Leases - Assignment

From Uni Study Guides
Jump to: navigation, search

This article is a topic within the subject Property, Equity and Trusts 2.

Contents

Required Reading

Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008, pp. 799-813 [8.118-8.138].

Introduction

[1] To be able to enforce covenants after assignment, one needs privity of contract or privity of estate.

  • A covenant is a term of contract that, if breached, provides the innocent party a cause of action. If there is privity of contract between the parties, the covenants are enforced in a straightforward manner just like any other contract.
  • However, after one of the original parties assigns their interest, there is no privity of contract between the landlord and the tenant (since one of the parties, the assignee, is not a part of the original agreement).
  • In certain circumstances, the party seeking compensation has two possible courses of action: sue the other original party under privity of contract or sue the assignee under privity of estate. The situations in which these arise are explained below.

Privity of Contract

[2] An original party which has assigned its interest may still be liable to the other original party if there is continued liability.

  • Continued liability is where the assignor covenants for himself and for any successors in title. If there is continued liability, than the assignor is liable in contract for subsequent breaches of the assignees even after the assignment of the lease.

At common law, whether there was continued liability was merely a question of the construction of the lease. However, s 70 and s 70A of the Conveyancing Act 1919 (NSW) now states that there is a presumption in favour of continued liability, which can be displaced by a clear contrary intention in the assignment.

  • This means that in most cases, an original party to the contract can sue another original party for a breach of a covenant made by its assignee.
  • The assignees will usually have to indemnify the assignor.

A situation like this arose in Moule v Garrett:[3]

  • Facts: the plaintiff was a lessee, who assigned his lease which was later assigned to the defendant. The defendant breached a covenant, and the lessor sued the plaintiff for that breach (because there was continued liability). The plaintiff is seeking indemnification from the defendant.
  • Held: the defendant has to pay indemnification, because of a common law obligation to indemnify the person who paid for his breach.

Privity of Estate

Privity of estate exists when there is a relationship of landlord and tenant between the parties. Privity of estate allows a party to sue a covenant-breaching assignee, with whom it does not have privity of contract.

However, an assignment only transfers those covenants 'with reference to the subject-matter of the lease' (or 'touched and concerned' the land) to the assignee. Accordingly, where is only privity of estate, only covenants of that nature can be enforced.[4]

  • Examples of covenants that touch and concern the land include covenants to pay rent, to repair, for the use of the premises, for the insurance of premises.
  • Examples of covenants which do not touch and concern the land include covenants which relate to payment of rates other than concerning the land, option to purchase contained in the lease.

These matters were discussed in Re Hunter's Lease; Giles v Hutchings:[5]

  • Facts: the defendant was a lessee whose original lessor covenanted to pay him money if he (the lessee) decided to not renew the lease. The lessor later assigned his reversion, and the assignee claimed he is not bound by that covenant. The lessee argued that it should be viewed the other way, as a right to renewal which the lessor can avoid by paying a sum.
  • Held: both the covenant to compensate for non-renewal as well as the right to renewal do not constitute covenants which touch and concern the land.

And in Ashmore v Eaton:

  • An assignee of a reversion acquires the right to sue for breaches of covenants committed before the assignment as well, and thus the assignor loses that right.
  • This right can be re-assigned in the contract for sale, so that the assignor of the reversion 'retains' (or rather, 'gets back') his right to sue for those breaches. He becomes the assignee of those rights.
  • This assignment is equitable until notice is given to the lessee, at which point it becomes legal.
    • So long as the assignment is equitable, the covenants can only be enforced if the purchaser of the reversion (assignor of those rights) is made a party to the proceedings (as either a plaintiff or a defendant).
    • Once it is legal, the assignee of those rights can sue on his own.

Ashmore v Eaton was applied in both Dalegrove Pty Ltd v Isles Parking Station Pty Ltd (where the the court held that the rights to sue applied even in the case where the lease was equitable),[6] and in G & A Lanteri Nominees Pty Lts v Fishers Stores Consolidated Pty Ltd (where the plaintiff succeeded because it made the assignor of the right to sue a party to the action as required in Ashmore).[7]


Sorry! This section is still incomplete. If you wish to help us, please click here.


Registered assignees

[8] s 51 of the Real Property Act 1900 (NSW) provides that the a registered assignee is transferred all of the rights and responsibilities of the assignor.

  • This means that a registered assignee and a landlord are treated as having privity of contract.
  • Whilst the wording of s 51 only mentions the assignment of leases as opposed to reversions (ie, only the assignment of the lessee's rights), it has been held that the sections applies to both situations.[9]

Rules do not apply to subleases or squatters

[10] A sublease is distinct to an assignment.

  • An assignment destroys the original privity of estate and creates a new privity of estate relationship between one of the original parties and the assignee. The assignor loses its interest in the property.
  • In contrast, a sublease does not destroy this privity of estate, since the sublessor retains its interest in the property. As a result, new privity of estate is not created, and the original party cannot sue the sublessee. It can only sue the sublessor (with whom it originally contracted) under privity of contract (which persists regardless of continued liability).

Similarly, a squatter who bars the title of a tenant by adverse possession is not an assignee, and no covenants can be enforced against him.

End

This is the end of this topic. Click here to go back to the main subject page for Property, Equity and Trusts 2.

References

Textbook refers to Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008.

  1. Textbook, pp. 799 [8.118].
  2. Textbook, pp. 799-800 [8.119-8.120].
  3. (1872) LR 7 Ex 101.
  4. With regards to assignment of the lease: Spencer's Case (1583) 5 Co Rep 16a; with regards to assignment of the reversion: Conveyancing Act 1919 (NSW), s 117, s 118.
  5. (1942) Ch 124.
  6. (1982) 12 NSWLR 546.
  7. (2005) V ConvR 54-708.
  8. Textbook, pp. 801-2 [8.124].
  9. Measures v McFadyen (1910) 11 CLR 723.
  10. Textbook, p. 803 [8.126].
Personal tools
Namespaces

Variants
Actions
Navigation
Toolbox