Two recent decisions in the WA Supreme Court of Appeal regarding the Transfer of Land Act 1893 (WA) have significant ramifications for tenants, landlords, buyers and financiers alike.
Section 68 of the Transfer of Land Act
A registered proprietor generally obtains a certificate of title to a property free of any unregistered interests. In WA, an exception exists under the Transfer of Land Act for unregistered leases for a term not exceeding five years where the tenant is in actual possession of the premises. Although an unregistered lease of less than five years is protected, any options to purchase and options to renew contained in the lease are not protected. These leases will therefore need to be registered (if the term is over three years).
Lighting by Design
In 2004, Lighting by Design entered into a lease for a term of seven years. The lease was not registered.
In 2006, the landlord sold the property to Cannington Nominees Pty Ltd. In 2007, Cannington Nominees wrote to Lighting by Design purporting to terminate the lease. Lighting by Design sought a declaration that the lease was valid.
At first instance, the Supreme Court held that the unregistered lease for a term exceeding five years was extinguished upon registration of the transfer of title.
On Appeal, the Supreme Court reiterated that an unregistered lease for a term exceeding five years was extinguished upon registration of the transfer of title.
While the lease was held to be extinguished, the Supreme Court ultimately found that a new lease had been entered into between Lighting by Design and Cannington Nominees based on the parties’ conduct. This conduct included Cannington Nominees’ permitting Lighting by Design to continue to possess the premises and accepting payment of rent and outgoings which were payable under the previous lease after the transfer of the title.
In 2011, Primewest entered into a contract with Ryom Pty ltd and Kedo (Aust) Pty Ltd for the sale of commercial retail property. At the time of entering into the contract, parts of the property had been leased to six tenants, with two of the leases (Harvey Norman and Avanti) for terms in excess of five years.
The Avanti lease was not registered. The transfer of the lease from Rick Hart to Harvey Norman was also not registered.
By the contact, the seller was required to provide any deed of affirmation or other document relation to the lease and continuation after settlement as the buyer may require.
The buyer required the seller provide evidence of registration of the transfer of the lease from Rick Hart to Harvey Norman and a deed of affirmation in relation to the Avanti lease.
The buyer terminated the contract following the seller’s failure to provide the requested documentation to the buyer at settlement.
The Supreme Court of Appeal held the buyer validly terminated the contract as the terms of the contract was broad enough to capture the registration of the transfer and the deed of affirmation and that the buyer was entitled to request those documents under the contract.
Implications for lenders
The Primewest and Lighting by Design decisions are a stark reminder of the importance and consequences of not registering leases where the lease term is more than five years.
Landlord, tenants, buyers and their financiers have a vested interest in registering leases for terms in excess of five years to secure tenure, protect income steams, increase asset value and reduce delays in returning debts to financiers.
Buyers and financiers should conduct proper due diligence on any property acquisitions to ensure that leases for terms longer than five years are registered or appropriate deeds are entered into to ensure the buyer takes the benefit of and is subject to the burden of an unregistered lease from settlement and the tenant continues to take the benefit and burden of an unregistered lease from settlement.