Leases - Introduction

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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. 733-761 [8.1-8.51].

Introduction

[1] Leases, as denoted by the older term 'leasehold', are estates in land. They grant the leaseholder exclusive possession of land over a certain period of time.

  • Leases were initially merely contractual (ie, they did not confer proprietary rights and therefore did not confer proprietary remedies). This has changed and now leases create both contractual and proprietary rights.
  • Leases were historically used for agricultural purposes, and slowly shifted towards commercial and residential purposes as well.
  • Based on the false assumption that all parties have equal bargaining power, leases used to be completely free (ie, unregulated in any way).
    • Because in reality the parties usually have unequal bargaining power, this resulted in unfair contracts.
    • Today, leases are affected and regulated by certain statutory regimes (meaning certain things can't be 'waived' by agreement etc).

Leases can be divided into the following categories according to the context:

  • Residential tenancies.
  • Retail tenancies.
  • Agricultural tenancies.
  • Leases under the Crown Lands Act.
  • Other tenancies (ie, those that are not provided for by legislation).

Terminology

[2] The following terms are commonly used regarding leases:

  • Lessor/Landlord - the person granting the lease; typically the fee simple owner.
  • Lessee/Tenant - the person taking the lease.
  • Reversion - The interest retained by the lessor during the period of the lease (usually a fee simple which is subject to the lease).
  • Assigning the reversion - a transfer of the reversion (to a purchaser) during the lease (eg, the landlord sells their fee simple whilst a lease is ongoing).
  • Assigning the lease - a transfer of the lease (by the lessee/tenant) to another; the assignee of the lease fills the shoes of the original lessee for the remainder of the lease.
  • Subletting - an assignment of the lease for less than the remainder of the lease period.
  • Demised property/premises - the property that was leased to a tenant.
  • Retained property/premises - the property which the landlord did not lease to a tenant (which therefore remains in the landlord's possession).

Leases are also grouped according to their time period:

  • Fixed term lease: a tenancy set by the parties to expire at a determined time in the future. It automatically ends when period expires (eg, a 5 year lease).
  • Period lease - a tenancy that runs from one period to another, continuing indefinitely unless terminated by either party (eg, week to week, month to month).

Creation of Leases

[3] The creation of a lease includes both substantive and formal requirements:

  1. Substantive requirements:
    1. Certainty of duration (must be able to ascertain beginning and end).
    2. Right to exclusive possession (regardless of what the instrument is called, the Court will look to substance to characterise the interest).
  2. Formal requirements:
    • Formal requirements differ between Old System Title and Torrens System.

Substantive Requirements

Certainty of Duration

Fixed Term Tenancies

[4] The lease must have a duration that is certain, or at least capable of being rendered certain (ie, it must be known at the outset when the lease will start and end).[5]

  • A two-part test establishes certainty of duration: Both the commencement date and the maximum duration of the term must be rendered certain at the time the lease takes effect.[6]

A fixed-term lease will not have sufficient certainty of duration if it is specified that a lease ends on the occurrence of a particular event (eg, for the duration of the war,[7] until the end of the crop,[8] until new premises are built[9]).

  • However, a lease can specify a maximum duration and then that the lease will end if such an event occurs during that period of time. Since the maximum period of the lease is certain, there is still certainty of duration.

Periodic Tenancies

[10] Since periodic tenancies are indefinite (ie, the maximum duration is not certain during commencement), they do not seem to meet the requirement of 'certainty of duration'.

  • However, they 'circumvent' this requirement because they are treated as actually a series of fixed term leases (ie, a lease for a month or a week) with definite durations which are then automatically renewed unless notice is given.

Parties to a lease may combine the features of a fixed term lease and those of a periodic tenancy.

  • In Amad v Grant,[11] the lease provided for a weekly rent, payable monthly in advance. The tenancy was not to be determined except upon one month’s notice and in any event was to continue for three years at least. This transaction could be regarded as creating a monthly tenancy, determinable on one month’s notice, provided that the notice could not be given by either party for at least 3 years.

Two exceptions are made for the 'certainty of duration' requirement:

  1. Tenancy at will.
  2. Tenancy at sufferance (where the tenant remains in possession after the expiry of a lease without the consent or dissent of the landlord).

Exclusive Possession

[12] In order for a lease to be valid, it must confer upon the lessee exclusive possession of the premises. Broadly speaking, a lessee has exclusive possession if they can exclude strangers and the landlord from the premises and maintain an action of ejectment or trespass.

This was discussed in Radaich v Smith:

  • The distinguishing feature between a license and a lease is exclusive possession. If there is exclusive possession, there is a lease and not a license .
  • Where not explicit, it will be necessary to determine whether the parties intended the instrument to confer exclusive possession (in order to determine whether the instrument is a lease). This determination is based on conduct and circumstances as opposed to words or labels.

Whilst Radaich has been widely accepted, the court in Chaka Holdings v Sunsim held that the label given to parties in an agreement is not completely irrelevant in discerning the intention of the parties (that is, it is a subordinate consideration to the conduct and circumstances).[13]

Formal Requirements

Torrens Land

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Old System Land

[14] A legal lease must be in a deed pursuant to s 23B (1) of the Conveyancing Act 1919 (NSW). The exceptions are:

  • Oral lease at best rent, without a premium and for less than three years (ie, leases under 3 years don't have to be by a deed).[15]

A lease which fails to abide by these legal requirements might still be enforced in equity. Equity will only enforce a lease in the following situations:

  • A specifically enforceable 'agreement for a lease' which satisfies the requirements of s 54A.[16]
    • s 54A broadly requires either a written agreement (as opposed to a deed which is usually required) or acts of part performance.
  • Implied leases (see below).

Implied Leases

[17] An implied leases arises when no valid lease was executed yet a person went into possession and pays rent (ie, when the lease was actually void yet the parties adhere to it).

  • In common law, this implied lease will be periodic, and either yearly or by reference to other periods (depending on the method of payment).
  • This has been superseded by statute, which now says that an implied lease is a tenancy at will.[18]

Implied leases were discussed in Dockrill v Cavanagh:


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[19]

[20]


[21]

[22]

End

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References

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

  1. Textbook, pp. 733-6 [8.1-8.8].
  2. Textbook, pp. 736-8 [8.9-8.12].
  3. Textbook, pp. 738 [8.13].
  4. Textbook, pp. 738-9 [8.14].
  5. Say v Smith and Fuller' (1530) 1 Plow 269; Prudential Assurance Co v London Residuary Body [1992] 2 AC 386.
  6. Lace v Chantler [1944] KB 368.
  7. Lace v Chantler [1944] KB 368.
  8. Bishop v Taylor (1968) 118 CLR 518.
  9. Mangiola v Costanzo (1980) ANZ Conv R 331.
  10. Textbook, pp. 739-40 [8.15-8.17].
  11. (1947) 74 CLR 327.
  12. Textbook, pp. 740-44 [8.18-8.22].
  13. (1987) NSW Conv R ¶55-367.
  14. Textbook, pp. 746-9 [8.28-8.30].
  15. Conveyancing Act 1919 (NSW), s 23D (2).
  16. Walsh v Lonsdale.
  17. Textbook, pp. 749-58 [8.31-8.45].
  18. Conveyancing Act 1919 (NSW), s 127 (1).
  19. Textbook, pp. .
  20. Textbook, pp. .
  21. Textbook, pp. .
  22. Textbook, pp. .
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