Topic 8 Leases PDF

Preview

Summary

Leases...

Description

laws2012 Property Principles Study Guide

Topic 8 Leases MySCU | learn.scu.edu.auscu.edu.au/law

Learning objectives At the end of this topic you should understand: 

the defining characteristics of a lease;



the different types of leases, and how they are created; what types of covenants there are in leases; and



when and how a lease may be terminated.

Resources 1. TB: Ken Mackie, Elsie Histed and John Page, Australian Land Law in context (2012) Chs. 3 and 11 2. CB: Australian Property Law – Cases and Materials (5th ed., 2016) Ch. 14

Introduction In this topic we will examine the nature of leases. The touchstone right of exclusive possession will be especially highlighted. As you will see, there are different requirements at common law as well as in equity for a lease to be validly created. These have been overlaid by the requirements of the Torrens title system. We will consider commonly occurring lease covenants, and will canvass the requirements for the termination of a lease. Finally, we will turn to the issue of what remedies are available where lease covenants have been breached.

Activity Watch the Mediasite Lecture and Tutorial on this topic. Look at the PowerPoints for this topic.

Defining characteristics of a lease

There are two essential requirements for a lease: 1. There must be certainty in relation to the commencement and duration of the lease: Lace v Chantler [1944] KB 368; and 2. There must be a right to exclusive possession: Radaich v Smith (1959) 101 CLR 209. Note the distinction between a lease and a licence. A licence permits a party to be on the land or use land for a particular purpose, but it does not confer an interest in the land which equates to a right to exclusive possession, Only a lease confers an interest in land. Hence licences are personal, while leases are proprietary, and ‘run with the land’. The language used by the parties in describing their arrangement is not conclusive; the question as to whether the instrument is a lease or licence will turn on its substance, whether it grants a right of exclusive possession to the occupier of the land.

Resources 1. TB: Mackie et al, Australian Land Law in context (2012) 324–331, paras [11.1.1]– [11.2.4] 2. CB: paras. [14.20]–[14.35]

Activity Consider carefully the problem-solving checklist in the TB at p 331.

Creation of leases At common law, a lease had to be in deed form to be legal. Under Torrens title, a lease must be in the approved form and registered to be legal. (There is an exception for short-term oral leases of three years or less, which are deemed legal, see for example s 23D Conveyancing Act 1919 (NSW). An equitable lease arises when the lease document is said to be informal, in that it does not meet the formal requirements for the creation of a legal lease. It must also meet equity’s requirements, including that it is in writing (with exceptions for part performance), and that the remedy of specific performance is available. As we have seen in Topic 7, under Torrens title, unregistered leases are deemed equitable in nature.

Resources 1. TB: Mackie et al, Australian Land Law in context (2012) 332–339, paras [11.4.1]– [11.4.12] 2. CB: paras. [14.125]-[14.190].

Types of leases

At common law there are several different types of leases. These include fixed-term leases, periodic leases, tenancies at will, and tenancies at sufferance, amongst others. For practical purposes, this topic will emphasise fixed-term and periodic leases only.

Resources 1. TB: Mackie et al, Australian Land Law in context (2012) 52–53, paras [3.5.1]–[3.5.5]

Activity What makes a periodic or continuing lease ‘certain’ in terms of its duration?

Covenants in leases A lease covenant is a term that must be adhered to in a lease. A breach of a lease covenant may incur a remedy of damages or an injunction, or even a right to bring the lease to an end. Lease covenants can be implied or express. Covenants are implied by the common law, under legislation, or as an implied term under basic principles of contract law, such as giving business efficacy to an agreement. Implied covenants at common law include the lessor’s obligation to provide quiet enjoyment of the premises, and an obligation not to derogate from the grant. Covenants implied by statute include those pertaining to retail premises, such as under the Retail Leases Act 1994 (NSW) or the Retail Shop Leases Act 1994 (Qld).

Resources 1. TB: Mackie et al, Australian Land Law in context (2012) 332–339, paras [11.4.1]– [11.4.12] 2. CB: Bradbrook et al, Australian Property Law Cases and Materials (4 ed., 2011) para [14.115]

Activity 1. What is the substance of the covenant of quiet enjoyment, also known as quiet possession? 2. In what way(s) is the covenant not to derogate from grant distinguishable from quiet enjoyment? 3. What covenant did the tenants complain was being breached in Southwark London Borough Council v Mills?

Termination of leases There are a number of ways that a lease can be brought to an end. A fixed term lease may expire by effluxion of time, repudiation, forfeiture, or surrender. A periodic lease can be

brought to an end by the giving of appropriate notice. In this topic, we look in particular at repudiation and forfeiture. One of the ways in which a contract for lease can be brought to an end is by repudiation of the contractual obligations under the lease. A key case in this area is Gumland Property Holdings v Duffy Bros. Fruit Market paras. [14.285]–[14.295] that applied the principles laid out in Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 472, where the High Court decided that principles of contract law could apply to leases. Conversely, forfeiture is a proprietary method of ending a lease. Forfeiture requires specific compliance with notice provisions, and the lessee has strong rights to seek relief against the lessor’s purported forfeiture of its lease. When covenants of the lease are breached, then either lease party may recover damages where loss has been the consequence of the breach. An injunction may also be sought to prevent further breaches of a covenant from occurring. Whether the lease covenant is ‘essential’ may also entitle the aggrieved lease party to end the lease through either repudiation or forfeiture.

Resources 1. TB: Mackie et al, Australian Land Law in context (2012) 347–350, paras [11.7.1]– [11.7.4] 2. CB: Gumland Property Holdings v Duffy Bros. Fruit Market para [14.285]–[14.295]

Activity 1. Why was it held that the tenants had repudiated their contractual obligations in Gumland Property Holdings? 2. What needs to be established to prove that a party has repudiated their contractual obligations? 3. What does the law require in relation to notice being given to a tenant?

Conclusion You have now looked at how leases are created, at common law, in equity, and under Torrens statutes. You will be aware of the critical nature of a grant of exclusive possession. You will understand the differences between various types of leases, principally fixed-term and periodic. You have examined typical lease covenants, which are either express, or implied by the common law or statute. You will also be familiar with the ways in which leases are brought to an end.

Discussion forum/tutorial problems 1. If the commencement date in a lease is expressed to commence on 1 January 2012 and fixed for a period of three years, what is the expiry date of the lease?

Would it make any difference to the type of lease created if the expiry date was expressed as 1 January 2015? What are the legal and practical consequences of any distinction? Conversely what type of lease arises if the tenant remains in possession of the premises after the expiry date, paying rental on a monthly basis to the landlord? 2. A leases commercial premises to B. The permitted use of the premises is ‘restaurant and coffee shop’. The term of the registered lease is five years with a five year option. The premises are located on the 3rd floor. The common areas of the building are under the control of A. In the 2nd year of the lease, A sells the building to C. C has plans to redevelop the entire building and replace the commercial tenancies with serviced apartments. C tries to negotiate a surrender of the lease with B. B refuses to negotiate. Shortly thereafter, C stops servicing the lifts and escalators that carry patrons of the business to the 3rd floor. Access can only be safely guaranteed by the stair well. C carries out repairs to the common areas during business hours, and the works partially obstruct the front entrance of the restaurant. C also has refused to service the central air-conditioning unit, and in the summer months the temperature in the premises is stifling, and B must install its own air-conditioning. Lastly, C has permitted the adjoining premises on the 3rd floor to be used for the storage of highly hazardous materials, which contravenes Council regulations regarding proximity to food preparation premises. Advise B. 3. On the first and third Sundays of each month, a designated area of Martina and David’s Byron Hinterland property is used for the ‘Hinterland Sunday Market’, where local residents and other cottage businesses can hire stalls from Martina and David (trading as ‘Hinterland Markets’) to sell their products. Review the following terms. Does this agreement create a licence or a lease? Why? Hire Agreement between Hinterland Markets (HM) and the Hirer 1. The Hirer is entitled to exclusive use of stall number(s) [ ] for the period of one year from the date of this Hire Agreement. (A diagram is attached showing the number and location of each stall.) 2. If the Hirer does not use any of the stalls for a particular day or month, then HM may allow other persons to use those stalls. 3. The Hirer must pay rental to HM before the end of each month. The rental payable is calculated by the number of stalls actually used during each month. 4. HM may enter and inspect the stalls at any time. 5. Either party may terminate this Hire Agreement at any time by giving one month’s notice in writing. However, HM may terminate without notice if the Hirer fails to pay rental, or fails to repair any damage to the stalls, or otherwise misbehaves....