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Registration of Leases in Victoria

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By Evelyn Marcou, Senior Associate, MST Lawyers

The recent Court of Appeal’s decision in Cooma Clothing Pty Ltd v Create Invest Develop Pty Ltd [2013] VSCA 106 means that tenants of non-retail premises where the proposed lease term exceeds 3 years need to seriously consider whether to register the lease.

If the lease is not registered and the term of the lease is assigned and the landlord is not a party to the assignment document, the assignee of the term will have the benefit of the contract but be excused from the burden of the contract.

In Victoria, a lease for a term in excess of 3 years may be registered under section 66 of the Transfer of Land Act 1966.  A lease made by deed for a term of less than 3 years is also a legal lease. However, an unregistered lease for a term exceeding 3 years is a lease in equity.

In Cooma the the Court of Appeal held that:

(a) the Lease was a legal lease because it was for a term not exceeding 3 years;

(b) the Tenant’s signing of the Agent’s Letter gave rise to an equitable lease between the New Landlord and the Tenant (ie the Agreement for Lease);

(c) it was irrelevant that when the Agreement for Lease was made there was no privity of estate between the Purchase and the Tenant (ie because the Purchaser was not the owner of the land) because it was well established that if two parties contract as landlord and tenant neither of them can deny the title of the other;

(d) a party to a contract for a lease that is not a legal lease (ie such as the Agreement for Lease) may assign the benefit of the contract but may not assign the burden;

(e) thus, the Transfer (which transferred the Agreement for Lease from the Tenant to the New Tenant) was incapable of subjecting the New Tenant to the burden of the Agreement for Lease and under the general law this remained so ever after the New Tenant entered into possession under the Lease;

(f) after the Purchaser was registered as proprietor of the land it became, by reason of ss.141 and 142 of the Property Law Act 1958 (PLA), entitled to the benefit and the burden of the Lease;

(g) however, the assignment of the Agreement for Lease from the Tenant to the New Tenant had the effect of assigning the benefit of the contract to the New Tenant but not assigning the burden.

Accordingly, the position at general law was that the New Tenant had the benefit of the Agreement for Lease but was not subject to the burden of the Agreement for Lease.

Fortunately for the Purchaser the Agreement for Lease was a “retail premises” lease within the meaning of section 4 of the Retail Leases Act2003 (RLA). Section 8 of the RLA provides that an assignment of a lease results in a continuation of the lease as opposed to creation of a new lease. Accordingly, despite the lack of privity of contract and estate between the New Tenant and the Purchaser, the transfer of the contract for a new lease was in effect deemed by section 8 to have created privity of contract between them and thus conferred on the Purchaser a direct right of enforcement against the New Tenant.

The most important points arising from this case are that serious consideration needs to be given to whether a lease should be registered and, if the lease is not to be registered, ensuring that when negotiating leases, the clause governing assignments requires the landlord to be a party to the assignment document so as to ensure there is privity of contract between the landlord and the assignee. 

For further information on registering a lease or other commercial property matters, please contact our experienced Leasing and Commercial Property team on (03) 8540 0200.