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Introduction To Leases And Covenants Notes

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This is an extract of our Introduction To Leases And Covenants document, which we sell as part of our Property and Equity 2 Notes collection written by the top tier of University Of New South Wales students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Property and Equity 2 Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Class 8.1 - Leases Introduction

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Leaseholds are estates in land, carved out of a freehold but limited in time. But this was not always so; the rights used to exist in contracts but since leases generally arise in contracts they are a "curious hybrid which hovers between the world of property and contract"

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The common law of leases has been substantially modified by statute since the middle of the 19th century to deal with changing local conditions - e.g. the common law leases incompatibility with pastoral land

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Yet still the modern law of landlordtenant retains common law influence - in particular with the laissezfaire philosophy dominating the law of contract (e.g. in the absence of specific legislation parties are free to dictate their terms however they want)

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However the inadequacy of this, captured by the inequality and hardship rather than the independence and autonomy that results from parties of unequal bargaining power, led to a political shift with the introduction of legislation that is protective of weaker parties in the marketplace - with the rejection of the laissezfaire approach

Residential Tenancies mainly due to a shortage of satisfactory housing reformers emphasised the need to frame residential tenancy laws in terms of the protection offered to consumers. Other reform includes the role of public authority in providing public housing. In the private sector the law has established obligations on landlords which cannot simply be waived by 'agreement' o

Some of the regulation includes payment and deposit of bonds, rental increases, termination etc.

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Retail tenancies - the introduction of the TPA and legislation for retail tenants (especially shopping plaza leases)

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Agricultural Tenancies - Protection of tenants as in retail but also things like giving longer notice periods to terminate

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Leases under the Crown Lands Act - Introduction of things like perpetual leases

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Other tenancies - this is where the common law applies; it does so in leases forming a predominant part of the rental sector economy

The general law of landlord and tenant Terminology

* Lessor/Landlord - person granting the lease; their interest in the land is called the reversion (generally consists of the fee simple but can also be a life estate)

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Lessee/Tenant - person taking the lease

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The lessor lets/leases/demises the premises

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If the lessor disposes of his interest, he does so by assigning the reversion

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The lessee can dispose of it by assigning the lease; with the new lessee stepping in the shoes of the old (if the purported sublease is equal to or in excess of the original lease it is an assignment - Milmo v Carreras)He can also sublet the premises, giving the sublessee possession but receiving rent (if the sublease is less than the original it is a sublease - Lonsdale v Carra)Yearly tenants has a sufficient reversion to sublease for a term of yearsProtected tenants can sublet for a longer term than the contractual lease has left to run

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Term of years - lease for a specified period that continues for this duration unless determined earlier

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Periodic tenancy - continues for a designated period, and continues thereafter for that period unless appropriate notice is given. It is a tenancy for a specified period with a superadded provision that it is to continue for the same period unless determined by proper notice to terminate before the end of the first o

Hence the landlord can't unilaterally determine rent - if the tenant doesn't agree with new rent he has to give notice to terminate and offer a fresh tenancy at the proposed new rent

Creation of leases

* Landlordtenant relationships are usually created by documentary formalities expressing agreement but they can also be created by implication, for example if: o

Tenant continues possession ('holds over) after determination of the lease and landlord accepts rent, the lessee obtains a fresh leasehold by implication

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Tenant entering possession without concluding an agreement acquires a tenancy by implication of law if rent is paid and accepted

Substantive Requirements Certainty of duration Fixed term tenancies

* A valid lease must be of a duration that is certain or at least capable of being rendered certain o

Lace v Chantler - 'for the duration of the war' - invalid

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Bishop v Taylor - 'the end of peanut crop or end of harvesting period' - invalid

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Prudential Assurance Co v London Residuary Body - 'until needed by the landlord for widening the highway' - invalid

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Wilson v Meudon - tied to the duration of the ownership of shares - invalidBut this does not stop people from introducing a determinable limitation so long as a maximum period is specified. In Lace v Chantler statute modified all wartime tenancies into 10 years max determinable upon the end of the war; thus validating them

Periodic Tenancy

* The requirement of certainty is taken to be met by the fact that they are deemed to be fixed
term leases with superadded provisions to continue unless brought to an end by notice

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Parties can combine the features of a term of years and those in a periodic tenancies o

Amad v Grant - weekly rent, payable monthly in advance, not to be determined except upon one month's notice and was in any event to continue for at least 3 years.o

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Held (HCA): Monthly tenancy created, determinable on one month's notice with a proviso that notice can't be given for at least 3 years

Re Midland Railway Co's Agreement - court upheld a clause in a lease from half
year to halfyear where the landlords agreed not to terminate until they required the premises for the purposes of their own undertaken

But you cannot stipulate that only the lessee and not the lessor can determine - this is repugnant to the nature of the tenancy and therefore void (Centaploy v Matlodge)

Tenancies at will

* Leasts until terminated by notice but can require a period of reasonable notice to be given (iLandale v Menzies) o

This is called a packing up period

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Generally tenancies at will are created by implication of law (e.g. someone takes possession pursuant informal lease before rent is paid)

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It is unlike other leasehold interests since it is determined by death, or by an attempt to assign by the tenant

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The tenant at will is liable to pay, absent an agreement, a reasonable sum for use/occupation of the land (Zegir v Woop)

Tenancies at sufferance

* Arises when at the expiry of lease the tenant 'holds over' without the assent or dissent of the landlord

Exclusive Possession

* There must be a grant of exclusive possession. Case law has had to play around with this idea since people have tried to circumvent legislation by using shifty words Radaich v Smith (1959) 101 CLR 209 Facts: Deed made between the parties provided that, inter alia, 'The Licensors hereby grant to the Licensee for a term of five years...the sole and exclusive license and privilege to supply refreshments to the public admitted to'.

McTiernan J referred to the fact that the word 'lease', 'lessor', or 'lessee' was completely excluded from the document and the term 'licence' instead sedulously applied to the rights created. However this isn't conclusive and it is the substance of the deed that matters. Resolving the authorities:

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"...save in exceptional cases...the law remains that the fact of exclusive possession, if not decisive against the view that there is a mere license, as distinct from a tenancy, is at all events a consideration of the first importance"

? In this particular case to 'carry on the business of a milk bar' (in a 'lock up shop' arrangement) could only be done by exclusive possession
? Furthermore the agreement contemplates that the "licensee" has control of the premises, who enters them etc. during business hours and at all other times
? Hence this amounts "in truth and in substance to a lease" Windeyer J conceptualized it as a matter not of words but rather of intention in the sense that "it depends on the nature of the right which the parties intend the persons entering upon the land shall have in relation to the land".

And the fundamental right that a tenant has as distinct from a licensee is exclusive possession (the mere fact that the landlord has for example a limited right of entry (e.g. to view repairs isn't inconsistent with exclusive possession).

He also referred to a trend of what were previously called tenancies at will as being now regarded as license - but said that these cases simply say that the sole factor of occupation is not necessarily exclusive possession at law

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The approach in Radaich v Smith is widely followed in Australia and in Addiscombe Garden Estates v Crabbe the QB was clearly in favour of it o

Facts: Owner of tennis courts purpoted to license trustees of a club to use it in consideration of monthly 'court fees'

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Held: This was in substance a lease due to exclusive possession, the court fees being rental payments

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Cf Somma v Hazle Hurst - unmarried couple each signed a 'license agreement' in respect of a bedsitter, giving the licensor use of the room and to nominate another who could use it too.*

If the document is a sham and conceals the true nature of the bargain stuck by the parties, the court looks to the substance of the relationship o

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A 'license' that gave wide5ranging rights to introduce other occupants, given the property was extremely small, was held to create a lease (Ag Seecurities v Vaughan)

Chaka Holdings v Sunsim - Young J says the label is one of a number of important factors taken into consideration, and it is not irrelevant in lease/license cases o

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Held: Didn't create a lease since neither licensee had exclusive possession and even if they had a 'joint interest' they didn't have a right to exclusive possession of the room - hence they were licensees

e.g. in WA Club v Nullagine Investments - even though there was no right to quiet enjoyment the 'common sense of the matter' implied such a covenant from right of sole and exclusive use

Isaac v Hotel de Paris (caution WAR): Respondent company holds a lease over a hotel which Isaac took possession of the first floor. o

Held: (Without referring to Radaich) - The conduct of the parties and surrounding circumstances showed he was merely intended to have the personal privilege of running the bar without an interest in the premises. This was so even though he had exclusive possession of the first floor.

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Cf Cobb v Lane - defendant was allowed possession of his sister's house and did so without rent until she died. He calimed adverse possession (given that a tenancy at will was by (now repealed) statute determined after a year)Held: It was a mere license - the character of the defendants interest depended upon intention as ascertained from the surrounding circumstances
- the familial arrangement to provide him financial assistance suggested the absence of a binding legal relationship, and, rather, a personal privilege

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This is one of the exceptional cases referred to in Radaich v Smith

Exclusive possession - further exceptions

* "The intention to create a tenancy was negatived if the parties did not intend to enter into legal relationships at all, or where the relationships between the parties was that of vendor and purchaser, master, and service occupier, or where the owner, a requisitioning authority had no power to grant a tenancy" - Street v Mountford

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Examples include: o

Cases where exclusive possession is granted by one family member to another (Cobb v Lane, Heslop v Burns)

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An employer granting an employee possession in order to perform their duties creates a license even if exclusive possession is conferred (Australian Convention &

Exhibition Services v Sydney City Council) since these duties are 'subservient' to the occupation*

But if the grant of exclusive possession represents remuneration, a lease is created. This is so even where the employee has duties to perform while in occupation if a demonstration of a clear intention that they intended a lease is shown (HA Warner v Williams)

Streatvield v Winchcombe Carson Trustee Co o

Facts: W was the owner of 440h of rural land in NSW and agreed (an 'agistment agreement') with the plaintiffs that they could pasture cattle. The area of the land wasn't clearly defined and dependent on the state of the development of Ws land. During the agreement W used the land as he saw fit (permitting use by a beekeeper, holding a press conference etc. - it wasn't expected that he sought the plaintiffs permission)Held: W remained in possession and merely permitted the grazing of cattle for a fee. This was a license not a lease.

Formal Requirements Torrens Title

* In Torrens land, by s 53(1) of the RPA leases of three years or more must be registered Old System

* The New South Wales provisions of the Conveyancing Act provide: o

s 23B(1) No assurances of land shall be valid to pass an interest at law unless made by deed(2) Doesn't apply to c) A surrender c) a tenancy not required by law to be made in writing(3) Doesn't apply to the RPA

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s 23C(1) No interest in land can be created/disposed of except in writing signed by the person conveying it or their agent authorized to do so in writing, by will or by operation of law

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s 23D(1) All interests created by parol and not put in writing signed by the conveyor/agent shall have the force and effect of interests at will onlyo

(2) But nothing in any of the above section applies to parol leases at best rent without fine taking effect in possession for a term not exceeding three years, with or without a right to extend the term at best rent without fine for any period which with the term would not exceed 3 years

s 23E - Doesn't affect the acquisition of interests by possession

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Where the short term legal lease exception applies any special terms agreed upon can be proved and enforced (Bolton v Tomlin) o

This subsection applies to periodic tenancies even if they continue for more than three years before they are determined

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But it doesn't apply to fixed terms over 3 years even if they can be determined at an earlier stage

'Taking effect in possession' o

VIC/WA - tenant must take possession as soon as it is made

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NSW - Tenant must have an immediate right to possession

Agreements for a lease, even for less than 3 years, must be either in righting or supported by acts of part performance in equity

Agreement for a lease

* These are enforceable at law provided they satisfy the statute of Frauds

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But equity, acting on Walsh v Lonsdale can regard parties to an enforceable agreement (in writing or supported by part performance) as landlord and tenant, by specific performance (subject to the usual considerations) o

Such considerations could include - if the grantor was in breach of the head lease (Warmintgon v Miller)

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Where the tenant persistently breached the terms of the agreement (Marshall v Snowy River Shire Council)

Industrial Properties v Associated Electric Industries o

Facts: Landlord enters into agreement to grant lease without having legal title (didn't take conveyance)

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Held: W v L is not confined to a direct contractual link, the court can grant SP fo both agreements and treat the parties as landlord and tenant in equity

Generally this will be further subject to contractual rules as to final agreements (Masters v Cameron - something 'subject to contract' will not be enforceable') o

But the contemplation of execution of a formal document does not deny the agreement binding effect (Branca v Cobarro) and the court can fill in gaps as long as the parties and the rent are included

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The law implied certain terms/covenants in the absence of agreement to the contrary

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It is an implied term of an agreement for a lease that the formal lease, when executed, will contain the usual covenants to be found in leases

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Hampshire v Wickens - agreement for a lease on 'all usual covenants and provisos'

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