Is your WA lease destroyed on a transfer? - The Primewest appeal

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The long awaited appeal judgement of Primewest (Mandurah) Pty Ltd v Ryom Pty Ltd [2014] WASCA 28 was handed down on 5 February 2014 (see our earlier article Buyer and Tenant Beware - Registration of Leases in Western Australia of July 2013 ('Original Article')).

As detailed in our Original Article, Primewest (the seller) had commenced action in the first instance against Ryom (the buyer) for failing to be ready, willing and able to settle.

Ryom countered that it had validly terminated the Sale Contract as Primewest had failed to provide documents (required by the Sale Contract) confirming that a lease subject to an unregistered transfer and an unregistered lease would both remain enforceable following the transfer to Ryom.

The trial judge Edelman J found that it was reasonable of Ryom to require the documents, and in doing so, referred to the decision in Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2007] WASC 88 ('Lighting By Design') that any unregistered lease of more than five years is 'destroyed' upon the new owner becoming the registered proprietor of the land.

This decision had major implications for tenants and buyers alike, as it confirmed that tenants and buyers could walk away from any unregistered and uncaveated lease of more than five years once the transfer to the buyer was complete. While a tenant could protect its leasehold interests by lodging a caveat, a landlord could only protect its interests in the lease by registration.

The appeal

The appeal was brought by Primewest on three grounds. The first two grounds focused on the construction of the Sale Contract and the characterisation of documents requested by the purchaser.

The third ground of appeal went to the reasonableness of Ryom's request for documents from Primewest, given that its interests as incoming landlord could (purportedly) have been otherwise protected.

The main question

The main question for tenants and buyers was whether the court of appeal would ratify or dismiss the view that a transfer of land would have the effect of 'destroying' an unregistered lease of more than five years.

Martin CJ noted that:

(a)    no appeal had been brought from the trial judge's finding that, whether it was correct or not, the decision in Lighting By Design provided a reasonable basis for Ryom to require the documents given that it had not been overturned or disapproved; and

(b)   this appeal had been conducted on the basis that Ryom's concerns with respect to the possible destruction of the lease for the reasons set out in Lighting By Design were justified.

The court considered that in those circumstances it would not be appropriate for it to consider or question its validity. Martin CJ further noted that his reasons for dismissing the appeal should not be construed as necessarily endorsing the legal premise underpinning the Purchaser's concerns, which has not been the subject of contentious argument or detailed consideration."

Regrettably, from the perspective of whether the court of appeal would ratify or dismiss the view that a transfer of land would have the effect of 'destroying' an unregistered lease of more than five years, the decision does not advance matters beyond Lighting By Design.

Third ground of appeal

The third ground of appeal led by Primewest was a proposition not advanced at trial, and as such could not be considered in detail by the court, due to the lack of evidence.

Primewest asserted that Ryom could have protected its interests by taking a transfer of title subject to the unregistered transfer and unregistered lease, and that "a transfer of land could be qualified by recording the unregistered leases as encumbrances on the certificate of title, in the second schedule of that document, pursuant to s 68 of the Act."

The court noted that, had this point been taken at trial, evidence with respect to conveyancing practice and usage would have been relevant. The fact of whether the practice of taking a transfer subject to an unregistered interest was largely unknown to conveyancing practitioners or repute, or whether it was commonplace, would have been relevant to the assessment of reasonableness. While he was of the view that in the absence of evidence adduced at the trial, the court was not in a position to consider the legality of this course of action, Martin CJ noted that:

The fact that the Seller's representatives have only been able to identify two decided cases in the entire history of dealings in land subject to title by registration in Australia in which reference is made to the possibility of a transfer subject to unregistered interests suggests that the practice is not commonplace, widespread, or generally regarded as legally efficacious.

Conclusion

Although no decision was made in respect of Primewest's assertions as to the legality of a transfer subject to unregistered leases, the comments of the appeal court suggest there is doubt about relying on that course.

This appeal neither ratified nor dismissed the decision in Lighting By Design. However, given the fact that:

(c)    Lighting By Design has still not been overturned or disapproved; and

(d)   the appellant did not appeal from the trial judge's finding that the decision in Lighting By Design provided a reasonable basis for Ryom to require the documents before settling;

it is a brave person who assumes that their unregistered and uncaveated lease of more than five years will continue to be enforceable following the transfer of land the subject of the lease.

Topics:  Landlords, Leases, Tenants, Transfers

Published In: Civil Procedure Updates, General Business Updates, Commercial Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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