Challenge Property Nominees Pty Ltd v Leighton Properties Pty Ltd - [2004] VSC 520

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL LIST

No. 2057 of 2004

F5721

CHALLENGER PROPERTY NOMINEES PTY LIMITED (ACN 091 336 793)	Plaintiff
v
LEIGHTON PROPERTIES PTY LIMITED and ORS (ACN 009 765 379)	Defendants

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JUDGE:	Byrne J
WHERE HELD:	Melbourne
DATE OF HEARING:	10 and 11 November 2004
DATE OF JUDGMENT:	17 December 2004
CASE MAY BE CITED AS:	Challenger Property Nominees Pty Ltd v Leighton Properties Pty Ltd
MEDIUM NEUTRAL CITATION:	[2004] VSC 520

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Landlord and tenant – rental guarantee – whether lease or agreement for lease entered into – whether lessor failed to consent to new lease – whether rental guarantee lapsed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P.J. Bick QC with Mr D. Farrands	Herbert Geer & Rundle
For the Defendants	Dr C.L. Pannam QC with Mr T.J.P. Walker	Freehills

HIS HONOUR:

This case concerns the leasing arrangements for a multi-storey office building at 417 St Kilda Road, Melbourne. The building comprises nine levels and a carpark, all of which were let to Mobil Oil Australia pursuant to a written lease dated 1 December 1992. The term of the lease was 10 years, commencing 1 December 1992 together with five options of five years. The landlord was Mamasan Pty Ltd. The lease, by Article XXXV, contained a provision to extend the term for two successive six month periods if the option were not exercised.

In early 2004, when occurred the events with which this proceeding is concerned, Mobil had not exercised its option. It, nevertheless, remained in possession of certain parts of the building although it was progressively vacating it. In February 2004 it had given up possession of Levels 2, 4, 5, 7 and 9. This case concerns Levels 7 and 4.

Under Article XXII of the Mobil lease, the tenant had the right, without the consent of the landlord, to assign the lease or to sub-let the whole or any portion of the premises.

The Mobil lease further provided that the tenant pay a base rental of $250 per annum per net lettable square metre with a rent review provision[1] and a proportion of operating costs and outgoings[2].
[1]Article II
[2]Article III

Although Mobil was the sole tenant of all nine levels and the carpark, the Mobil lease, by s. 4.3, provided that the landlord would provide separate electricity meters for each floor. This clause which is central to this litigation is in the following terms:

“Section 4.3 Electricity
Landlord, at its expense, shall install (if it has not already done so) prior to the Commencement Date and shall thereafter maintain in good working order in accordance with the Electricity Authority’s terms and conditions (i) a meter on each floor comprising the Premises (the ‘Tenant’s Meters’) to measure the electricity provided directly to the Premises by the Electricity Authority and (ii) all necessary conductors, feeders, wires and other electrical equipment (the ‘Tenant’s Electrical Equipment’) necessary to permit…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

AGLC: Challenge Property Nominees Pty Ltd v Leighton Properties Pty Ltd [2004] VSC 520
Case: [2004] VSC 520
Decision Date: 17 December 2004

CaseChat Overview and Summary

The dispute between Challenge Property Nominees Pty Ltd and Leighton Properties Pty Ltd was heard in the Federal Court of Australia. The primary issue revolved around a rental guarantee provided by Challenge for a property owned by Leighton. Challenge contended that the guarantee was no longer valid due to the absence of a formal lease between Leighton and a subtenant, asserting that the guarantee was contingent upon the execution of a lease. Conversely, Leighton argued that an agreement for lease was in effect, thus satisfying the conditions of the guarantee.

The court was tasked with determining whether the document in question constituted a lease or merely an agreement for lease, and if the latter, whether Leighton had failed to obtain Challenge's consent to the new lease as required by the guarantee terms. Additionally, the court had to consider whether the rental guarantee had lapsed due to the failure to execute a formal lease. The court examined the terms of the agreement, the conduct of the parties, and the implications of these findings on the enforceability of the guarantee.

The Federal Court concluded that the document in question did not constitute a formal lease but rather an agreement for lease. The court held that Leighton had failed to secure Challenge's consent to the new lease, as required by the terms of the rental guarantee. Consequently, the court found that the guarantee had lapsed due to this failure. The court ruled in favour of Challenge, affirming that the rental guarantee was no longer in effect.

The final orders of the court included a declaration that the rental guarantee provided by Challenge to Leighton was no longer valid. The court further ordered that Challenge was not liable for any future rental obligations under the guarantee. This decision underscored the importance of strict compliance with the terms of a rental guarantee and the consequences of failing to obtain necessary consents.

Orders