Gillion v Casserly and Casserly
[2005] QSC 144
•27 May 2005
SUPREME COURT OF QUEENSLAND
CITATION:
Gillion & Anor v Casserly and Casserly & Anor [2005] QSC 144
PARTIES:
GRAHAM BRUCE GILLION
(first applicant)
and
AKUITY PTY LTD ACN 071 202 947
(second applicant)
v
PETER MICHAEL CASSERLY and CATHERINE MARY CASSERLY as trustees under Instrument Number 703983829
(first respondents)
and
JOHN RICHARD SALKELD
(second respondent)FILE NO:
BS No 2565 of 2005
DIVISION:
Trial
PROCEEDING:
Originating Application
ORIGINATING COURT:
Supreme Court of Queensland
DELIVERED ON:
27 May 2005
DELIVERED AT:
Brisbane
HEARING DATE:
6 April 2005
JUDGE:
White J
ORDER:
1. Dismiss the application
2. The applicants to pay the respondents’ costs to be assessed on the standard basis
CATCHWORDS:
LANDLORD AND TENANT - ASSIGNMENT, SEVERANCE AND UNDERLEASE – ASSIGNMENT OF LEASE – BY OPERATION OF LAW – BY ACT OF PARTIES – EFFECT OF ASSIGNMENT – where purported assignment of lease - where covenant in lease not to assign without consent of lessor- where lessor refused to consent to assignment of lease – where clearly no legal assignment of lease - where applicant argued that certain acts of the lessees amounted to an equitable assignment of the lease – whether equitable assignment of lease
LANDLORD AND TENANT - COVENANTS – FOR RENEWAL – RIGHT TO EXERCISE OPTION – GENERALLY – RELIEF AGAINST LOSS OF OPTION FOR RENEWAL – where applicants seek declaration that there was a valid exercise of an option to renew a lease – where lease specified that option was to be exercised by all the lessees specified in the lease – where option only exercised by two of the lessees – whether there was a valid exercise of option to renew lease
Property Law Act 1974 (Qld), s 128(3), (4), (5) and (6)
Chaplin v Smith [1926] 1 KB 198, cited
Churcher v Danes Hotels Pty Ltd (1980) 8 BPR 15863, cited
Gentle v Falkner [1900] 2 QB 267, cited
JA McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd [1992] 2 Qd R 121, cited
Lam Kee Ying v Lam Shes Tong [1975] AC 247, cited
Leask v Molina CA 40095/98 BC 9901576, 1 February 1999, cited
MacDonald v Robins (1953) 90 CLR 515, cited
Molina v Leask [1998] ANZ Conv Rep 361, no 2293/93, cited
Re Tabtide Pty Ltd [1989] 1 Qd R 604, citedCOUNSEL:
AJH Morris QC with C Jennings for the applicants
J Webb for the first respondents
S Sheaffe for the second respondentSOLICITORS:
Ramsden Faes for the applicants
Robbins Watson for the first respondents
McLaughlins for the second respondent
The applicants seek declarations that on its true construction and in the events that have occurred they validly exercised an option to renew a lease dated 18 October 2000 and consequential orders. The second respondent and co-lessee and the lessors deny that the option has been exercised.
Background
From 18 October 1995 until 1 July 1999 the second respondent (“Dr Salkeld”) and Robert John Weiss (“Dr Weiss”), both medical practitioners, operated a medical practice known as The Miami Seven Day Medical Clinic (“the Clinic”) from premises at 1922 Gold Coast Highway, Miami (“the premises”) leased from the first respondents (“the landlords”). Each of Dr Salkeld and Dr Weiss held 60 units in The Miami 7-Day Medical Clinic Unit Trust and were equal directors and shareholders in the second applicant (“Akuity”), the trustee of the unit trust.
On 1 July 1999 the first applicant (“Mr Gillion”) entered into a Deed of Settlement to establish the Gillion Family Trust. On 21 June 1999 the Gillion Family Trust and Dr Weiss as trustee for the Weiss Family Trust entered into an agreement entitled “Heads of Agreement”. By its terms Dr Weiss agreed to sell his units in The Miami 7-Day Clinic Unit Trust and his share in the capital of Akuity to the Gillion Family Trust. A condition precedent to the completion of the Heads of Agreement was that a partnership agreement be executed between Mr Gillion and Dr Salkeld on or before 21 July 1999.
They did so orally in terms of a written Heads of Agreement. Mr Gillion was not and is not a medical practitioner and was to be the manager of the medical practice conducted at the premises while Dr Salkeld would be responsible for the medical aspects of the practice.
The Lease
On 21 February 2000 Mr Gillion, Dr Salkeld and Akuity entered into a Heads of Agreement as lessees to lease the premises with the landlords on terms similar to the previous lease including one option to renew for a further five years. The lease was not completed until 18 October 2000 with a retrospective commencement date of 1 April 2000 and an expiry date of 31 March 2005.
On 25 August 2000 Dr Salkeld offered to purchase Mr Gillion’s interest in the Clinic for a specified sum. Mr Gillion let that offer lapse and made a similar offer to Dr Salkeld on 6 September which he accepted on 13 September.
By letter dated 19 September Dr Salkeld’s solicitors wrote to the applicants’ then solicitors seeking to have him removed from the lease to simplify the respective relationships, if the landlords agreed. This desire was not communicated to the landlords by either the applicants or Dr Salkeld.
The landlords’ solicitors wrote on 25 September complaining about the failure of the lessees since March to execute and return the lease document. Mr Gillion executed the lease on 13 October, Dr Salkeld on 16 October and the landlords on 18 October 2000. On 16 October Mr Gillion and Dr Salkeld executed documents to give effect to their earlier agreement whereby Dr Salkeld sold his interest in the Clinic and Akuity to Mr Gillion. Inter alia, Mr Gillion indemnified Dr Salkeld against any liability under the lease.
Mr Gillion deposes that he was the sole operator of the Clinic from 16 October 2000 to early 2002 and met all the financial obligations due under the lease. The landlords depose that they were not aware that he was the sole operator during this period. What the arrangement was from 2002 until the present application relating to the operation of the Clinic is not revealed in the material.
The Assignment
In July 2004 Mr Gillion instructed his solicitors to exercise the option to renew the lease. By letter dated 15 October 2004 and in the context of discussions about the exercise of the option, Dr Salkeld’s solicitors advised the applicants’ solicitors that he wished to be released from any further involvement in the lease. The landlords through their solicitors agreed by letter dated 2 December to an assignment of the lease from Mr Gillion, Akuity and Dr Salkeld to Akuity alone
“… [o]n the condition that the guarantee referred to in your first letter [to be given by Mr Gillion and Akuity’s directors] in favour of our clients and prepared by us be provided and on condition that your clients pay our clients costs and outlays in relation to the assignment which would include costs of our preparation of the guarantee.”
By a further letter of 8 December the landlords’ solicitors indicated that the landlords would not execute the proposed deed of assignment of the lease and would not prepare the guarantee documents until all lessees had signed the deed. There was then some doubt held by the landlords as to whether Akuity’s then solicitors acted in this matter for all the lessees.
On or about 15 December 2004 Dr Salkeld and Mr Gillion and Akuity executed a deed of assignment assigning their interest in the lease to Akuity and had it sent to the landlords’ solicitors. The “Lessees Obligations” provided for the continuing liability of the lessees defined as Mr Gillion, Akuity and Dr Salkeld, save for Dr Salkeld, for the balance of the term of the lease. By letter dated 17 December the landlords’ solicitors wrote:
“Further to previous correspondence we now enclose herewith the following:
1. Lessor’s Consent to Assignment of Lease incorporating a Guarantee (6 copies);
2. Tax Invoice relating to our clients’ costs and outlays concerning an abortive assignment of lease to Tsurt Pty Ltd earlier this year;
3. Tax Invoice for our costs and outlays concerning the assignment of Lease to Akuity.
We advise that our clients’ consent requires, as a condition precedent, the delivery to us of the original Deed of Assignment duly executed by all Lessees and the Assignee and the enclosed Lessor’s Consent to Assignment of Lease duly executed by the Tenant, the Assignee and all Guarantors without amendment and payment of our clients’ costs as per our enclosed Tax Invoices.”
The “Lessor’s Consent to Assignment of Lease” prepared on behalf of the landlords retained the continuing liability of Dr Salkeld under the covenants in the lease contrary to his release provided for in the applicants’ deed of assignment.
The applicants’ solicitors wrote three letters to the landlords’ solicitors on 20 December. They objected to the continuing liability of Dr Salkeld after the assignment of the lease. Mr Gillion was content to remain bound. They contended that the landlords had known since September 2000 that Dr Salkeld wanted to be released from the lease and concluded:
“As to the “Tenant’s Covenants” outlined at clause 4, our clients are under no obligation to pay your clients’ costs incurred in connection with the previous application for agree [sic] to assignment of the lease to Tsurt Pty Ltd. However, if your client consents to our clients’ proposed changes to the Consent, we expect that we shall be able to obtain our clients’ consent to paying those reasonable costs.”
The landlords’ solicitors responded that the landlords were not aware of Dr Salkeld’s desire to be released from the lease, particularly since he had executed the lease in October 2000, and concluded:
“We note that you state that your clients are under no obligation to pay our clients’ costs in relation to the proposed assignment of Lease to Tsurt Pty Ltd. Your clients are liable to pay these costs under clause 1(d) of the Lease. Your clients’ refusal to pay same amounts to a repudiation of the Lease which would entitle our clients to take appropriate action against your clients for breach of Lease.”
The purported exercise of the option
On 24 December 2004 the applicants’ solicitors notified the landlords that pursuant to “cl M(1)” of the lease they gave “on behalf of the Lessee” whom they described as “Graham Gillion and Akuity Pty Ltd” notice of exercise of option of renewal of the lease. In a “Recital” at the commencement of the letter they wrote “Dr John Richard Salkeld has assigned his interest in the lease to Mr Graham Bruce Gillion and Akuity Pty Ltd …”
Under cover of their solicitors’ letter dated 5 January 2005 the landlords gave notice under s 128(4) of the Property Law Act 1974 to the applicants and Dr Salkeld as lessees of the premises that if there was a valid exercise of option under the lease which was denied the lessees were in breach in as much as:
·The landlords had not given their consent to the assignment under c 1(b) of the lease;
·The lessees had refused to pay the landlords’ costs and outlays in the sum of $786.50 in connection with the application for consent to transfer the lease to Tsurt Pty Ltd which was refused; and
·The lessees had failed to pay the landlords’ costs and outlays in the sum of $866.03 in connection with the application for consent to transfer the interest of Dr Salkeld and Mr Gillion in the lease to Akuity which did not proceed.
Subject to any order of the court pursuant to s 128(6) of the Property Law Act, the notice continued, the landlords proposed to treat those omissions as having precluded the lessees from exercising the option.
The applicants filed this application on 30 March 2005. The lease expired on 31 March 2005.
The landlords depose that they were not prepared to release Dr Salkeld from his obligations under the lease as they considered it “a very valuable right” which they were not prepared to surrender. The landlords’ solicitors wrote on 19 November 2004 to the applicants noting that the principal shareholding in Akuity had changed without their consent as required by cl 1(c)(i) of the lease. They added:
“[o]ur clients also object that the change of shareholding in Akuity Pty Ltd in conjunction with the proposed transfer of the Lease means that there is no longer a medical practitioner with any proprietorial, administrative and supervisory responsibilities which should be the case in the conduct of a medical practice.”
On the hearing of the application the applicants tendered a “without prejudice” letter of the same date from the solicitors which demonstrated, they submitted, the true reason for withholding consent, namely, an attempt to increase the rent. However, as can be seen the offer in the “without prejudice” correspondence to consent to an assignment still depended on the involvement of a medical practitioner. They wrote:
“We advise that our clients understand that it may be your clients’ intention to transfer the Lease to a company controlled by Dr Bartlett.
If this be the case, and provided that it is agreed that the option in the Lease be varied to provide that the first year’s rent is to be determined by market review but not to be less than the current rent, then our clients will consent to the transfer of the lease.”
The applicants do not ground their application on an unreasonable refusal to give consent.
The provisions in the lease
In Item 3 of the lease the “Lessee” is described as Akuity Pty Ltd, John Richard Salkeld and Graham Bruce Gillion “As Joint Tenants”. The lessees’ covenants included in cl 1(c)(i) a covenant not to assign without consent
“Not to charge assign over or in anyway dispose of or part with possession of the demised premises to any person firm or corporation whomsoever without first obtaining the prior written consent of the Lessor nor without such consent to attempt to so charge assign over or in any way dispose of or part with the possession of the demised premises BUT such consent shall not be arbitrarily or capriciously withheld in the case of a respectable responsible and financially sound person firm or corporation capable of conducting efficiently the business then carried on in the demised premises (the onus of the proof of which shall lie on the Lessee) and who shall execute a Power of Attorney in favour of the Lessor in the terms set out hereafter in this Lease and a covenant to be prepared by the Lessor’s solicitors to be bound by the terms of this Lease as if it were the Lessee herein named.”
Clause 1(c)(iv) concerned changes in the shareholding of any company associated with the lessee
“The Lessee further agrees that where the Lessee as a corporation any change in the principle shareholding thereof or any change in the principle shareholding of any holding company of the Lessee altering the effect of control of the Lessee shall (for the purpose of this clause) be deemed to be an assignment of this Lease and shall require the consent of the Lessors as aforesaid.”
Clause 1 (but more likely limited to cl 1(c)), was acknowledged by the lessee to be a condition going to the root of the lease and any purported assignment of any part of the lessee’s estate and interest in the premises was not to operate to pass any estate or interest to that person.
By cl 1(d) the lessee covenanted
“to pay the Lessor or the Lessor’s solicitors on demand the costs and expenses incurred by the Lessor in connection with any application for consent under the preceding clause (whether granted or refused) including the costs of preparation of the said covenant.”
By cl 1(q) the lessee covenanted to use the premises for the predominant purpose of carrying on the business of a medical centre and administration for a medical centre.
The parties agreed in cl 3(l) as to the formula for determining the rent by reference to the Consumer Price Index.
Clause 3(m)(i) gave the lessee a right to one five year option. It provided
“If the Lessee shall punctually pay the rent hereby reserved throughout the whole of the term and shall strictly perform and observe all the agreements on the Lessee’s part herein contained or implied the Lessee shall have the option of renewal of this Lease for a further period of five (5) years from the date of expiration of the aforesaid term upon the same terms and conditions as are herein contained save and except this sub-clause and rental. This option shall be exercisable by notice in writing by the Lessee delivered to the Lessor not more than nine (9) months and not less than three (3) months prior to the expiration of the aforesaid term and in default of such notice that the Lessee write to further the term of this Lease for the said five (5) years shall lapse. Upon the option being so exercised and/or granted the solicitors for the Lessor shall prepare a Deed of Extension of Lease containing similar terms to those herein contained except for this sub-clause and the rental for the said further period of five (5) years shall be as provided for in sub-clause (ii) following.”
The rent for the renewal period was to be calculated in accordance with cl 3(m)(ii) by reference to the Consumer Price Index.
By cl 7
“Unless such interpretation shall be excluded by or be repugnant to the context then:
(a)the singular numbers shall include the plural and the covenants agreement and grants herein contained or implied shall be deemed to be entered into jointly and severally ...”
Section 128 of the Property Law Act
Section 128 of the Property Law Act provides relevantly in ss (4)
“Where an act or omission that constituted a breach by a lessee of the lessee’s obligations under a lease containing an option would, but or this section, have had the effect of precluding the lessee from exercising the option, the act or omission shall be deemed not to have had that effect where the lessee purports to exercise the option unless, during the period of 14 days next succeeding the purported exercise of the option, the lessor serves on the lessee prescribed notice of the act or omission and –
(a)an order for relief against the effect of the breach in relation to the purported exercise of the option is not sought from the court before the expiration of the period of 1 month next succeeding service of the notice; or
...”
Section 128(5) sets out the procedure whereby a lessee may seek relief against forfeiture of the option. It is undisputed that the applicants have not sought in these proceedings (or any proceedings) relief under s 128(4) and Mr Morris QC for the applicants expressly disavowed that course. It is the applicants’ contention that they were not, prior to the purported exercise of the option, in breach of the lease.
Alleged equitable assignment
The applicants contend that there was an equitable assignment of the lease from the three original lessees to Mr Gillion and Akuity. The facts which are said to support this conclusion are the oral partnership agreement between Mr Gillion and Dr Salkeld which provided for the dissolution of the partnership – a term of which prohibited Dr Salkeld from taking any property of the partnership in that event; the agreement to sell shares in Akuity; the indemnity in favour of Dr Salkeld against any liability under the lease granted by Mr Gillion; the payment of all rent from 16 October 2000; and Dr Salkeld’s desire to be rid of his obligations under the lease. These matters may well be sufficient to constitute an equitable assignment of Dr Salkeld’s interest in the lease as between Dr Salkeld and Mr Gillion.
Mr Morris referred to Molina v Leask [1998] ANZ Conv Rep 361, NSWSC no 2293/93; confirmed on appeal, Leask v Molina CA 40095/98; BC 9901576, 1 February 1999, to support a conclusion that the assignment was effective against the landlords. The issues for resolution were quite different in that case. The GIO, the landlord of a shopping centre, claimed rent from the original lessee of shop premises in the centre, their assignees, the Molinas, and their assignee lease, Leask. There had been an agreement to take an assignment of the lease between the Molinas and Leask when Leask purchased their business. The documents were never executed but Leask went into possession and conducted a business from the shop premises for a short period before abandoning the tenancy. The Molinas sought to make him liable for the rent which GIO sought from them. For the purposes of the proceedings it was assumed that GIO had not consented to the assignment to Leask, although it was not likely to have been withheld. In that context, Santow J said at 363
“An assignment for value which is not a legal assignment will nevertheless be upheld as an assignment in equity where there is either written evidence or part performance of that assignment ... here there is both written evidence of the agreement and part performance ... Where an assignment has been effected in equity – as is clearly the case here – the parties should be in the same position as if there had been a legal transfer of the lease ... the fact of absence of consent to an assignment of lease makes such an assignment in breach of covenant, but does not make the assignment ineffective ... the assignment was complete in equity notwithstanding the absence of consent of the lessor to the particular assignment to Mr Leask personally. The GIO takes the position in these proceedings that the assignment to Mr Leask was valid in equity. However this is not material, as consent must be asked for even if it could not be reasonably refused ... put simply, the breach of covenant to obtain consent is a matter for the lessor and cannot be relied upon by Mr Leask as a matter preventing the assignment in equity.
Thus the assignment of the lease should be treated as effective in equity, giving rise to liability on the part of Mr Leask to the Molinas.”
Accordingly, the assignment as between Dr Salkeld and Mr Gillion may be, and almost certainly is, good in equity but of itself cannot defeat the covenant in the lease as between the lessee and the landlords.
The landlords did not consent to the assignment. Their consent was a fundamental term of the lease agreement. The applicants have not argued that consent was withheld unreasonably and it is unnecessary to discuss that matter further save to note that JA McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd [1992] 2 Qd R 121 establishes that an attempt by a landlord to gain a collateral advantage outside the terms of the lease by withholding consent will generally be found to be an unreasonable withholding of consent. But, prima facie, requiring a medical practitioner to have a proprietary interest in the lease of the Clinic does not seem unreasonable.
The exercise of the option
The applicants contend that on the proper construction of the lease the option was validly exercised by them on 15 December 2004. They contend that this is so because by cl 7 the singular includes the plural and the agreements in the lease “shall be deemed to be entered into jointly and severally”. This term prevails if it is not excluded by or repugnant to the context. Contrary to the applicant’s contention, the intention of the parties reflected in the lease is that “the Lessee” exercises the option and “the Lessee” is constituted by 3 persons – Mr Gillion, Akuity and Dr Salkeld as joint tenants.
This much is plain from the judgments in MacDonald v Robins (1953) 90 CLR 515. The lease in that case provided that an option to purchase could be exercised by the lessees defined in an earlier part of the instrument “to include the lessees and each of them”. Without “and each of them” the option must have been exercised by both, per Dixon CJ at 522-3 and Webb J at 526. The general provision in cl 7 does not have the effect of ousting the particular definition of the “the Lessee” which is all three. To hold otherwise could lead to clearly undesirable outcomes in the case of conflict between the individual lessees or the landlords being left with one unsatisfactory tenant.
The applicants contend, alternatively, that the option has been exercised by Akuity and Mr Gillion. It is uncontroversial that an equitable assignee of a lease is not entitled as against the lessor to exercise an option or right of renewal in his own name. He can do so only in right of the assignor of the interest. Holland J in Churcher v Danes Hotels Pty Ltd (1980) 8 BPR 15863 in the NSW Supreme Court Eq Div said at 15,877
“If he [the equitable assignee] has the assignor’s authority and, maybe, even without it if he is entitled to demand it of the assignor, he is entitled to assert the assignor’s right but, if a notice of exercise is required, it must manifest his reliance upon the assignor’s right and not assert the right to be his own because, as against the lessor, whose privy he is not, he has no rights of his own.
In my opinion this view of the position of the assignee is basic to the judgments of both Dixon CJ and Taylor J in MacDonald v Robins (1954) 90 CLR 515 at 524-525 and 527 ...”
The notice of exercise of option describes the “Lessee” as Mr Gillion and Akuity and recites thereafter
“As you know, Dr John Richard Salkeld has assigned his interest in the Lease to Mr Graham Bruce Gillion and Akuity Pty Ltd ...”
The documents executed on 16 October 2000 and the deed of assignment of 15 December 2004 are not quite expressed in this way. Dr Salkeld sold his shares in Akuity and his units in the unit trust to Mr Gillion and was indemnified by Mr Gillion in respect of his obligations under the lease in October 2000. In the deed of assignment, he and Mr Gillion assigned their interest in the lease to Akuity. The notice then continued “pursuant to cl ‘M(1)’ of the Lease we hereby give on behalf of the Lessee, notice of exercise of the option of renewal of the Lease.”
In Churcher the lease had been assigned by the original lessee to the tenant and his partner. That partnership was dissolved but the continuing partner received a transfer of his former partner’s interest under the lease. The lease contained an option to renew expressed to be exercisable by the lessee. The original tenant was described in the lease as the “Lessee” and there was no express extension of the term to assignees and successors in title. The continuing tenant purported to exercise the option by giving a notice which said “I hereby exercise my option of renewal ... of my lease”. Holland J said at 15,878
“In my opinion, assuming that there had been an equitable assignment to the plaintiff of [the former partner’s] rights as co-tenant it is quite impossible to read the notice which the plaintiff gave on 17 April 1978 as an assertion of his and [the former partner’s] rights to give the notice jointly, or as being given on behalf of each of them severally, or as being given in his own right and in the right of [the former partner] with [the former partner’s] authority or by reason of an assignment by [the former partner]. ... In my view such a notice was incapable of exercising the right of renewal in the present lease.”
The description of the “Lessee” in the heading to the letter of 24 December 2004 of notice of exercise of option is not consistent with the description of “Lessee” in the lease or with the assignment. An acceptable description would have been “Akuity Pty Ltd on its own behalf and as assignee of Graham Bruce Gillion and John Richard Salkeld”. It may seem unduly pedantic but the landlords are entitled to know with precision who the lessee on renewal is to be. If the intention was for Mr Gillion and Akuity to exercise the option the assignment executed by Dr Salkeld, Mr Gillion and Akuity on 15 December 2004 did not have that effect. The notice of exercise of option of renewal did not effect a valid exercise of the option.
Breaches of covenants
The landlords argue that the applicants’ breaches of the covenants in the lease preclude them from relief in equity.
Prior to the enactment of s 128 a relatively trivial breach of covenant could deprive a lessee of the right to renew where the lease contained a clause granting an option to renew, Re Tabtide Pty Ltd [1989] 1 Qd R 604 per Williams J at 605. Section 128(4) is set out above. As there mentioned, subsection (5) provides that the relief referred to in ss (4) may be sought in proceedings specifically instituted for that purpose or in other proceedings in which the existence of an alleged breach by the lessee of the lessee’s obligations under the lease or the effect of the breach from which relief is sought is an issue. Whether or not these proceedings commenced by originating application could fulfil that description might be doubtful although the decision of the Privy Council in Lam Kee Yingv Lam Shes Tong [1975] AC 247 delivered by Sir Harry Gibbs and quoted with approval by Williams J in Re Tabtide at 607 suggests that it is not completely inarguable. However, fatal to any such characterisation was the failure to seek relief against the effect of the breaches “before the expiration of 1 month” after the service of the notice. As has already been mentioned, Mr Morris expressly denied any reliance on s 128, arguing that there were no breaches.
The notice served by the landlords complied with the Property Law Act requirements set out in s 128(3). It was served within 14 days of the date of the purported exercise of the option. It may be arguable that where there is no application for relief pursuant to s 128(4) and (5) by a lessee, a lessor may, without more, rely on the asserted breaches without further proof. However, the point was not argued and Mr Morris submitted that the breaches were not proven.
The landlords sought to argue an additional breach to those notified, namely, a breach of cl 1(c)(iv) that a change in the shareholding of a corporate lessee is a deemed assignment for which the consent of the landlord was required. Section 128 requires all alleged breaches to be in the notice of breach otherwise the breach is deemed not to have the effect of precluding the lessee from exercising the option. It cannot be raised specifically to resist the effect of the exercise of the option (if the option had otherwise been effectively exercised) but may be regarded generally where equitable relief is sought.
The first alleged breach was the failure to obtain the landlord’s consent to the assignment. Any assignment of Dr Salkeld’s interest in the lease to Akuity was in equity and did not affect the legal estate, Gentle v Falkner [1900] 2 QB 267 per A L Smith LJ at 275; and Chaplin v Smith [1926] 1 KB 198 per Banks LJ at 207. The lessee’s acknowledgement expressed in cl 1(c)(v)
“... that any purported ... assignment ... of the whole or any part of the Lessee’s estate and interest in the demised premises in any way to any person shall not operate to pass any estate or interest ...”
reinforces the ineffectiveness of the assignment vis-à-vis the landlord.
The second and third alleged breaches were the failure to pay costs and outlays. These breaches related to the costs and outlays associated with applications for consent to the landlords in respect of two transfers one of which was refused and the other of which did not proceed. By cl 1(d) the lessee covenanted with the landlords to pay the lessor or the lessor’s solicitor upon demand the costs and expenses incurred by the lessor in connection with any application for consent to assign whether granted or refused.
Mr Morris contended that there was no demand for payment in the letters dated 16 and 17 December 2004 for the sums of $866.03 and $786.50 and, until expressly made, there was no obligation on the part of the lessee to pay for the preparation of consents which did not proceed. The word “demand” is not employed in that correspondence. The obligation to pay, it might be argued, was only a condition to obtaining consent to assign and not an obligation to pay, per se,
“We advise that out clients’ consent requires ... and payment of our clients’ costs as per our enclosed Tax Invoices.”
But the Tax Invoices themselves are clear that each is a seven day account and payable by the lessee pursuant to the terms of the lease. That is sufficient demand and was clearly understood as such by subsequent correspondence. Mr Morris further submitted that there was no evidence explaining the circumstances surrounding or demonstrating the entitlement to the costs and outlays. If the lessee is entitled to make such a stipulation as an answer to the failure to pay, which I doubt, the Tax Invoices set out descriptively the work done.
It is also contended that the lessees were not required to pay the costs and outlays on the basis that in refusing consent the landlords were acting unreasonably and capriciously. This is not a ground which has been explored in these proceedings as a matter of fact, and there is no basis on a proper construction of the lease for refusing to pay, particularly when the applicants specifically do not rely on an unreasonable refusal to consent in seeking the relief that they do in these proceedings.
Conclusion
If there was an assignment in equity of the original lessees’ interest in the lease to Akuity, or Akuity and Mr Gillion, and even if the exercise of the option was sufficient contrary to the finding which I have made, nonetheless the breaches have been established by the landlords and are sufficient to refuse equitable relief. There was no offer to make good the breaches insofar as they related to a failure to pay the costs and outlays to obtain the relief.
Costs
Unless there are persuasive submissions to the contrary costs should follow the event. Mr Sheaffe for Dr Salkeld sought costs for his client on the indemnity basis. No sufficient reason for doing so has been advanced.
The orders are
1. Dismiss the application.
2. The applicants to pay the respondents’ costs of and incidental to the application to be assessed on the standard basis.
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