other, the status of either a tenant or landlord. **Walter v Stores: estopped from denying there’s a grant of a lease

Essential for Leases: •

What is exclusive possession?

•

How do we determine whether there has been a grant of exclusive possession?

Radaich v Smith (1959) 101 CLR 209 •

How do we distinguish between a lease and a licence?

Hill v Tupper (1863) 159 ER 53 Exclusive possession is the right to exclude all other persons, including, subject to certain statutory rights of entry, the landlord, from the premises. It provides the lessee with the right to maintain an action for ejectment and, in appropriate circumstances, trespass. Whether or not there has been a grant of exclusive possession is a question of fact. We can determine if exclusive possession is present by considering the nature of the right granted to the occupier. If the occupier is given control of the property including the right to exclude all others then they likely have exclusive possession. A right to exclusive possession of only part of a property can be sufficient to establish a lease (Street v Mountford [1985] AC 809). If the occupier does not have a right to exclude then they likely have a licence. 

Leases and licences distinguished Hill v Tupper (1863) 159 ER 51 and Swan v Uecker [2016] VSC 313 (The Air BNB case)

SWAN V Uecker: In this case, a tenant rented an apartment in St Kilda under a standard residential tenancy agreement. The agreement included a term that the tenant could not sub-let the apartment. However, the tenant permiited guests to stay at the apartment for short term AirBnB stays. At first instance, VCAT decided that the tenant had merely granted a licence to the AirBnB guests. Therefore, as there was no lease, the tenants had not sub-let the apartment in breach of the tenancy agreement.

The matter went on appeal to the Victorian Supreme Court. It was held that: “…the AirBnB Agreement for occupation of the whole of the Apartment is properly characterised as a lease between the Respondents, the tenants, and the AirBnB guests for the period of occupation agreed between them. It follows that their entering into this Agreement is, having regard to their own tenancy of the Apartment, a sub-lease.” It is important to note that the decision was on the particular facts and the terms of the particular lease. Therefore, it does not necessarily mean ALL AirBNB agreements will be regarded as leases. It does seem, however, that a AirBnB agreement for occupation of all of a property will be regarded as a lease (nb exclusive possession). If so, sub-leasing the property would breach the relevant terms of the lease. Radaich v Smith: The principal Australian authority is Radaich v Smith.1 In that case, the appellant (Mrs Radaich) and the respondents (Mr and Mrs Smith) were parties to a deed whereby the respondents, as licensors, granted to the appellant, a license a lease for a term of five years from the date of the deed:

"the sole and exclusive license and privilege to supply refreshments to the public admitted to premises situated at . . . Mosman and to carry on the business of a milk bar therein (hereinafter called the building) in such rooms as are shown in sketch contained in Schedule one annexed hereto."2

At issue was whether, despite the parties describing the agreement as a licence it was, in fact, a lease. The deed consistently avoided the use of expressions such as ‟lease”, "‟lessors”, and ‟lessee” instead utilising the words ‟licence”, ‟licensors”, and ‟licensee”.3 The High Court looked beyond the terminology used in the deed and considered the realities of the arrangement including that the appellant: 

was to conduct on the premises the business of a milk bar and cafe for five years;

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was to carry on the business on the ‟premises occupied by her”;



had a sole and exclusive right to provide refreshments;

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was under an obligation to ‟keep open her business at all times allowed by law”;



was to have the use of the gas, electricity and water service on the premises for the purpose of conducting her business;

1 Radaich v Smith ((1959) 101 CLR 209 2 Radaich v Smith ((1959) 101 CLR 209, 215 -216 perTaylor J. 3 Radaich v Smith ((1959) 101 CLR 209 216, per Taylor J.

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should keep her stock-in-trade and other chattels necessary for the conduct of her business upon the premises; and



undertook upon the expiration or sooner determination of the licence immediately to ‟give up possession of the said building occupied by her for the purpose of the said business”.

At no point did the deed state expressly that the appellant would have exclusive possession of the premises. Nevertheless, the High Court concluded that the parties contemplated that the appellant was to occupy the premises and, subject to her obligations, was to have the control of the premises in the sense that she was to close them and open them at the times that she considered was appropriate.4 The High Court unanimously concluded, therefore, that it was implicit that the deed conferred the right to exclusive possession on the appellant. Indeed Windeyer J noted: I imagine all concerned would have been astounded if they had been told that the appellant had no right to exclude persons from her shop; that the respondent might, if he wished, license other people to carry on any activity there other than the sale of refreshments, provided their presence did not prevent her selling refreshments or conducting the milk bar.5

The finding of the court can be best summarised by the judgment of Taylor J: The deed obviously contemplated that the appellant should have the right to occupy the premises for the purposes of her business and the business was to be carried on upon the premises at all times when they might lawfully be kept open. The character of the business was such that it could only be effectively carried on if the appellant had exclusive occupation and it seems clear that, even at times when they could not lawfully be kept open for the purposes of the business, the premises were to remain under her effective control. That being so it is inevitable that we should hold that the instrument created a leasehold interest and that at the material time the relationship of lessor and lessee existed between the parties.6 (Emphasis added)

Although this case is regarded as the principal Australian authority for the proposition that the test for determining whether a lease has been created is whether a right of exclusive possession has been granted it should be noted that it was only Menzies J who indicated unqualified support for the exclusive possession test.7 The High Court noted that a reservation to the lessor of a limited right of entry, either by statute or by agreement between the parties,

4 Ibid. 5 Radaich v Smith (1959) 101 CLR 209, 224 – 225 per Menzies J.

6 In a similar vein Menzies J stated at 221: ‘These obligations to occupy a shop, to carry on a business there that needs plant and stock, and to give up possession at the end of the term, taken together, seem to me to require the conclusion that the occupier has, during the term, the right of exclusive possession.’ See too KJRR Pty Ltd v Commissioner of State Revenue (Vic) [1999] VSCA 2. 7 Bradbrook at p 522 [14.90]

was not inconsistent with the lessee’s right to exclusive possession.8 Furthermore, the test to be applied is one of substance not terminology and the parties cannot ‟escape the legal consequences of one relationship by professing that it is another.”9 The substance of an agreement, reflecting the intention of the contracting parties, overrides the form that the agreement takes. 10 Whether exclusive possession has been granted is a matter of construction of the instrument of lease.11 ***The agreement was found to be a lease and the magistrate had jurisdiction to determine a fair rent. Whether an agreement constituted a lease or a license depended on whether, if properly interpreted, the deed created in substance exclusive possession of the property for a term. Regard should be had to the substance and effect of the document itself, and not the label given to it by the parties.

Say v Smith (1503) 75 ER 410 at 415: Every contract sufficient to make a lease for years ought to have certainty in three limitations, viz in the commencement of the terms, in the continuance of it, and in the end of it: so that all three ought to be known at the commencement of the lease.

So, what type of time periods are uncertain? A lease held to be ‘for the duration of the war’ was held to be uncertain in Lace v Chantler [1944] KB 368: In Lace v Chantler,12a lessee was granted a tenancy of a house ‟furnished for duration”; a description which meant the term of the lease was for the duration of the Second World War. The court held that agreement did not create a valid leasehold interest because the term, being linked to the end of the World War, was not certain from the outset. It was noted that a lease had to be for a term that was "expressed either with certainty and specifically or by reference to something which can, at the time when the lease takes effect, be looked to as a certain ascertainment of what the term is meant to be.”13 As there was no way of knowing exactly when the war would end, the duration of the lease was held to be uncertain. 8 Goldsworthy Mining Ltd v Federal Commissioner of Taxation (1973) 128 CLR 199; City of Rockingham v PMR Quarries Pty Ltd [2001] WASCA 317 9 Radaich v Smith ((1959) 101 CLR 209, 222; Lewis v Bell [1985] 1 NSWLR 731, 737. 10 Commissioner for Fair Trading v Voulon [2005] WASC 229; Radaich v Smith (1959) 101 CLR 209, 214. 11 Lewis v Bell [1985] 1 NSWLR 731. 12 [1944] KB 368 13 [1944] KB 368, 370. As many leases entered into during this period were couched in the same or similar terms, the decision in Lace v Chantler resulted in the passing of the Validation of Wartime Leases Act 1944 (UK). This legislation converted all agreements in such terms to 10 year fixed term leases terminable upon one month’s notice if the war ended before the expiry of that period.

The reasoning in Lace v Chantler was adopted by the House of Lords in Prudential Assurance Co. Ltd v London Residuary Body & Ors.14 In that case, what was then the London County Council (LCC) purchased a strip of land beside a road and purported to lease the land back to the original owner. The ‟lease” was to continue until such time as the council required the land for road widening purposes. Sixty years passed, the road had not been widened and the successor in title of the former owner was still paying a minimal rental for the strip of land. The London Residuary Body, the more recent equivalent of the LCC, challenged the validity of the lease.15 The House of Lords held that the agreement was not a lease as, following Lace v Chantler, the term was not certain.16

A lease until the land was needed by the landlord for widening of a highway was held to be uncertain in Prudential Assurance Co Ltd v London Residuary Body [1992] AC 386; 3 All ER 504. Law of Property Act 1936 (SA) s 30 - Creation of interests in land by parol: (1) All interests in land created by parol and not put in writing and signed by the persons so creating the same, or by their agents thereunto lawfully authorised in writing, shall have, notwithstanding any consideration having been given for the same, the force and effect of interests at will only. (2) Nothing in the preceding sections of this Act shall affect the creation by parol of leases taking effect in possession for a term not exceeding three years (whether or not the lessee is given power to extend the term) at the best rent which can be reasonably obtained without taking a fine. Real Property Act 1886 (SA): S 116: leases of more than one year must be registered s 119: leases of less than one year need not be registered s 69(h): a lease of not more than one year is an exception to indefeasibility. So, to form a lease you will need to address: 1. The substantive requirements: 14 [1992] 2 AC 386. 15 Indeed, Lord Templeman noted: “The agreement purported to grant a term of uncertain duration which, if valid, now entitles the tenant to stay there for ever and a day at the 1930 rent of £30; valuers acting for both parties have agreed that the annual current commercial rent exceeds £10,000.” Interestingly, after the action commenced the London Residuary Body sold the land to the second to fourth respondents. 16 In this respect, the recent Supreme Court of the United Kingdom decision in Mexfield Housing Co-operative Ltd v Berrisford [2012] AC 955 should be noted. Sackville and Neave suggest at [8.16] that the decision may circumvent Prudential Assurance Co. Ltd v London Residuary Body & Ors. Although not supporting the “jettisoning of the certainty requirement”, Lord Neuberger noted that “…there is no apparent practical justification for holding that an agreement for a term of uncertain duration cannot give rise to a tenancy…” At the time of writing the Berrisford decision has not been raised in an Australian context.

i.

Exclusive possession (Radaich); and

ii.

Certainty of duration (Lace).

iii.

The formal requirement of writing:

iv.

The RPA ss 69(h), 116 and 119; and

v.

The LPA s 30.

Equitable Leases *if lease isn’t registered: equity—if you don’t comply with requisite qualities to create a legal lease, equity can save the lease; Walsh v Lonsdale *part-performance, lease can be recognised, so lease doesn’t need to be in writing —The rule in Walsh v Lonsdale applies equally to both general law and Torren’s land.17 A binding agreement or contract for lease will only be enforceable pursuant to the rule in Walsh v Lonsdale where the contract would be specifically enforceable in equity,18 or where there have been sufficient acts of part performance.19 The rule in Walsh v Lonsdale has been embraced by Australian law. In Chan v Cresden, Mason J noted: For present purposes these authorities establish two propositions. First, the court's willingness to treat the agreement as a lease in equity, on the footing that equity regards as done what ought to be done and equity looks to the intent rather than the form, rests upon the specific enforceability of the agreement. Secondly, an agreement for a lease will be treated by a court administering equity as an equitable lease for the term agreed upon and, as between the parties, as the equivalent of a lease at law, though the lessee does not have a lease at law in the sense of having a legal interest in the term.20 However, it is important to remember that a specifically enforceable agreement for lease pursuant to Walsh v Lonsdale is not as good as a legal lease. As it is dependent upon recognition in equity, an equitable lease will be upheld only if a court would grant specific

17

Ahern v LA Wilkinson (Northern) Ltd [1929] St R Qd 66; Bourseguin v Stannard Bros Holdings Pty Ltd [1994] 1 Qd R 231. For a discussion of the Western Australian discussion: see Swanville Investment Pty Ltd & Ors v Riana Pty Ltd [2003] WASCA 121.

18 Euston Centre Properties Ltd v H&J Wilson Ltd (1982) 262 EG 1079; Chan v Cresden Pty Ltd (1989) 168 CLR 242. 19 Lighting By Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23. 20 Chan v Cresden Pty Ltd (1989) 168 CLR 242 per Mason at [528].

performance of a contract for the grant.21 The main concern is when a third party becomes involved. The vulnerability of such a lease then becomes obvious.22 Indeed: An equitable right is not equivalent to a legal right; between the contracting parties an agreement for a lease may be as good as a lease … But introduce the third party and then you will see the difference.23 CONSEQUENCES: At [14.40] Bradbrook et al highlight the key shortcomings of an agreement for lease pursuant to Walsh v Lonsdale and a legal lease. The first shortcoming is that specific performance — a discretionary remedy — must be available to the tenant relying upon the agreement for lease. Second, the agreement for lease is likely to be vulnerable in a priority dispute. Therefore, if another legal interest created for good consideration without notice of the tenant’s interest has been created, the legal interest will have priority over the equitab...