Importance of PPS Registration for Landlords

Although the Personal Properties Securities Act (PPSA) does not cover real property, it is important that landlords consider its impact on retail and commercial leases. Where a landlord leases a premises which includes landlord fit-out or plant and equipment for the tenant’s use, failure to effectively register their interests on the Personal Properties Securities Register (PPSR) may be detrimental in cases where the tenant goes into liquidation. The case of Flown Pty Ltd v Goldrange Pty Ltd [2016] WASC 419 demonstrates the consequences of a landlord failing to register their security in personal property on the PPSR. The case involved the landlord lending funds to its tenant to complete a fit-out of a leased premises. The agreement included a charging clause that allowed the landlord to register its interest in the fit-out (collateral) on the PPSR. The landlord however, failed to do so, therefore their interest was not perfected. The tenant was placed into voluntary administration, and claimed that due to the fact that the landlord did not perfect its interest by actual possession or registration of the collateral, then the unperfected interest was vested in the administrators. The court ruled in favour of the tenant reasoning that due to the fact that the tenant had possession of the collateral and the landlord was not in possession of the collateral, that the landlord’s security interest was unperfected, and therefore the interest was vested in the tenant upon entering administration.

Acquiring title by adverse possession

The recent case of Braye v Tarnawskyj [2019] NSWSC 277 demonstrates the potential of a party to become the owner of land by adverse possession. In NSW one is able to become the owner of land by ‘adverse possession’ in situations where they have exerted control over the land for a period of 12 years or more. A person is not entitled to obtain a possessory title over land unless the occupation is adverse to that of the registered owner. The case involved Dr Braye (plaintiff) who occupied property number 7, Mr Ward (second defendant) who occupied property number 5, and Ms Tarnawskyj(first defendant) who was the registered owner of a block of land that was situated between number 7 and number 5. When Mr Ward approached Ms Tarnawskyj offering to purchase the land for $50,000, Dr Braye brought proceedings claiming to have possessory title over the land. The plaintiff claimed that for a period of over 12 years they had parked cars, stored goods, maintained the garden concreted and later pebble created the surface, installed and used the pipes beneath the surface and paid the water rates. Both defendants claimed that the plaintiff’s use of the land was covered due to the right of way that was granted to the owner of number 7. The Court ruled that due to the fact that the registered owner of the title had not had any relevant dealings with the claimed land until very recently, the plaintiff was entitled to obtain possessory title, however only in respect to part of the claimed land. The court decided that the concrete pathway that ran through the block, could not be claimed as it had been regularly used by Mr Ward from number 5 to gain access to his property. This case demonstrates that owners of property must maintain regular contact with the property and ensure that easements are used for their intended purpose, in order to avoid situations such as these from occurring.

Landmark Decision: Judge rules developers are unable to use sunset clauses for financial gain

In the case of Silver Star Fashions Pty Ltd v Dal Broi [2018] NSWSC 1445 a landmark decision was made prohibiting developers from using sunset clauses to rescind a contract. The case involved a developer of a new block of apartments and 12 buyers who had bought the apartments off the plan. The Court heard that the developers claimed to be within their rights to renege on the contracts made with the buyers, as building delays had pushed the completion deadline beyond the date of the sunset clause. The buyers argued that due to the rising property market, the developers were attempting to withdraw their contracts in order to sell the apartments for a higher price. This case was important as it tested the 2015 amendments made to the Conveyancing Act 1919 (NSW) that now requires buyers to consent in writing to the revocation of a contract or for the vendor to acquire an order from the Supreme Court that permits the rescission of the contract. Justice Drake ruled that the developer had acted unjustly and that the contracts could not be rescinded unilaterally. The Court also ordered the developer to pay the legal costs of the 12 buyers. This decision highlights the importance of seeking legal advice when buying properties off a plan.

Important Changes to the Real Estate Industry Award

On 2 April 2018 a number of important changes to the Real Estate Industry Award came into effect. The amendments concerned classifications and weekly wages, commission only employment, minimum commission only rate and annual leave for commission only employees. Some of the changes include:

  • New classification and wage rates now cover employees who were previously classified under the property sales, management and strata/community title management associates classification.
  • Eligibility requirements for commission only employment have been amended to contain new provisions.
  • The new minimum commission-only rate is now 31.5% of an employer’s gross commission and commission only employees are still not entitled to annual leave loading, however annual leave must be paid at the employee’s base classification rate at the time of leave.

To find out more about the amendments to the award click here.

When will an object on land become a fixture?

In PWC Legal v Perpetual Trustees, Lakeline was the proprietor of several lots that contained demountable houses. Perpetual Trustees granted a mortgage to Lakeline under the belief that security was held over both the land and the demountable houses. When Lakeline later defaulted, doubts arose as to whether the house could be considered fixtures on the land, and thus whether the mortgagor had a right to ownership. The Court reasoned that whether an object is a fixture depends upon the purpose of fixing the object to the land and the degree of annexation. At first instance it appeared that the houses were fixtures due to the fact that they were anchored to the land by brick piers. However, the tenants of the houses purchased them from a company, with the contract stipulating that the title of the homes passed to the tenants. Further, the residential site agreement between the tenants and Lankeline referenced the Residential Parks Act prohibiting the moveable dwellings on residential sites from becoming fixtures. The Court held that the demountable homes were owned by the tenants and consequently not fixtures on the land, thus the mortgagor had no right to ownership.

Insufficiency of simply holding the right to ‘lodge and maintain a caveat’

The recent decision in Ta Lee Investments Pty Ltd v Antonios [2019] NSWCA 24 ruled that a lender simply having a right to ‘lodge and maintain a caveat’ is not enough to support a caveat itself. The case involved Ta Lee Investments (‘Ta Lee’) who entered into a Deed of Loan with property developers MV Developments after providing them a loan of $1.5 million. The deed stipulated that under clause 7.2 the lender may lodge and maintain a caveat on the titles to the site until such time the Lender receives full payment. The Court ruled that clause 7.2 did not give rise to an equitable interest or charge due to an absence of reference to any language that would indicate Ta Lee having an interest e.g. “security”, “secured interest” or “cavetable interest”.  It was determined that the clause must expressly create an equitable interest in the land or charge it with the obligation. As result of the defective Loan Deed, Ta Lee was an unsecured creditor for its $1.5 million loan when MV developments went into liquidation.

Can an option be exercised where the time frame has lapsed?

Retail and commercial leases often include an option to renew or extend the tenant’s tenure. The case of Tripple A Pty Ltd v WIN Television Qld Pty Ltd [2018] QCA 246 involved a situation where a tenant and landlord proceeded to exercise the option, despite the fact that the option had failed to be exercised within the allocated time frame. The Court held that although the tenant failed to exercise the option in time and as such this option was not enforceable, both parties had agreed to a further lease on terms that had been informally established through communication. Despite objections from the landlord, the new lease was legally binding. The Court of Appeal’s decision demonstrates that the Court will strictly interpret time frames to exercise an option and that landlords are unable to disregard option time requirements.

Unconscionable conduct of borrowers towards lenders

In the case of Citigroup Pty Ltd (ACN 004 325 080) v Wernhard [2019] NSWSC 132 the Supreme Court ruled that borrowers are unable to opportunistically take advantage of errors made by lenders in attempt to circumvent loan obligations. The case involved Citigroup (‘the lenders’) mistakenly releasing all securities over the borrowers’ property, with the borrowers knowingly taking advantage of the mistake by selling the property without advising the lenders. Accordingly, the Court ordered that the borrowers had acted unconscionably and in a manner inconsistent with their loan obligations. Consequently, the borrowers were ordered to re-mortgage their second property as security for the loan amount, and were ordered to pay Citigroup’s legal costs. Borrowers should be aware that this decision could potentially be used by lenders in circumstances where there is a failure to disclose material facts of a current loan.

Competition law reforms passed for small businesses

The Federal Government has amended the Competition and Consumer Act 2010 (Cth) to enable small businesses to enforce competition laws. While most competition cases are handled by the ACCC due to the time, costs and complexity of individuals bringing a private action against large corporations, the amendments are intended to increase small businesses’ access to justice in the future. The changes will allow for a ‘no adverse costs’ order for individuals or small businesses to make a claim under the Act without adverse costs being awarded against them. This will mean in future that if a ‘no adverse costs’ order is made by the court, the person bringing the action will not be held liable for the other party’s costs if they are unsuccessful.

Importance of precise default notices when exercising the right to terminate

The right to terminate a construction contract due to breach of performance obligations is a fundamental contractual principle. However, it is essential that where applicable, those exercising their right to terminate do so in a way that strictly accords with the  requirements of the contract such as a default notice. In the case of Westbourne Grammar School v Gemcan Constructions Pty Ltd [2017] VSC 645 it was found that the default notice issued by the school was invalid as it failed to provide precise details in reference to the time period given to the other party to show cause. The default notice simply stated “you must show cause by the expiration of 7 clear days after this notice is received by you”. The Court ruled that the notice was invalid as it failed to specify the precise date for compliance, instead providing an ambiguous time frame on receipt of the notice. This case illustrates the importance of sufficient and precise identification of time for the response of a party to a notice. Ensuring that your default notices are valid could be the difference between a valid and invalid termination, and could potentially save you from a wrongful termination suit.