In Queensland, registered leases can be surrendered first by a registrable Form 8 - Surrender, together with a Form 18 - General Consent (if necessary) and secondly by operation of law[i].
This article considers the possible impact of surrendering a lease by operation of law where a mortgage is registered over a lease.
Surrendering by operation of law occurs where the parties to the lease surrender a lease by an act or conduct of the parties without the need for a Form - 8 instrument. The act must be inconsistent with the current lease and assented to by the other party to the lease. All interest in the existing lease is removed when the surrender by operation of law occurs as if the lease expired at the end of its term. Section 69 of the Land Title Act 1994 (LTA) does not expressly prescribe a method for recording such a surrender where a mortgage of lease is registered.
Consequences for mortgagees
A mortgagee’s consent is required where the lease is to be surrendered by a way of an instrument of surrender[ii]. On the face of it, the LTA does not require a mortgagee’s consent to a lease being surrendered by operation of law. The obvious consequence is that a registered mortgage of lease will also be removed from title, without the need for mortgagee consent.
Gadens acted for a client who had a mortgage over a lease (Lease A). The Landlord and Tenant amended the terms of the lease (which our client was aware of), and they registered a new lease (Lease B) over the same premises, without informing our client. The documents were submitted to the Titles Registry and:
- Lease A was surrendered by operation of law
- Our client’s mortgage was removed
- Lease B registered and our client was unsecured.
Possible interpretation of section 69 of the LTA
Gadens made a submission to the Titles Registry that, although a Form 8 is ordinarily used as an “instrument of surrender”, section 69 (2) of the LTA could be interpreted to say that a mortgagee’s/sublessee’s consent is required where a surrender by operation of law occurs and there is a registered mortgage of lease. Although the current opinion is that section 69(2) does not apply to surrender by operation of law[iii], the existence of a mortgage (or sublease[iv]) warrants a different interpretation of that section.
In our opinion, the registration of Lease B was of itself on a broad interpretation an ‘instrument of surrender’ in its own right within section 69(2) of the LTA, i.e. a ‘document that deals with a lot and may be registered under the LTA’[v]. Therefore, a mortgagee’s consent should have been obtained before it was surrendered by operation of law.
Following Gadens’ submission, the Titles Registry has agreed regarding the possible interpretation of section 69 (2) of the LTA and mentioned that moving forward, it will be the practice of the Titles Registry to require evidence of mortgagee’s consent to be deposited before a lease encumbered by a mortgage is surrendered by operation of law.
The practice will be reflected in the next update of the Land Title Practice Manual.
Mortgagees can now find comfort in knowing they will need to provide their consent before a lease subject to their mortgage can be surrendered by operation of law.