Security of Payment amendments passed by NSW Government

The NSW Government has passed the Building and Construction Industry Security of Payment Amendment Bill 2018, that will make many changes to the operation of security of payment (SOP) practices in the construction industry. An important change includes the removal of reference dates, instead allowing a payment claim to be served from the last day of the month in which the construction work was first carried out or an earlier date as specified in the contract. Other changes include the insertion of a variety of new offences and increased penalties for non-compliance, a code of practice, a reduction of the maximum time for payment from 30 to 20 business days, and the creation of an express right to withdraw from an adjudication application.

NSW Government announces crack down on building certifiers

In the wake of the Opal Tower scare in Sydney, the NSW government has announced a new compliance operation that will see 25 to 30 per cent of building certification work audited every year. Any certifiers that are found to have acted negligently, breached the industry’s code of conduct or engaged in corrupt conduct will be banned from working from new strata developments for 12 months as a result of the new scheme.

When is an option to renew a lease validly exercised?

In the recent case of Kegran Pty Ltd v Warrik Pty Ltd [2018] NSWSC 1357 the Supreme Court was asked to determine whether the exercise of an option to renew a commercial lease was valid, despite the fact it did not expressly meet the conditions laid out in the contract. In this case, the tenant had an option to renew for an additional 5 years if they gave notice no less than` six months before the expiration of the lease. The tenant sent an email to the defendant seven months prior to the leases expiration, saying ‘please accept this as us wishing to take up the next 5 year option.’

However, in a separate clause dealing with notices more generally, the lease stated that ‘all notices must be addressed to the landlord at the address stated in this lease’ and the landlord argued that this requirement was not met in the email sent by the tenant. Ultimately the Court held that this separate clause did not impose conditions on the option to renew. Therefore the fact that the notice was delivered personally via email rather than to the address stated in the lease did not invalidate the exercise of the option.

What is an ‘owner’ under the Home Building Act?

In the recent case of The Owners – Strata Plan 81837 v Multiplex Hurstville Pty Ltd [2018] NSWSC 1488Baron + Associates successfully argued that a development manager and a trustee did not fall within the definition of an owner in relation to the warranties within the Home Building Act 1989 (HBA). In this case, the registered proprietor of a site had obtained development consent to redevelop the land into seven residential, commercial and retail towers. SLH and eleven other companies entered into a Development Management Agreement (DMA) with Multiplex, the development manager.

More than six years later, the Owners Corporation of one of the finished towers sued both Multiplex and SLH 22 (a trustee entity) for defects within the building. They argued they were owed statutory warranties under s18B and s18C in the HBA because both Multiplex and SLH 22 fell within the definition of an ‘owner’ or ‘developer’. Under the Act, an owner is defined as a person who is entitled to the land for an estate of freehold in possession, or is entitled to receive the rents and profits of the land, whether as beneficial owner, trustee, mortgagee in possession or otherwise.

While Multiplex had extensive rights over the property in its capacity as the development manager, including selecting a builder, exclusive access to the property, entitlement to a Management Fee, and a call option that entitled Multiplex to any parts of the property that had not been transferred to other purchasers, the court held it did not fall within the strict definition of an owner under the HBA.

The Court also found that SLH 22 did not fall within the definition of an owner under the HBA as there was not enough evidence on the facts that the registered proprietor was holding the land on trust, which would have created an equitable interest the property. SLH 22 did not enter into a deed of trust, any oral agreement or other document that would have created a trust, and the wording of the DMA was not sufficient to imply one.

Text held to act as a valid Will

The Supreme Court of Queensland has held that an unsent text message can constitute a Will in the recent case of Re Nichol; Nichol v Nichol [2017] QSC 220. In this case, the deceased had written a message shortly before he committed suicide stating that his brother and nephew should have all of his assets, with instructions on how to access his assets and where to bury his ashes. In addition the text actually stated ‘my will’ and the date. The Court had the power to declare this will valid if they are satisfied that it embodies the ‘testamentary intentions of the deceased to operate as his will’ under s18 of the Succession Act 1981. Considering that the message was created very shortly before the death, contained the words “My Will” and was sufficiently detailed, the Judge ultimately found that the unsent text message was valid and enforceable under s18.

What is a ‘reasonable time’ when terminating a lease?

When landlords wish to terminate a lease for a breach unrelated to rent, they must usually serve a breach notice upon the tenant and give the tenant a reasonable time to remedy the breach before they can terminate the contract. However in the case of Primary RE Limited v Great Southern Property Holdings Limited [2011] VSC 242 the court had to determine what constituted a ‘reasonable time’ for the tenant to remedy the breach before the contract can be terminated. In this case, a managed investment scheme leased land to the tenant for forestry activities, but the tenant was unable or unwilling to manage the plantation in accordance with the terms of the lease. The landlord served breach notices related to the plantation’s management, and one month later served a termination notice.  The tenant argued that properly maintaining the plantation could take up to a year, and one month was not a ‘reasonable time’ to remedy the breach.

The court considered the purpose of the notice, the nature of the breach and what the tenant could have done to avoid forfeiture, such as recommencing management of the land in compliance with the lease or communicate a genuine intention to do as proposed. They did not believe that the tenants had to completely remedy the breaches in order to give a meaningful response to the beach notices that would have stopped termination. Ultimately the Court held these steps could have been taken within a month, not a year, and therefore the landlord’s termination was reasonable under the circumstances.

Court finds that bank guarantees are not always unconditional

Bank guarantees are a common part of commercial and retail leases, where a bank promises to pay a sum specified when certain events occur, such as where a tenant breaches a lease, but the Supreme Court of NSW has ruled that a landlord can, in some situations, be restrained from relying on such a guarantee.

In the case of Universal Publishers Pty Ltd v Australian Executor Trustees Ltd [2013] NSWSC 2021 the court was asked to determine whether the landlord could call on the bank guarantee where the landlord claimed in good faith that the tenant was in breach of the lease, rather than an actual breach in fact. This was the key issue, as the landlord wanted to call upon the bank guarantee before proceedings relating to the breach had been finalised in court. Ultimately the court constructed the contract as meaning that that the bank guarantee could only be relied upon where there was an actual breach of the lease, which cannot be found if there is a genuine dispute as to whether the tenant had breached the contract.

What happens when the exercise of a lease option is late?

Options in leases often require that a tenant notify the landlord they wish to remain in the property within a certain period of time, but in the recent case of Tripple A Pty Ltd v WIN Television Qld Pty Ltd [2018] the court was asked to examine what occurs when an option is purportedly exercised after this time period has expired.

In this case, the tenants had not given notice of their intention to take up the option within the required time period, but instead began talks with the landlord a week after its expiry. When a dispute arose about the price of rent, the tenant argued that the landlord had waived the option period requirement by engaging in correspondence about the option and the rent payable despite the fact that the option had expired. The Court of Appeal rejected this argument, and found that the correspondence in fact meant a new lease agreement had been entered into which should reflect the current market rent, rather than being informally exercised as an extension of the old lease with the same rent.

What does completion mean in building contracts?

Construction disputes often arise when one party believes the work is not completed to the expected standard, which raises the question of what ‘completion’ in a construction contract really means. The court had to determine this matter in the case of Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184, in which Cordon’s construction had numerous defects but was substantially completed.  After terminating the contract, the parties both sued for their resulting damages. Much of the court’s decision turned on the definition of ‘completion’ as there was no definition within the contract. The court ultimately found that completion must mean ‘full completion’ rather than practical or substantial completion, and that Cordon’s work was in breach of the contract.

Electronic signatures: when are they invalid?

With the NSW government recently voting to allow residential leases to be signed and witnessed electronically, it is important to highlight the situations in which an electronic signature may not be valid. This was recently discussed in the case of Williams Group Australia v Crocker [2016] NSWCA 265, where a Director of a building Company used the electronic signature of his partners to secure credit in their names. When a debt of nearly $890,000 was not paid back, the lending company claimed the debt from each of the directors personally. Ultimately this case turned on whether the partners had given any representation that authorised the use of their signature. Crocker, one of the partners, had made no such representation and so ultimately was not held to be liable for the debt.