Covid-19 Regulations Update

This is a reminder that the Corporations (Coronavirus Economic Response) Determination (No.3) 2020 expired on 21 March 2021, meaning that the pre-COVID requirements under the Corporations Act 2001 (Cth) (Corporations Act) apply in relation to the execution of documents by company officers and the holding of company meetings.

A company wishing to execute a document under s 127 of the Corporations Act may not do so electronically, unless the company has a constitution which empowers them to sign agreements electronically.

However, ASIC published a media release on 29 March 2021 stating that it would adopt a temporary ‘no action’ position in relating to the convening and holding of virtual meetings, but this does not affect the position on no electronic signing under the Corporations Act.

Equitable Lienee Able to Sue Mortgagee for a Sale at Undervalue

The recent case of Condon, in the matter of Rayhill v Australia and New Zealand Banking Group Ltd [2020] FCA 1674 considered the rights of a Bankruptcy Trustee with an equitable lien over mortgaged land. The Trustee claimed that it had standing to sue the mortgagee (ANZ) for a breach of their equitable and statutory duties not to sell the property at less than true value.  

ANZ sought an order to summarily dismiss the Trustee’s proceeding on the basis that the Trustee had no reasonable prospect of success, he had no standing and that he had not previously asserted the claim.

The claim required consideration of whether the holder of an equitable lien over real property has standing to bring a claim against the mortgagee for selling the property at less than market value. The Court held that the equitable lien conveys an equitable interest in the property, so there was no merit in ANZ’s contention that the Trustee had no standing to sue them for breach of their equitable duty as mortgagee in possession in selling the property. ANZ’s application for summary dismissal failed.

A Clarification on Types of Assets and Estate Planning

The distribution of an asset will depend upon the type of asset, and how it is owned. The four main types of assets are personal, joint, trust and superannuation.

Personal assets are those held in one’s personal name, such as a bank account or a registered Certificate of Title. Upon the death of the owner, the ownership of these assets falls to the estate and will be distributed in accordance with a Will, or, absent a Will, in accordance with intestacy rules.

Joint assets are held jointly with another person, and upon the death of one of the joint owners, the rule of ‘survivorship applies,’ whereby the survivor will assume the full interest of the asset.

Trust assets are legally held and controlled by a trustee for the benefit of a beneficiary or beneficiaries. The legal or beneficial owner depends on whether the trust was fixed or discretionary and whether the deceased was the trustee, appointor, or beneficiary. The distribution is governed by the trust deed.

Superannuation is a type of trust asset, but will not automatically form part of a personal estate. Superannuation is generally handled separately and can be paid pursuant to a binding or non-binding death benefit nomination, or according to the determination of the trustee. It can also be paid directly to dependents or to one’s estate.

Compulsory Acquisition of Sub-Stratum Land

Traditionally, compulsory acquisition of land entitles an owner of an interest in land to compensation. However, acquisition of sub-stratum land may result in no compensation or limited compensation being payable by an acquiring authority. The compensation payable in respect of sub-stratum acquisition varies in each state and territory. In NSW, the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) andTransport Administration Act 1988 (NSW) regulate compensation for the compulsory acquisition of substratum interests in land. Under these Acts, a landowner’s entitlement to compensation for tunnel and rail infrastructure facility acquisitions does not arise until it can be established that the surface of the overlying soil is disturbed, or the support of that surface is destroyed or injuriously affected by the construction of the relevant public infrastructure.

Current litigation before the NSW Land and Environment Court, involving substratum acquisitions for the Sydney Metro project, is expected to clarify clear whether these circumstances capture the detrimental impacts on the development potential of the land above and acquired stratum or are limited to impacts on the overlying land in its present condition.

As sub-stratum acquisitions become more frequent in urban areas, it is likely that there will be increases in and refinement of the jurisprudence on the existing regimes as they apply to these types of acquisitions. Advice on this evolving area of law is important where there is a potential for detrimental impacts on above ground land uses.

Case Demonstrating the Requirement for Contracts for the Sale of Land to be in Writing

The recent case of Irvine v Dowling [2021] NSWSC 119 considered the writing requirements of an agreement to purchase an Estate property, and the entitlements of three siblings in relation to their father’s estate. Dowling was the registered proprietor of a Property of the estate, which she held on trust for herself and her siblings as beneficiaries of the estate. Dowling claimed that she was entitled to buy the Property as the highest bidder pursuant to a written Agreement between the three siblings that the property should be sold to the highest bidder by a private auction between themselves using written bids. Subsequently, the siblings agreed orally to a process of verbal bids (the Verbal Bid Agreement).

Another sibling, Irvine, commenced proceedings to have Dowling removed as executor due to her delay in administering the Estate. The case required the application of s 54A(1) of the Conveyancing Act 1919. Dowling claimed that she was entitled to purchase the property and that she had been ready, willing and able to complete that purchase.

The parties agreed that the written Agreement was valid and binding. It was a valid under s 54A because the successful bidder was required to enter a written contract to buy the property on specified terms. However, the Verbal agreement was not enforceable as it was a ‘purported variation’ because it sought to change the bidding method of the agreement but was not in writing (as required under s 54A). The Court held that while Dowling’s delay had been a breach of the Agreement, no party had purported to accept that breach and terminate the Agreement. She was thus entitled to purchase the property but, on equitable grounds was required to pay interest for her delay.

Contract for the Sale of Land – Dispute About a Penalty Clause

The recent case of Blanco v Wan [2021] NSWSC 273 involved a contract for the sale of land where the purchaser agreed to pay $205 000 (10% of the price) by instalments as a deposit. The purchaser paid $80 000 soon after exchange, and the remaining 125 000 was payable ‘on or before settlement’ or ‘upon default.’

The purchaser failed to complete the contract, so the vendor terminated it and sought to recover the $80 000 paid as well as the unpaid $125 000. The court held that the initial $80 000 was a deposit, and hence the principles concerning penalty provisions did not apply. The $125 000 was not a deposit because it was not payable at a time when it would be an earnest of performance, and that in substance it was a penalty. The amount was held to be extravagant and disproportionate to the interest of the vendor sought to be protected.

Separately, the purchaser claimed that the contract should be set aside as being unjust under the Contracts Review Act 1980 (NSW). However, this claim failed because there was no material inequality of bargaining power and because the purchaser had an adequate appreciation of the contract’s terms, and it did not operate in an unconscionable, harsh, or oppressive manner.

Offers, Acceptance and the Intention to be Legally Bound by Contract

The recent case of Hillam v JPSF Pty Ltd [2017] NSWSC 1510, considered whether a binding oral agreement existed between the parties in an agreement for a lease.

The Applicant in this case, Hillam, sought a declaration and order that a valid and binding lease existed by way of oral agreement with the respondent, and that the lease had been partly performed.

The court considered the fact that the only meeting between the applicant and respondent was when the applicant met with the LJ Hooker agent of JPSF on the premise. The agent made an offer for a new lease to the applicant, but the court found that this offer did not amount to an oral agreement because the agent had no legal authority to make any oral offer of lease to Mr Hillam. Nevertheless, a ‘Proposed Lease’ was received by the applicant. However, it was not executed until such time when the offer to lease had been withdrawn by the respondent.

The Court held that the parties had not intended to enter binding legal relations, whether oral or written, and as there was no execution of a formal lease document, there was no contract. The application was dismissed. This case demonstrates the importance of ensuring all elements of contract formation are satisfied to have a binding contract.

Build-to-rent Planning Controls

The new State Environmental Planning Policy Amendment came into effect on 12 February, that establishes a definition of build-to-rent, and which mandates minimum lifespans for BTR developments.

Build-to-rent is classified as a ‘development for the purposes of multi-dwelling housing, residential flat buildings or shop top housing where the proposed development is to be built on land zoned B3 Commercial Core, B4 Mixed Use or B8 Metropolitan under the Act, and will contain at lease 50 dwellings occupied, or is intended to be occupied by individuals under residential tenancy agreements, with all buildings containing these dwellings located on the same lot of land.’

Moreover, a Consent Authority must be satisfied that no part of the build-to-rent development will be subdivided, in order to grant consent for the construction or use of a BTR building. The criteria for these developments must be met for a 15-year minimum period, and indefinitely for the Zone B3 Commercial Core.

The amendment clarifies that any requirement to dedicate land or pay a monetary affordable housing contribution that would apply to a ‘build-to-sell’ development will also apply to a build-to-rent development. Lastly, there are new guidelines under which BTR developments can get land tax concessions. Further details of the Amendment are available here.

Recent Case on Equitable Set-off’s

A set-off is a legal procedure where two competing claims are ‘netted’ against each other. Rather than both sides of a dispute being entitled to obtain judgement against each other, their claims are set-off with the result that there is either a single amount payable by one party to the other or no amount payable at all.

In the recent case of Goldsmith v AMP Life Limited [2021] a tenant sought compensation under a lease relating to redevelopment works carried out by the landlord at a shopping centre. Before the redevelopment work commenced, a new lease was negotiated where the tenant would relocate its business in the shopping centre. The tenant owed the landlord rent under the second lease, and the question was whether the right of compensation under the first lease could be set-off against the debt under the second lease. The Court accepted this argument as both claims arose out of a continuing relationship affected by the landlord’s renovation of the shopping centre.

The Court of Appeal summarised the principles for determining whether an equitable set-off is available. Firstly, there must be a sufficient connection between the two claims. Secondly, to be sufficiently connected, one claim must ‘impeach’ or ‘go to the root’ of the other claim, so that it would be unfair for one claim to be allowed without accounting for the other. Thirdly, a set-off can arise where the claims are based on different legal instruments between the same parties.

Make Good Obligations Under Leases

In the wake of Covid-19, many tenants will not be renewing their leases and vacating premises, which is why it is important that they understand and uphold their end of lease or make good obligations.

Generally, make good clauses include the obligations such as to remove all tenant’s property from the premises including all signage and fix any damage caused, to reinstate the premises to the same configuration as the commencement of the lease, or to return the premises to a base building standard, to service all air conditioning units, to refurbish or redecorate the premises and in lieu of performing make good obligations paying the landlord a sum of money calculated on an agreed basis or as determined by the landlord.

Make good clauses may require the tenant to return the premise to a standard as articulated in a condition report. Importantly, any works required under the make good clause will likely have to be performed by the end of the lease period. If a landlord is unable to rent premises because a tenant failed to perform their make good obligations, the tenant may be liable for damages and ordered to account for the landlord’s lost income.