Are retail lessors that do no not include an option, required to give notice of a lease’s expiration?

When retail leases near their expiry, the lessor has certain obligations under s44 of the Retail Leases Act 1994 to give the lessee notice of their intention to either renew or terminate the lease upon its expiration. Under the Act, the lessor must give written notice of their intentions to the lessee no less than six months before the expiry of the lease.

In the case of Anka (Civic Centre) Pty Ltd v Sahyoun (2014) NSWSC 17 the court discussed the consequences of failing to comply with s44, and held that as per s44(3) of the Act, failure to give notice will result in the lease being extended until six months after the proper notice is given. Notably, the court held that the notice required does not have to expressly refer to s44, as long as it manifests the lessor’s intention.

Supreme Court rules on real estate signage covenant

In the case of Re: Zhang [2018] VSC 721, the Victorian Supreme Court was asked to assess whether a covenant prohibiting advertising on a residential property applied to real estate signage. In this case, the covenant stated that ‘no hoarding for advertisement purposes shall be erected on the said lot hereby transferred,’ which Derham AJ stated seems to literally prevent any form of advertising on the property, including real estate signage.

However His Honour highlighted the importance of context in this case, namely that the land was a residential property in a residential neighbourhood, as the purpose of the restriction was not to prevent real estate signage but to prohibit commercial advertisements that were ‘unconnected with the residential character of the land.’ Therefore, it was ultimately found such signage was not prohibited under the covenant.

Court encourages agents, landlords and tenants to take caution during lease negotiations

In the recent case of ACME Properties Pty Ltd v Perpetual Corporate Trust Limited as Trustee for Braeside Trust [2019] 1189 the Federal Court highlighted the need for agents, landlords and tenants to take caution during lease negotiations. The case involved a tenant (ACME Properties) who brought proceedings against their landlord (Braeside) in an attempt to enforce a deed of variation to extend the lease of their property. Over a period of 6 months the landlord’s agent and the tenant negotiated the commercial terms of an offer to lease (Offer) on which the deed of variation would be based. The offer was executed in early April 2019. The offer however contained conditions, including that it was subject to approval of the landlord which could be given or withheld at its discretion. Later that month, the agent informed the tenant that no legally binding contract existed and that the landlord would not be proceeding with the deed as proposed in the offer, and that the landlord has accepted an offer from  3rd party.

In bringing proceedings the tenant argued that it was the intention of the parties to be bound by the offer. Ultimately, the Federal Court held that the intention of the parties as evinced in the offer, did not constitute a binding agreement as it was subject to entering into alternate legal documentation. In its decision the Federal Court noted that although the offer covered the majority of the commercial terms and used appropriate wording, such was outweighed by the terms. The Court also noted that despite the fact the tenant necessitated commercial certainty, the Offer was not legally binding. This case acts a reminder to agents, landlords and tenants to communicate their clear intention throughout the process of negotiation.

When is a real estate agent liable for an injury caused to a tenant?

In the recent case of Yeung v Santosa Realty Co Pty Ltd [2020] VCA 7, the Supreme Court of Victoria considered who is liable for tenant’s injury when caused by a property under a residential lease. In 2014 a residential tenant slipped at night on the back stairs of a property she was leasing causing her to fracture her right ankle. The stairs had no handrail, were worn, unlit and slippery. The tenant reported her injury to the real estate agent who arranged the necessary rectification works.

The tenant then brought proceedings for negligence in the County Court of Victoria against the owner of the premises and the Agent. Initially the Court held that both parties had breached their duty of care and were liable for damages. Liability was apportioned two thirds to the landlord and one third to the tenant.  On appeal, the Court found that the Landlord had delegated his DOC to the Agent and consequently was entitle to indemnification from the Agent. In considering whether a landlord could discharge their duty to avoid foreseeable risk of injury to tenants, the Court held that in certain circumstances it can be delegated to a Real Estate Agent. It is crucial for managing real estate agents to appreciate their obligations pursuant to an agreement with a landlord, particularly those relating to the scope of property inspections and maintenance.

Compensation for defects discovered after settlement?

In the recent case of Stevenson v Ashton [2019] NSWSC 1689 the Supreme Court of NSW considered whether a home buyer could claim compensation for defects after settlement. In this particular case, one month after settlement and moving into his newly purchased 19th century terrace, Stevenson noticed that water was pooling in two points of the ceiling. Stevenson commenced proceedings against Ashton (the owner-builder of the property) in NCAT. As the proceedings were commenced more than 2 years after the work was completed, unless there was a major defect the right to compensation was not available. NCAT found that work to the balcony and cladding of the property that caused the leak was a major defect in that it failed to adequately waterproof the building. The tribunal awarded Stevenson $10,987.60 for the cost of rectification of the building and $31,330.09 for the cost of rectification of the cladding. On appeal to the Supreme Court, the Court stated that the consequences of the defect must have shown to have or probably have a consequence for the use or habitation of the house. Ultimately the Court found that there was insufficient evidence to prove that the defective cladding would cause or likely cause the building to become uninhabitable due to the fact that it had been in place for four years without water damage.  The NSWSC reversed the tribunal’s decision ruling that they were in error to find the defects to be major.

When is an option to renew a lease validly exercised?

In the 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.

Beware of the inability to obtain sufficient finance in contracts for sale

The recent case of Cole v Raykir Holdings Pty Ltd [2019NSWSC 1017 involved Mr and Mrs Cole (the Vendors) who entered into a contract for the sale of their home to Raykir Holdings, a property developer (the Purchaser).  The Purchaser paid a 5% deposit of the $2.83 million purchase price, amounting to $141,500. Completion of the contract was to take place 6 months following the payment of the deposit. However, the purchaser was unable to obtain sufficient finance to complete as the property valuation fell short by $510,000. Consequently, the Vendors terminated the Contract. The Vendors subsequently commenced proceedings and claimed damages for loss on resale as they sold the property at a price $600,000 less than the price that the purchaser had previously agreed to pay. The Court found that the Vendors were entitled to terminate based on the failure of the purchaser to comply with the Notice to Complete. The Court further ruled that the Purchaser and personal guarantor were liable to pay $458,500 in damages, being the amount the Vendors lost, less the amount already paid by the Purchaser by way of deposit. This case illustrates that the inability to obtain sufficient finance is a risk in delayed completion contracts. Even if finance is available based on a value equal to the purchase price, that amount may be insufficient due to a falling value of the development as at the date of completion.

Do Aboriginal Artefacts constitute a “defect in title” under a contract for the sale of land?

In the case of Mehmet v Carter (2017) NSWCA 305 the Court considered whether aboriginal objects constitute a defect in title under a sale of land contract.  The case involved a Purchaser who entered into a contract for the purchase of a $3 million Byron Bay property. In the week following the payment of a 10% deposit, the solicitor acting on behalf of both parties discovered the existence of historical aboriginal objects on the land. The Purchaser argued that such objects constituted a defect in title, and subsequently advised the vendors that the purchase would be incomplete unless the defect was remedied. The vendors maintained that such presence was not a defect in title, issued a notice to complete and claimed interest for the purchasers’ delay in completion. After settlement was not effected, the purchasers terminated the contract for the failure of the vendors to convey good title, to which the vendors countered that the contract had been repudiated. The Court ultimately determined that the existence of the Aboriginal objects did not amount to a defect in title as they were property of the Crown, did not form part of the contract of sale and a reasonable person would not require the vendors to transfer ownership of objects that they didn’t own.  Accordingly, the purchasers were not entitled to terminate the contract.

IMPORTANT REMINDER: NSW Land Tax Assessments to include a 2% Foreign Persons Surcharge for Family Trusts

An important reminder that Family Trusts that own residential property in NSW will now be automatically subject to the Foreign Persons Surcharge on Stamp Duty and Land Tax, unless their Trust Deeds have been updated to explicitly exclude foreign beneficiaries.  Any Family Trust that owns or intends to own residential property in NSW, is strongly urged to update their Trust Deed in order to minimize the financial burdens of these changes. If you require your Trust Deed to be reviewed and/or updated, please contact us.

Real Estate and Property Reforms – New Rules of Conduct for Agents and Assistant Agents

Real estate and property reforms have introduced new rules of conduct that will apply to agents and assistant agents. From 23 March 2020 assistant agents will not be permitted to enter into agency agreements. This means that only licensed agents will be allowed to sign an agency agreement with a vendor or landlord. These new laws will not prevent assistant agents from carrying out inspections, or inspection reports, however, it will be necessary for the licensee entering into the agency agreement to ensure that such inspections are carried out properly. Furthermore, from 23 March 2020 agents and assistant agents will be required to:

  • Deposit rental and sales money into different trust accounts;
  • Disburse received rental monies to landlords at least monthly, unless special arrangements apply;
  • Be aware that potential conflicts of interests will be tightly governed, with a $60 limit on the value of gifts and benefits that could give rise to conflict.

To find out more about these reforms please click here.