Johnstone v Poralka Investments Pty Ltd - [2008] SADC 87

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
JOHNSTONE v PORALKA INVESTMENTS PTY LTD
[2008] SADC 87
Judgment of His Honour Judge Clayton
4 July 2008
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS - CONTRACTS ILLEGAL BY STATUTE
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS
LANDLORD AND TENANT - OPTIONS AND AGREEMENTS TO PURCHASE
LANDLORD AND TENANT - ACTIONS AND CLAIMS FOR USE AND OCCUPATION
LANDLORD AND TENANT - RESIDENTIAL TENANCIES LEGISLATION
REAL PROPERTY - FENCING AND BOUNDARIES OF LAND
TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS
DAMAGES - PARTICULAR AWARDS OF GENERAL DAMAGES
RESTITUTION - MISTAKE: RESTITUTION ARISING FROM A PLAINTIFF'S MISTAKEN ACTIONS
The parties entered into a “Rent to Buy Agreement” which comprised a lease and option to purchase a house which straddled two certificates of title. Contract did not identify the land and was not made conditional on approval of necessary boundary realignment – whether contract void – s 6 Land and Business (Sale and Conveyancing) Act 1994 – Residential Tenancies Act 1995 - defendant failed to advise plaintiff that application for realignment of boundary had been dismissed and option could not be exercised – defendant continued to accept payments on the basis that option to purchase was valid.
Held: Contract void. Payments made by plaintiff recoverable as payments made under a mistake of fact. Defendant engaged in conduct which was misleading and deceptive. On counter-claim defendant entitled to compensation for plaintiffs use and occupation of land.
Land and Business (Sale and Conveyancing) Act 1994 s 6; Land and Business Agents Act 1973 s 89; Trade Practices Act 1974 ; Fair Trading Act 1987 ; Misrepresentation Act 1972 (SA) ; Supreme Court & District Court Civil Rules 2006 6R 77; Residential Tenancies Act 1995 , referred to.
Woodfall on Landlord and Tenant 28th ed; Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd (1991) 58 SASR 184; Epic Feast Ltd v Mawson KLM Holdings Pty Ltd & Anor [1998] SASC 6616; Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd (Receivers and Managers Appointed) (In Liq) & Ors (No 1) (2004) 89 SASR 337; Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd (Receivers and Managers Appointed) (In Liq) & Ors (No 3) (2006) 94 SASR 103; Dunlap v Macedo (1891) 8 TLR 43; Elliott v Boynton [1924] 1 Ch 236; Wilson v Kelly [1957] VR 147; Redfern and Cassidy, Australian Tenancy Practice and Precedents ; McGregor on Damages 16th ed; Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; Stephen McKnight, From 0 to 130 Properties in 3.5 Years ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 43; Stonham, Vendor and Purchaser ; Inverugie Investments v Hackett [1995] 1 WLR 713; Rochester (Dean and Chapter) v Pierce (1808) 1 CAMP 466, considered.

JOHNSTONE v PORALKA INVESTMENTS PTY LTD
[2008] SADC 87

This case is an example of the problems that can arise when parties enter into a real estate transaction without a proper understanding of the principles involved and without the benefit of appropriate advice.
The plaintiff is a concrete cutter by trade. Prior to 1 May 2004 he was a single man and resided with his mother in one of the southern suburbs of Adelaide. He was looking for a home of his own and saw the property which is the subject of this action advertised on the Internet.
The defendant is a company whose shareholders and directors are three sisters and their spouses or partners. The subject property, at 6-8 Poralka Crescent Hallett Cove, was initially owned by the parents of the three sisters. It had been their family home. There were two separate certificates of title and the house was constructed so that it straddled the titles. The parents wanted to sell and placed the house on the market but were unsuccessful.
The three sisters and their spouses or partners decided to purchase the property, realign the boundary between the two certificates of title and then sell the new titles for the land upon which the house was erected and the vacant land separately. The defendant company was incorporated for that purpose.
The price paid by the defendant to purchase the two titles from the parents was $302,000. With expenses the total cost to the defendant was $316,000. The transfer from the parents to the defendant company settled on 7 May 2004.
After he saw the advertisement on the Internet the plaintiff telephoned Mr Hunter Murray, the husband of Ms Teresa Blakeley, one of the sisters. The advertisement offered the property for sale pursuant to a "Rent to Buy Agreement". I will say more about such agreements later. The defendant was an eager vendor. He described the opportunity as being "almost like a godsend". The "Rent to Buy Agreement" was an opportunity for the plaintiff and his brother to purchase a property which would otherwise have been beyond their financial reach.
The plaintiff and Mr Murray had a common interest in that they had both read a book by Stephen McKnight titled "From 0 to 130 Properties in 3.5 Years." That common interest appears to have facilitated their discussions. One chapter in the book discusses what the author calls "WRAPS" and another discusses "Lease Options" or rent to buy agreements. That book was the genesis of the transaction which the parties entered into. I return to discuss the text later.
The plaintiff inspected the property from the outside and then advised Mr Murray that he was interested. Arrangements were made for him to inspect the inside of the house, which he did in company with Mr Murray. The purchase price of $270,000 was stated on the Internet but there is no evidence of any discussion about the amount of the rental.
In a telephone conversation the plaintiff told Mr Murray that he could provide a deposit of $5,000.
Mr Murray met the plaintiff and his brother at the house on 18 April 2004. Either on that day, or on the earlier occasion when they met at the house, a discussion took place about the intention of the defendant to "subdivide" the two titles. In fact what was proposed was not a subdivision but a realignment of the boundary. The plaintiff said that while he and Mr Murray were standing at the front looking back at the property talking, Mr Murray pointed out a line where the defendant wanted the boundary.
The contractual documentation was signed by the purchasers at the property on 18 April 2004. On that occasion the vendor was represented by Mr Murray. For some reason, which was never explained in evidence, Mr Murray did not sign the documents on behalf of the company on 18 April 2004, but two of his wife's sisters signed on 20 April 2004.
The evidence establishes that while the plaintiff and his brother had reasonable incomes they had no capital with which to provide the deposit likely to be required under a conventional purchase. In fact the $5,000 deposit which the plaintiff paid under the "Rent to Buy Agreement" could only be raised by the plaintiff making cash withdrawals from a credit card account on three separate days.
The Agreement
While it is common ground that documents were signed by the plaintiff and his brother on 18 April 2004, there is a dispute as to precisely what documents were shown to the plaintiff on that day.
Exhibit P1 is a bound document which was produced from the custody of the defendant. The defendant's case is that all documents in exhibit P1 were considered at the meeting on 18 April 2004. The plaintiff disputes that all of the pages in exhibit P1 were shown to him.
The cover of exhibit P1 has a heading "Yarrum Home Solutions… Your Home Sooner". "Yarrum Home Solutions" is a business name of which the registered proprietors are Mr Murray and his wife, although Mr Murray claimed in evidence that it was his wife's business. Also on the cover are the words "Rent-to-Buy Agreement", a description of the property as 8 Poralka Crescent, Hallett Cove and a photograph of the house.
The first six pages of the "Rent to Buy Agreement" were headed "Lease Agreement for a Fixed Term." The lease agreement referred to the premises which were the subject of the agreement as "6 Poralka Crescent, Hallett Cove SA 5158" but did not acknowledge the fact that part of the house was situated on the land which was 8 Poralka Crescent. There was no plan which described the proposed boundary realignment and no other identification of the precise area which was the subject of the lease. It is trite that a lease should describe with certainty the premises to be demised[1]. The document in question does not do that and there is a question of whether it is void for uncertainty.
[1] Woodfall, Landlord and Tenant, 28th edition, para 1-0467
The lease was for a fixed term of two years from 1 May 2004 to 1 May 2006. There was no right of renewal.
Clause 2 dealt with the payment of rent. From 1 May 2004 until 28 February 2005 the tenant agreed to pay rent at the rate of $390 per week, from 1 March 2005 until 31 December 2005 the rental payments increased to $420 per week and from 1 January 2006 until 1 May 2006 the rental payments increased to $450 per week. Although the lease agreement is silent on the topic there is no dispute that the rental stated in clause 2 of the lease included option payments required by clause 5 of the Option to Purchase Agreement.
There is no evidence of any negotiations between the parties with respect to the amount of the rental or the amount of the option payments. Ms Amanda Blakeley said in evidence that she had determined the rental by reference to the rent being received for other properties in Hallett Cove; but there is no evidence as to what properties she took into account and she did not produce newspaper advertisements or any other material to corroborate her evidence.
The amount of the rent and the rent increases appear to have been determined unilaterally by the defendant and not questioned by the plaintiff. It can be inferred that the plaintiff was so eager to secure the property that he would, within reason, have been prepared to pay whatever rent the defendant asked.
The lease agreement provided that during its two-year life the rental was to increase on two occasions. Those increases in rent were predetermined, were not the consequence of any review and were not linked to criteria such as the market or the consumer price index. Between 1 May 2004 until 1 January 2006 the rental (including the Option Payment) increased from $390 per week to $450 per week, that is an increase of over 15% in nineteen months.
I find that the rental required by clause 2 was not the true market rent for the premises. The predetermined increases establish that.
Clause 18 of the lease agreement stated that the terms of the agreement comprised the whole of the agreement between the landlord and tenant and that no other agreements or terms should be implied in the lease or arise between the landlord and tenant by way of collateral agreement. That clause misstated the position. The Option to Purchase Agreement was at least a collateral agreement. Non-payment of the Option Payments required by the Option to Purchase Agreement would have placed the tenant in default and liable to have the lease terminated for non-payment of rent under clause 15 of the lease agreement. The reality of the situation was that the lease and the Option to Purchase Agreement together comprised one "Rent to Buy Agreement". The parties would never have entered into either the lease or the option to purchase alone. From the beginning, the intention of the defendant was to realign the boundaries and then sell the properties separately at a profit.
Counsel for the plaintiff submitted that if the plaintiff had been told that he could not buy the house he would never have entered into the lease. I accept that submission. Throughout the negotiations the primary focus was on the sale and purchase of the house and the lease was a means to that end.
Clause 18 of the lease also stated that the Landlord and the Tenant acknowledged that no promise representation or warranty had been given or made by or on behalf of the Landlord to the Tenant. The evidence establishes that was not correct. Representations as to the boundary realignment were made by Mr Murray on behalf of the defendant. If there ever was a dispute about the location of the boundary the representations made by Mr Murray would have been central to the dispute.
Clause 19 of the lease stated that the occupation of the premises by the tenant after the term of the agreement was subject to the conditions of the agreement. The defendants’ counterclaim for rent after the expiry of the lease and the cost of restoring the premises relies upon that provision.
After clause 19 a further clause has been inserted in exhibit P1 by hand. It reads:
20.    Special Conditions
The tenant and landlord agree that the tenant will make additional deposits equal to $400 per week into the landlord's bank account nominated in clause two. Each additional deposit made under this clause will remain the property of the landlord until:
(a)     the tenant purchases the home (pursuant to the option agreement (Sic); or
(b)     the lease agreement is terminated. If the agreement is terminated additional payments may be refunded when the tennant (Sic) surrenders to the landlord possession of the property (P.T.O.) in the same condition as when it was first occupied by the tennant (Sic). These payments will commence from 1/7/04
The lease was signed by Mr Johnstone and Mr Fry on 18 April 2004. It was signed by Mrs Teresa Mitchell and Ms Amanda Blakeley for the defendant on 20 April 2004. Each page bears the initials of the signatories. The initials also appear alongside each paragraph in clause 2, the payment of rent clause.
The plaintiff gave evidence that clause 20 did not appear in the agreement when it was signed by himself and his brother on the 18 April 2004. He said that the clause was added after the document was taken away by Mr Murray. The plaintiff pointed out in evidence that Mr Fry signed and initialled all other pages with a black pen, but the initial, which purports to be that of Mr Fry at the foot of clause 20, was made with a blue pen.
When asked in evidence whether he was present when clause 20 was placed on the document the plaintiff replied: "No it wouldn't have been, because I actually asked if I could pay extra and when I rang Hunter to see if I could pay extra, he actually said "Oh it's a good idea, the bank would look favourably on it". The plaintiff did not say when that telephone discussion took place. He said that he never saw clause 20 until the signed lease was shown to him by his lawyer.
The plaintiff also gave evidence that a form of "Notice of Intent to Purchase" contained in exhibit P1 was not attached to the Option to Purchase Agreement when he signed it. He said he first saw that document also when it was shown to him by his lawyer. Additionally he said that a draft "Agreement for Sale and Purchase of Land", which is included in exhibit P1, was "definitely not" attached to the papers which he signed on 18 April 2004. The proposed Agreement for Sale and Purchase of Land was no less important than the lease or the option. All the pages of the lease and option were initialled by the parties but the "Notice of Intent to Purchase" and "Agreement for Sale and Purchase of Land" were not. That supports the plaintiff’s evidence.
The plaintiff said that he never received an original of exhibit P1 or the signed lease and option and the documents which he signed on 18 April 2004 were taken away for signature by the defendant and never returned.
As it turned out the parties ignored clause 20 and the plaintiff never made the "additional deposits". However the existence of clause 20 in exhibit P1 gives rise to an issue of credibility. Also, if the evidence of the plaintiff is correct, by adding clause 20 after the document had been signed by the plaintiff and his brother, the defendant did not accept the plaintiff’s offer and the lease would not be binding[2].
[2] Woodfall, para 1-0585
For the reasons which follow, I am able to resolve the case without resolving the dispute as to when clause 20 was included in the document.
While clause 20 is a provision which may have been relevant to an option to purchase (insofar as the "additional deposits" would have been credited against the purchase price), the "additional deposits" were irrelevant so far as a lease was concerned. I refrain from attempting to rationalise why a tenant would voluntarily make additional deposits of $400 per week which would remain the property of the landlord until either of the events in subcl (a) or (b) of clause 20 occurred.
The next eight pages of exhibit P1 are headed "Option to Purchase Agreement". That document has the date 18 April 2004 written in hand.
Recital A states that on the date of the agreement the Grantor was the registered proprietor of the property. At that time the Grantor, Poralka Investments Pty Ltd, was not the legal owner of the property which was still registered in the names of the parents of the three sisters, but nothing turns on that.
Clause 1 of the Option to Purchase Agreement describes the property as "the whole of the land described in Certificate of Title Register Book Volume 5116 Folio… and known as 6 Poralka Crescent, Hallett Cove SA 5158". The folio number was left blank. Again the verbal description of the property was inadequate and there was no plan which identified the land.
The evidence does not establish that a boundary was ever agreed between the parties with sufficient precision to give rise to an enforceable agreement. While the purchasers and Mr Murray did discuss possibilities, they never went as far as to delineate the land which was the subject of the transaction. For example there was uncertainty as to whether a carport on the northern side of the house would stay or go. Stonham, states the fundamental principle that there can not be a contract for sale of land without an agreement at least as to the parties, the property sold and the price[3]. The author refers to the essential requirement of consensus ad idem, and continues: "This requires the agreement to be certain, and not vague or ambiguous, as a court cannot enforce something which it cannot interpret."[4]
[3] Stonham, Vendor and Purchaser, para 1
[4] Stonham, para 4
Clause 2 of the Option to Purchase Agreement provided that an option was granted in consideration of payment of the Option Fee, that upon payment the Option Fee should immediately become the property of the Grantor and that the Option Fee was not refundable save for the portion thereof specified in clause 10 of the agreement upon the exercise of the option. The "Option Fee" was defined in clause 1 as "the consideration paid for this agreement and was calculated by adding the Option Deposit to the sum of the Option Payments." Clause 4 stated "the Option Deposit is $5,000 which is payable by the Grantee to the Grantor on or before the 30th day of April 2004".
"Option Payments" were defined as the portion of the Option Fee payable by the Grantee as specified in clause 5. Clause 5 stated that Option Payments were to be paid by fortnightly instalments into the defendant's bank account. From 1 May 2004 until 28 February 2005 the Option Payments were to be $78 per week, from the 1 March 2005 until 31 December 2005 the Option Payments were to be $84 per week and from 1 January 2006 until 1 May 2006 the Option Payments were to be $90 per week.

Clause 3 provided that the option to purchase could be exercised up until 5pm on 30 April 2006. The purchase price for the property was $270,000.
Clause 7 provided that if the Grantee ceased to reside at the property the Grantor could at its absolute discretion terminate the option to purchase and any moneys paid to the Grantor in respect of the option to purchase would not be refunded. Clause 7 demonstrates the connection between the lease and the option agreement.
In order to exercise the option to purchase the Grantee must have made all payments due under the lease agreement and all payments under the Option to Purchase Agreement (Clause 8). The Grantee was required to give Notice of Intent to Purchase in the manner prescribed and in the form specified in Schedule 1 to the Option to Purchase Agreement. Clause 8 also demonstrates the connection between the option and the lease.
Clause 12 provided that if the Grantee failed to validly exercise the option to purchase the option would lapse, all interests in the property held by the Grantee would immediately terminate and the Grantee would have no right to recover the Option Fee.
Clause 14 provided that in the event of termination of the lease agreement the Grantor had the right to terminate the option to purchase and the moneys paid to the Grantor under the option to purchase would not be refundable. That clause also demonstrates the connection between the option and the lease.
Clause 16 stated that the option to purchase was an entire agreement and that the parties acknowledged that no promise representation or warranty had been made. The observations which I have made about clause 18 of the lease apply with equal force to clause 16 of the option. There would not have been a lease without an option to purchase.
The Option to Purchase Agreement was signed by Mr Johnstone and Mr Fry on 18 April 2004, signed by Mrs Mitchell and Ms Amanda Blakeley on 20 April 2004 and initialled on each page by the signatories. The document stated that it was executed as a deed. The capacity in which Mrs Mitchell and Ms Blakeley signed is not apparent on the face of the document. The document recited that they each signed as "Grantor", but they must have signed in some capacity on behalf of the defendant which was the "Grantor".
Schedule 1 to the Option to Purchase Agreement in exhibit P1 contained a Notice of Intent to Purchase. The plaintiff said that he never saw that document. The pages following the notice in exhibit P1 were a form of Agreement for Sale and Purchase of Land. Schedule 1 to the Agreement for Sale and Purchase of Land referred to the Purchaser as Mr Johnstone and Mr Fry of 8 Poralka Crescent. The description of the land referred to Certificate of Title Register Book Volume 5116 but omitted any reference to the folio number. The Agreement for Sale and Purchase of Land made no reference to the lease or the option agreement.
On 18 April 2004, when they signed the Option to Purchase Agreement, the plaintiff and Mr Fry had not moved to Poralka Crescent. Ms Blakeley said she typed their address as 8 Poralka Crescent in anticipation of that being their address at the time when they would exercise the option. In fact 8 Poralka Crescent would never have been their address because the intention was that after the boundary realignment the house would be on number 6 Poralka Crescent. The plaintiff suggested that the statement of his address as 8 Poralka Crescent in the Draft Agreement for Sale and Purchase of Land was an indication that the document was not attached when he signed on 18 April 2004 but the document was prepared after he had moved into the Poralka Crescent house. Because of the conclusion I have reached it is unnecessary to resolve this issue.
The plaintiff agreed that on the occasion when the documents were signed on 18 April 2004 Mr Murray did go through documents with him but said that Mr Murray had to ring his wife to clarify questions that he could not answer. After speaking to his wife Mr Murray attempted to explain to the plaintiff what various provisions in the documents meant.
The plaintiff and Mr Fry moved in to the house on 1 May 2004.
As I have observed there is a clear connection between the lease and the option. For example, the parties accepted that the "Option Payments" which were required by the Option to Purchase Agreement were included in the rent payable under the lease. Both documents required payment by direct debit into a nominated bank account. There is also clause 20 of the lease, the overall scheme and the fact that default in making payments due under the Option to Purchase Agreement could trigger the default provisions in the lease.
Major deficiencies on the face of the contract itself included the failure to identify the land which was the subject of the contract and the omission to specify what would happen if approval to the boundary realignment was not granted. The Land and Business (Sale and Conveyancing) Act 1994 and the Residential Tenancies Act1995 give rise to other considerations.
In his final address, counsel for the defendant acknowledged that there was no valid contract and that the contract was unenforceable because there was a range of possibilities for the final form of the land and the parties were not ad idem as to the final outcome.
The Issues
The plaintiff asserts that the Lease Agreement and Option to Purchase Agreement, which together form the "Rent to Buy Agreement", contravened s 6 of the Land and Business (Sale and Conveyancing) Act 1994. He claims that the agreements are void and that the moneys which he paid should be refunded to him.
In addition, the plaintiff claims that the defendant has engaged in misleading or deceptive conduct and claims a declaration and damages pursuant to the Trade Practices Act 1974 (Cth), Fair Trading Act1987 (SA), the Misrepresentation Act1972 (SA) and at common law. He also claims damages "for frustration of the agreement and option agreement".
In its defence the defendant says that the option agreement was executed at a time when the defendant reasonably expected that the boundary realignment would be approved and that "the legal consequence of the inability to obtain the boundary realignment is that the Option Agreement was frustrated and that whilst it provided that the option payment was non-refundable, the option payment was nevertheless repayable less any rental arrears, water usage and costs associated with reinstating the property at the end of the Lease Agreement."
The defendant also asserts that the plaintiff never purported to exercise the option and even if the exercise of the option had not been frustrated by the inability to obtain approval for the subdivision, was not entitled to exercise the option because the plaintiff was in arrears of rent.
The defendant denies that the Land and Business (Sale and Conveyancing)Act 1994 applies to the transaction and denies the allegations of misleading and deceptive conduct. It counterclaims underpaid rental up until the time when the plaintiff vacated the property on 15 January 2007. It also counterclaims the cost of restoring the premises to the condition that they were in at the time they were occupied by the plaintiff and excess water rates totalling $745.40.
The defendant has agreed to repay the Option Payments to the plaintiff. The Option Payments are a lesser sum than the "Option Fee" and do not include the "Option Deposit" of $5,000. In his opening, counsel for the defendant described the repayment of the Option Payments as "a proper application of restitutionary law".
There is therefore an issue as to whether the plaintiff is entitled to a refund of all payments made to the defendant or whether his recovery should be limited to the Option Payments. The defendant acknowledged that the plaintiff is entitled to the Option Payments but argued the plaintiff cannot recover the rent. Counsel argued that the lease was a "separate contract and where not only has the plaintiff received the benefit but has continued to remain in occupation of the premises in the same terms for months, after the lease agreement has expired. "[5]
[5] Transcript p 514 line 13
The plaintiff claimed a refund of rent and his counsel argued what was offered was a "WRAP", a type of transaction described in chapter 13 of Mr McKnight’s book[6]. A WRAP is described as a sale by instalments over an agreed timeframe[7]. On my reading of the book, the transaction entered into by the parties was not a WRAP or a sale by instalments but the transaction described by Mr McKnight in chapter 14, as a "Lease Option"[8]. The text states "a lease option, also known as a rent to buy arrangement, is a combination of a residential lease with a call option. It provides the tenant with an opportunity, but not an obligation, to purchase the property for an agreed price, on or before an agreed date." Such agreements are described as an attractive alternative for people who would like to own a home in the future, but are happy renting for the time being[9]. The author refers to clients who wanted to own a property but had no deposit and were offered the opportunity to live in an investment property on the basis of a slightly higher than normal market rent[10]. That model has two components, namely a call option and a residential lease[11]." Referring to the lease component the text says:
The rental payment set by the lease-option investor is usually at a market premium (say plus 20%). This may appear a little draconian at first glance, yet a portion of each rental payment is deducted from the agreed sales price under the option contract.[12]
[6]    Transcript p 519 line 30
[7]    McKnight, p 205
[8]    McKnight, p 227
[9]    McKnight, p 228
[10] McKnight, p 229
[11] McKnight, p 230
[12] McKnight, p 230
One difference between the WRAP and the lease option agreements referred to in the text on the one hand and the present transaction on the other hand is that the agreements referred to in the text are designed to last for up to twenty five years, whereas the present transaction had a life of only two years. Although the plaintiff and the defendant were motivated by Mr McKnight, they clearly did not understand the principles underlying the "WRAP" or the rent to buy agreement. The accumulation of equity in a property by a purchaser by payments made over twenty five years is different from the equity that maybe built up by payments over two years.
Sadly the parties overlooked the authors statements that "WRAPS are legal in every state except South Australia (where only the Government can offer vendor finance)[13]" and "be sure to get appropriate legal advice before jumping into the deep end of the investing pool"[14].
[13] McKnight, p 206
[14] McKnight, p 240
I have referred to the book because both parties had read it and it provided the background against which the rent to buy agreement was entered into.
Whether the rent can be recovered by the plaintiff in addition to the option payments is an issue which I discuss below.
The Position of Mr Fry
The plaintiff’s brother, Mr Shannon Fry, was a signatory to the documentation. The plaintiff said that when his brother lost his job, he withdrew from the arrangement. Mr Fry is not a party to the proceedings. There was no application for a stay or to have him joined. I have proceeded on the basis that Mr Fry had assigned his interest in the “Rent to Buy Agreement” to the plaintiff. The defendant was aware that Mr Fry had ceased to be a tenant and that the plaintiff and his partner were the only persons occupying the house. The plaintiff was the only person with whom the defendant’s representatives dealt. I do not regard the non-joinder of Mr Fry as fatal to the action[15].
[15] Supreme and District Court Civil Rules 6R 77
In the circumstances I have assumed that Mr Fry has no interest in these proceedings. Any interest that he may have in respect of any payments that may have been made by him can be sorted out between himself and the plaintiff.
The allegations of misleading and deceptive conduct by the defendant
The pre-contract representations
The plaintiff gave evidence that at the time he entered into the agreement he was under the impression that the subdivision was approved. He said “I never had any inkling they actually had to submit it to council or anything like that. I was under the understanding they were approved and this is where the boundary line was going to be.” If that evidence is correct, the plaintiff should have been told that the realignment of the boundary was subject to approval. On the other hand the plaintiff gave evidence of a discussion about the need to build a drive and carport on the other side of the house. That evidence gives rise to an inference that the plaintiff was aware that the realignment of the boundary had not been resolved.
I accept that initially Mr Murray and other principals of the defendant believed that the boundary realignment was likely to be approved. The evidence does not establish that any statement made by Mr Murray with respect to the boundary realignment during the initial negotiations was false at the time the statement was made. At worst the statements made by Mr Murray were optimistic predictions as to the future. If the directors did not believe that the application would be successful there would have been no reason for the defendant to purchase the property from Mr and Mrs Blakeley or to enter into the transaction with the plaintiff. I accept that after speaking to Mr Proffitt, a council officer, the directors of the defendant had reasonable grounds for believing that the subdivision was likely to be approved.
I do not regard the statements of Mr Murray at the time that the negotiations took place, as constituting misleading and deceptive conduct.
Conduct of defendant after 18 April 2004
However the time did come when the defendants should have known that there were problems with the boundary realignment. Exhibit P19, the minutes of a meeting of a Development Assessment Panel held Wednesday 18 August 2004, shows that an application to realign the boundaries, had previously been refused and an appeal lodged with the Environment Resources and Development Court on 29 June 2004. While the evidence does not disclose the precise date on which the defendants became aware that the application had been refused it must have been prior to 29 June 2004.
The Analysis of the application in exhibit P19 noted that if the proposed allotment (number 8 Poralka Crescent) was to be classified as an irregular shaped allotment, the frontage of the land would have only been 6m, in an area that required a minimum frontage width of 14m. As the majority of allotments within the vicinity had a frontage width in excess of 15m the proposed allotment was seen to be out of character with the prevailing allotment configuration. Alternatively, if the land was classified as a hammerhead allotment, the site area would have been under size. The decision of the Development Assessment Panel should have made the defendant aware, from 18 August 2004 at the latest that there were problems with its proposed boundary realignment.
Exhibit P20 is the minutes of another Development Assessment Panel meeting held 20 October 2004. At that meeting the defendant presented a second plan. Those minutes evidence that the panel concurred with the previous decision to refuse development consent. The panel’s assessment of the application noted:
The amendments to the application proposed to realign the internal boundary to abut the carport of the existing dwelling. The frontage of the proposed allotment has also been widened to 10m at the street boundary, with a freestanding carport proposed to be constructed on the southern side of the existing dwelling to provide a new access way and car parking facility for the existing dwelling.
The proposed plan will make redundant the carport currently used by the existing dwelling on the northern side of the dwelling, as the driveway crossover and access is proposed to be used solely for the new allotment.
What was being proposed by the defendant included significant changes to property, but the plaintiff was never informed as to the nature of the application or provided with an opportunity to determine where the boundary was to be placed and how much of the land and carport attached to the house would be lost.
Mr and Mrs Blakeley, in whose name the application had been lodged, appealed to the Environment Resources and Development Court from the decision of the panel. In reasons for judgment dated 23 December 2004 Commissioner Mosel dismissed the appeal.
The plaintiff paid the Option Deposit of $5,000 as required by the Option to Purchase Agreement, and paid the rent under the lease including the Option Payments specified in clause 5 of the Option to Purchase Agreement from 1 May 2004 onwards. At times he fell into arrears but as at 20 April 2006 his payments were up-to-date.
At no time did the defendant disclose to the plaintiff that the application for a boundary realignment had been refused. The defendant allowed the plaintiff to remain in possession and continued to accept the Option Payments with the knowledge that it could never settle if the plaintiff exercised the option. The defendant should have advised the plaintiff as soon as it became aware that there was a problem with the boundary realignment. The defendant should certainly have advised the plaintiff of the judgment handed down by Commissioner Mosel on 23 December 2004. The defendant should not have allowed the plaintiff to remain in possession believing that he had an option to purchase and the defendant should not have retained and continued to accept the Option Payments.
I find that the conduct of the defendant in permitting the plaintiff to occupy the premises, to pay the rent and Option Payments after 29 June 2004 without disclosing the decisions of the Development Assessment Panel and of the Environment Resources and Development Court amounted to misleading and deceptive conduct. The plaintiff continued to occupy the house and made the Option Payments in the belief that he could purchase the house for $270,000. By continuing to receive the rent and Option Payments the defendant impliedly represented that it would have been able to settle on the Option to Purchase Agreement if required.
Defendants attempt to negotiate the sale of whole block
When it was suggested to Mr Murray in evidence that after the defendant knew that it could not give Mr Johnstone that which he had an option to purchase, it allowed him to continue making payments under the Option to Purchase Agreement he responded that "soon after that date we approached him with other options, and that was done by my wife, Trudy". Exactly what his wife, Ms Trudy Blakeley, did is unclear. When she was asked how the defendant was going to get around the decision of the ERD Court, Ms Blakeley said she did not know[16]. Whatever she did, it appears that a period of several months elapsed before the defendant did anything. The defendant should have immediately disclosed the fact that the application to realign the boundaries had been dismissed and that the plaintiff could not buy the house for $270,000.
[16] Transcript p 337
It was misleading and deceptive to attempt to reopen negotiations with the plaintiff and offer to sell the entire property for $335,000 or $340,000 without disclosing the fact that the option to purchase the house on one title for $270,000 was no longer a possibility.
It was also misleading and deceptive not to disclose the fact that if the plaintiff did purchase both titles, the house and vacant allotment could not be sold separately. That would have affected the value of what the defendant was offering.
My finding that the defendant engaged in conduct which was misleading and deceptive would entitle the plaintiff to relief under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (SA). However, before considering what orders would be appropriate it is necessary to consider other matters such as to the Land and Business (Sale and Conveyancing) Act 1994.
Land and Business (Sale and Conveyancing) Act 1994

Section 6 of the Land and Business (Sale and Conveyancing) Act 1994 provides:
6.(1) A contract for the sale of land or a business that provides for the payment of a part of the purchase price of the land or business (except a deposit) before the date of settlement is void.
(2)Money paid under a contract that is void under subsection (1) may be recovered by action in any court of competent jurisdiction.
(3)In this section-
"deposit" means an amount paid by a purchaser in a lump sum, or in not more than three instalments, towards the purchase price of land or a business before the date of settlement.
(4)…"
Section 6 of the Land and Business (Sale and Conveyancing) Act 1994 is the successor to s 89 of the Land and Business Agents Act 1973. In Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd [17] Zelling A J. described s 89 as "draconian in form" and said "Any contract caught by it is void… in accordance with accepted principles of construction, s 89 will be read down to cover what it expressly covers and nothing else." In the same case King CJ said at 188:
It is plain that the mischief aimed at is the loss to purchasers, who pay the whole or part of the purchase price of land without obtaining title, and then find that the vendor is unable to make title and to give an effective transfer.
[17] (1991) 58 SASR 184
The contract under consideration in this case was a contract which provided for the payment of part of the purchase price of land, other than a deposit, before the date of settlement. It exemplifies the mischief to which King CJ referred, because it was a contract under which the purchasers had been required to pay part of the purchase price of land without obtaining title and then found that the vendor was unable to make title and to give an effective transfer. In my opinion it is caught by s 6(1).
The defendant argued that s 6 of the Land and Business (Sale and Conveyancing) Act 1994 did not apply to the option agreement because the option agreement did not constitute a contract for the sale of land within the Act until it was exercised. I reject that argument. I find that by the option the plaintiff acquired an equitable interest in the land[18].
[18] Epic Feast Ltd v Mawson KLM Holdings Pty Ltd & Anor [1998] SASC 6616.
In paragraph 3 of the defence the defendant admitted:
The plaintiff and the defendant entered into a Rent-to-Buy agreement (“the agreement”) on 18 April 2004 which comprised two documents, a Lease (“lease”) and an Option to Purchase (“option agreement”).
I find that the “Rent to Buy Agreement” comprising the lease and the option which are included in exhibit P1 was a contract for the sale of land. I have already referred to the interdependency of the two documents. I find that the "Rent to Buy Agreement" is void by reason of s 6(1) of the Land and Business (Sale and Conveyancing) Act 1994.
In reality there was only one transaction. The Option to Purchase Agreement was linked to the lease. The lease was linked to the option. There would have been no lease without the option to purchase. I have already referred to the connection between the documents. The lease agreement could not stand alone because the rent included the Option Payments.
If, contrary to my finding, the lease is not part of an agreement which is caught by s 6 of the Land and Business (Sale and Conveyancing) Act 1994, but was a separate agreement, it would be necessary to consider the consequences of the lack of a description of the land in the lease and the failure to make the lease conditional upon approval of the boundary realignment. However, because of my finding that the Rent-to-Buy agreement is void by reason of s 6 of the Land and Business (Sale and Conveyancing) Act 1994, it is unnecessary for me to consider whether the agreement was also void for other reasons such as uncertainty.
Also, if, as it should have been, the agreement had been made conditional upon approval of the boundary realignment, the condition would not have been satisfied and the lease would have been void for that reason.
In Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd (Receivers and Managers Appointed) (In Liq) & Ors (No 1)[19] Bleby J. found that the contract in question was void by reason of s 6 of the Land and Business (Sale and Conveyancing) Act 1994, however His Honour refrained from ordering repayment of the moneys because there were outstanding issues to be resolved. His Honour did say that the plaintiff would normally have been entitled to an order for payment of the moneys paid pursuant to the terms of contract. Bleby J also said:[20] “That given the draconian nature of the section, if there is a way in which s 6(1) can be read down to give affect to the bargain that should be done”. In the present case, the transaction not only fell squarely within s 6 but suffered from so many other flaws that there is no way of giving effect to the bargain between the parties.
[19] (2004) 89 SASR 337
[20] At p 350
In a later case between the same parties, Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd (Receivers and Managers Appointed) (In Liq) & Ors (No 3)[21], Bleby J considered[22] the circumstances in which payments made pursuant to a void contract might be recoverable. In that case payments had been made before variations made the contract void. His Honour said that subs 6(2) of the Land and Business (Sale and Conveyancing) Act 1994 made it clear that recovery is not prevented and that ordinary common law principles of restitution were intended to apply[23]. His Honour found that s 6(2) was not cast in mandatory terms, but was facultative in nature, providing, in effect that notwithstanding the statutory disproval of such contracts, money paid under them may nevertheless be recovered in accordance with ordinary common law principles[24]. His Honour considered that any claims for recovery of monies under a contract rendered void by s 6 must be determined in accordance with common law principles of restitution applicable generally to contracts avoided at common law[25]. Bleby J said:
As King CJ observed in Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd, the mischief which the legislature sought to overcome by the enactment of s 6 of the Land and Business (Sale and Conveyancing) Act was the loss to purchasers who pay the whole or part of the purchase price of a business without obtaining title, and who then find that the vendor is unable to make title and to give an effective transfer. In most cases, such payments will be made by a purchaser under the mistaken belief that he or she is obliged to make them in accordance with the terms of a contract which the statute renders void, and will prima facie be entitled to recovery. The policy of the Act is plainly to protect purchasers faced with that situation.
[21] (2006) 94 SASR 103
[22] At p 118
[23] Para 56
[24] P 115 para 57
[25] P 116 para 61
In my opinion that is the case here. The payments were made by the plaintiff under the mistaken belief that he was required to make them in accordance with the terms of a contract which the statute rendered void. The plaintiff also made the payments under the mistaken belief that the boundary realignment would be approved. Similar principles would apply if the contract was void for some other reason such as uncertainty.
I find that all of the money paid under the void Rent-to-Buy agreement is recoverable pursuant to s 6(2) of the Land and Business (Sale and Conveyancing) Act 1994 as money paid under a mistake, namely a belief that there was a valid option to purchase the house.
The defendant contended that even if the Land and Business (Sale and Conveyancing) Act 1994 did apply, it would confer no greater benefit on the plaintiff than the defendant has already conceded. I reject that contention. Section 6(2) provides that money that is paid under a contract that is void under subs (1) may be recovered. I interpret that to mean all money paid under the contract. All the payments made by the plaintiff were made under a mistake.
As I have mentioned there are also other problems with the Lease Agreement and Option to Purchase Agreement. For example, in neither the lease nor the option is the property properly described. While courts will endeavour to uphold a contract despite uncertainty, the deficiencies in both the lease and option are so fundamental that they would be impossible to remedy. To be capable of enforcement the subject matter of the lease must be capable of being ascertained with certainty. Even if a new boundary could be established that would not enable the contract to be performed because that boundary has not been approved and would not accord with the Certificates of Title. Because of my decision that the Rent to Buy Agreement is void by reason of s 6(1) of the Land and Business (Sale and Conveyancing) Act 1994 it is unnecessary to determine other issues such as whether the Rent-to-Buy Agreement is void for uncertainty.
The Option Deposit
Ms Trudy Blakeley is the wife of Mr Hunter Murray. She gave evidence that of the deposit of $5,000 the sum of $3,000 was an application fee. She said that she spoke with the plaintiff prior to the 18 April 2004, discussed a number of details about his application and asked for a $3,000 fee. She said "We asked for a $3,000 fee, and I asked him what deposit he had to put down and he told me that he will could invest $5,000." She said "I told Mr Johnstone that we only required three and he was prepared to put five down, and the $2,000 difference would be refunded to him as an option payment."
If the $3,000 was a fee it would not be recoverable under s 6(2) of the Land and Business (Sale and Conveyancing) Act 1994 but if the $3,000 was not a fee, but was part of the Option Deposit, it would be recoverable.
Clause 1 of the Option to Purchase Agreement defines "Option Deposit" as the portion of the Option Fee paid by the Grantee to the Grantor as specified in clause 4 of this agreement. Clause 4 states "The Option Deposit is $5,000 which is payable by the Grantee to the Grantor on or before the 30th Day of April 2004."
The evidence of Ms Trudy Blakeley as to the suggested fee is inconsistent with the Option to Purchase Agreement.
The suggestion that $3,000 was a fee and not part of the deposit was never put to the plaintiff. No other witness gave evidence of a fee of $3,000. In fact Mr Murray gave evidence that he came to a verbal understanding with the plaintiff that there was a $5,000 deposit. Additionally no basis has been established for the defendant to charge any fee.
I find that there was no fee of $3,000 and that the full Option Deposit of $5,000 was included in the "Option Fee" required by the Option to Purchase Agreement. Accordingly full $5,000 is recoverable by the plaintiff pursuant to s 6(2) of the Land and Business (Sale and Conveyancing) Act 1994 as money paid under a mistake.
The exercise of the option and further negotiations
In its defence the defendant asserted that the plaintiff never did exercise the option, that he was in default with his rent and was not entitled to exercise the option if he had wanted to. In his final address the defendant’s counsel submitted that in the end it just does not matter whether the option was exercised or not.
While the option was void and was never capable of being exercised, whether the plaintiff attempted to exercise the option or not does colour the surrounding events. It could be relevant to the plaintiff’s claim for damages for misleading and deceptive conduct.
A payment history prepared on behalf of the defendant establishes that there were periods when the plaintiff was not in arrears with his payments. For the majority of the time any arrears were minimal and it would have been within the plaintiff's capacity to bring the payments up-to-date if that became an issue. For example the rent for the periods 21 October 2005 to 27 October 2005, the seven days ended 24 November 2005 and the period ended 8 December 2005 was up-to-date. Importantly the rent for the period ended 20 April 2006 was up-to-date.
I do not accept the defendant's assertion that the plaintiff would not have been entitled to exercise his option, if it had not been void.
For the reasons which follow I also find that the plaintiff did attempt to exercise the void option, although he did not utilise the prescribed procedure.
In evidence the plaintiff said that his finance broker told him that he needed to sell two cars before he would be able to raise the finance to buy the property. By early 2006 he had sold the cars. He made a telephone call to Ms Trudy Blakeley and told her that his finance had been approved and he would like to purchase the property to which she replied "Look, I don't think we're going to sell it as one house at the moment. We want to sell the whole thing as a package. What I will do is e-mail the other directors and I will get back to you in the next couple of days but I can tell you right now they are looking at selling both for $340,000." The plaintiff replied that he would not be able to afford $340,000 and said that he wanted to stick with the existing contract. He said he did not want the other block and Ms Trudy Blakeley said that she would ring him back in a couple of days. Neither she nor any other representative of the defendant contacted the plaintiff as promised.
In cross examination the plaintiff agreed that he had a discussion with Trudy Blakeley about buying the whole property for $335,000. He later corrected that to $340,000. There was some confusing evidence as to when the conversation took place but the plaintiff eventually corrected earlier evidence to suggest that was early in 2006. He said his reply to the defendant was that he wanted to stick with the $270,000 and did not want the other block. He denied that in 2005 he received in the post a contract to purchase the property for $335,000. He said it would not have mattered anyway.
I accept the evidence of the plaintiff that he verbally advised Ms Blakeley that he wished to purchase the house for $270,000. However the Option to Purchase Agreement was void and the lack of a notice in the form of Schedule 1 to the option agreement was inconsequential.
Ms Trudy Blakeley said that the plaintiff spoke to her in late February or early March 2006 about approaching his mortgage broker again. The plaintiff enquired what his accumulated Option Payments were and said that he was seeking the finance that he needed to finalise the purchase. Ms Blakeley said the plaintiff referred to the purchase price of $335,000 that the defendant had "drawn up" the previous year and she told the plaintiff that she would need to consult the directors to ascertain whether they were still happy to proceed at that price. Ms Blakeley was presumably referring to a contract which she had instructed conveyancers to prepare for the sale of both blocks for $335,000. There is no evidence that the plaintiff ever saw that contract.
Ms Blakeley gave evidence that she spoke with the plaintiff again and told him that the defendant would be prepared to sell both blocks for $340,000. After that she was waiting to hear back from the plaintiff with respect to the sale of the two blocks.
If Ms Trudy Blakeley did negotiate on behalf of the defendant to sell the whole property for $335,000 or $340,000, without disclosing that the boundary realignment application had been rejected, I would have found that conduct on behalf of the defendant misleading and deceptive. However, I prefer the evidence of the plaintiff that he always made it clear that he only wished to purchase the land which was the subject of the option.
Meeting of the parties in July 2006
The plaintiff said the first he heard from a representative of the defendant in response to his request to exercise his option was on 2 June 2006 when he received a telephone call from Ms Amanda Blakeley who said that they needed to sit down and discuss their options. It is likely that Mr Johnstone was mistaken as to the date.
It is common ground that a meeting was held at the plaintiff's home. The plaintiff attended with his partner. There were three representatives of the defendant. The plaintiff described the meeting as "pretty heated right from the word go". He said he had his back up over the whole situation because he had been trying to purchase the property for the last three or four months. A representative of the defendant said: "Forget about the contract Brian, that's now lapsed, it is null and void, these are your two options, $340,000 both properties or move out."
At that meeting the plaintiff was told that because the contract was finished he did not have to make the Option Payments ($90) any more. At that time the total weekly payment had increased to $450 per week.
Mr Mitchell gave evidence of the meeting which he said was attended by Mr Johnstone and his partner, Amanda Blakeley, Roger Wolf (her partner) and himself. He thought the meeting was on a Sunday in July 2006 because he remembered it being particularly cold. He said that Amanda Blakeley walked the plaintiff through the situation and pointed out that the option had in fact lapsed. A figure of $340,000 for the whole property was suggested. He said that the plaintiff stated that he had had legal advice that the agreement may not be legal. Mr Mitchell also said the plaintiff said "that he was going to take his deposit back; he just wanted his one block of land and his house." That statement is corroborative of the plaintiff's evidence that he was not interested in both allotments but only wanted to purchase the house.
Ms Amanda Blakeley gave evidence of the meeting. When she entered the meeting her understanding was that the plaintiff either wanted to purchase both blocks or did not want to purchase them at all and was happy to move out, but when he spoke Mr Johnstone said "I only want to buy the one block because I can't afford the whole lot". She was surprised that he only wanted to buy the one block. The evidence of Ms Amanda Blakeley is also corroborative of the plaintiff's evidence that he said he wanted to stick with the existing contract.
At that meeting there was still no acknowledgement by the defendant that the application to realign the boundary had been dismissed or that the defendant could not settle on the option.
After that meeting the plaintiff continued in occupation paying the reduced rental figure but the defendant did not return or credit the plaintiff with the option payments which he had already made. Nothing much happened for a few months. The plaintiff then learned through his solicitors that the subdivision application had been made and declined. The plaintiff said it was at that time that he first obtained a copy of the contractual documents from his lawyers.
The plaintiff’s claim that he was not provided with the contractual documents
If the lease agreement had been amended by the addition of clause 20 after the plaintiff had signed the document the amended agreement would not have been binding. However the fact that the plaintiff had not been provided with a copy of the documentation did not by itself mean that he was not bound by the document which he had signed[26]. The fact that the agreement was void is another matter.
[26] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 43
Reliance
The plaintiff gave evidence that when he signed the documents on 18 April 2004 he was of the understanding that the boundaries had been approved. If he had been told it was doubtful whether the defendant would get the subdivision through he would not have "purchased the property". The plaintiff relied upon that understanding that the boundaries had been approved and continued to occupy the premises and make the option payments. I accept that evidence.
After the application for boundary realignment had been dismissed the plaintiff continued in occupation and continued to pay the rent under the lease on the basis of the defendants implied representation that there was no problem with the boundary realignment.
The Residential Tenancies Act 1995

If I am wrong in my finding that the agreement was caught by s 6 of the Land and Business (Sale and Conveyancing) Act 1994 it would become necessary to consider the Residential Tenancies Act 1995.
Clause 1 of the lease provides:
The Landlord and the Tenant are legally bound to comply with the provisions of the Residential Tenancies Act 1995 and the associated Regulations. An agreement or arrangement that is inconsistent with this Act or purports to exclude, modify or restrict the operation of this Act, is (unless the inconsistency, exclusion, modification or restriction is expressly permitted under this Act) to that extent void.
The Residential Tenancies Act 1995 requires in s 49 that the landlord provide the tenant with a copy of the documentation at the time when the tenant signs it. In this case that did not happen. The landlord is also required to provide a copy of the document as executed by all parties. There is a dispute as to whether that happened.
"Rent" is defined in the Residential Tenancies Act1995 as an amount payable for the right to occupy the premises for the period of the tenancy. The payments required by clause 2 of the lease are a combination of "rent" and the Option Payments.
The topic of rent is dealt with in Part 4 Division 3 of the Residential Tenancies Act 1995. Section 53 provides:
(1)A person must not require or receive from a tenant or prospective tenant a payment, other than rent or security (or both) for a residential tenancy or the renewal or extension of a residential tenancy. Maximum penalty: $500.
If I had not found that the agreement was void by reason of s 6 of the Land and Business (Sale and Conveyancing) Act 1994, I would have needed to hear submissions from counsel as to the effect of clause 1 of the lease and s 53 of the Residential Tenancies Act 1995.
Relief on the plaintiff’s claim
I find that all payments made by the plaintiff to the defendant, that is rent, Option Deposit, Option Payments and Option Fee are repayable to the plaintiff pursuant to s 6(2) of the Land and Business (Sale and Conveyancing) Act 1994 as money paid under a mistake of fact.
The plaintiff has also established an entitlement to a declaration that the defendant has engaged in misleading and deceptive conduct and established a foundation for damages under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (SA).
The defendant failed to advise the plaintiff that the application for realignment of the boundary had been rejected, caused the plaintiff to believe that the option was still on foot, caused the plaintiff to remain in occupation of the premises, impliedly represented that there was no problem with the realignment of the boundary, continued to receive the rent and option payments and entered into negotiations for the sale of the whole property to the plaintiff for $335,000 or $340,000 without disclosing the fact that the application for realignment of the boundary had been rejected. I have found that the defendant should have informed the plaintiff as to the fate of the application to realign the boundary.
The evidence does not establish what loss, if any, the plaintiff may have suffered by reason of being deprived of the opportunity to make a capital gain on the purchase of another property. Nor does the evidence establish the quantum of any loss caused by inconvenience or expenses such as removal expenses. I make no allowance under these headings.
I find that the misleading and deceptive conduct of the servants or agents of the defendant caused the plaintiff to pay a higher rent for the property than he would normally have paid, at least from the time when the defendant should have disclosed the application had been unsuccessful, because he was led to believe that he had a valid option to purchase the house. Any loss that the plaintiff has suffered as a consequence of paying a premium for rent for the property would be recoverable as damages. The premium to which I have referred is an amount in addition to the Option Payments. However, the plaintiff will be compensated for that loss by the order for repayment of all moneys pursuant to s 6(2) of the Land and Business (Sale and Conveyancing) Act 1974. If I were to make a separate assessment of damages to compensate the plaintiff for the premium on the rent the plaintiff would receive double compensation.
The plaintiff’s counsel acknowledged a liability to pay mesne profits in respect of the plaintiff’s occupancy. I return to this topic later. The amount payable by the plaintiff for “mesne profits” should not be based on an amount for rent that included the premium that the plaintiff paid because of his expectation that he could purchase the property. If the amount payable for “mesne profits” was calculated by reference to the rent under the lease, the plaintiff would be entitled to recover as damages the excess of the rent above the true market rent.
The defendants counterclaim
I have found that the lease was void. To the extent that the counterclaim is based upon the covenants in the lease it should therefore be dismissed.
The defendant did not acknowledge the possibility that the lease might be void and argued that it was entitled to retain the payments made as rent, although it did agree to return the Option Payments. While the defendant never claimed mesne profits, the plaintiff offered to pay mesne profits.
Mesne profits are damages for trespass[27]. Mesne profits are only available against trespassers[28]. A lessee becomes a trespasser by remaining in possession after termination of the lease. That is not the situation in this case, at least for the period up until the plaintiff should have vacated the premises. The plaintiff entered into and remained in possession of the house with the consent of the defendant.
[27] Dunlap v Macedo (1891) 8 TLR 43, Elliott v Boynton (1924) 1 Ch 236, Wilson v Kelly [1957] VR 147, 152
[28] Redfern and Cassidy, Australian Tenancy Practice and Precedents, para 25.10
Some cases say that the purpose of mesne profits is to compensate the landlord for the deprivation of its land. The normal measure of such damages is the market rental of the property for the period of occupation together with damages for any wrongful damage to the land[29].
[29] McGregor On Damages, 16th edition para 1503
There is another consideration. The evidence establishes that it was the intention of the defendant to subdivide and sell the two allotments for a profit. At no time was it the intention of the defendant to retain the house and lease it. When the application for boundary realignment was rejected the sale of the two allotments separately was no longer possible. The defendant was never deprived of rental that it would have received for the house from another tenant during the period of the plaintiff's occupancy.
The defendant ultimately sold the two allotments on 9 July 2007 for $373,000. The defendant's cost of purchasing the property on 10 May 2004 was $316,000. The defendant therefore made a profit of $57,000, less its holding costs. The plaintiff argued that the profit on the sale of the property should be taken into account in assessing the defendants counter-claim.
In the context of claims for mesne profits for occupancy McGregor discusses the issue of whether the owner of the land is entitled to the market rental when it cannot be said to have lost that amount because it would not have let out the land during the period of the user[30]. The text suggests that in cases involving the use of land there is a move from damages to restitution[31]. There is a debate as to whether in such cases the award should be based not on the loss suffered by the defendant, but on the unjust enrichment of the plaintiff. That debate has its genesis in hotel cases where a defendant has had the benefit of, but not paid for, accommodation in a hotel which was not fully booked. In such cases it was argued by the defendant that the plaintiff had suffered no loss because there were other rooms which could have been let.
[30] McGregor, para 1504
[31] McGregor, para 1507
While the defendant did refer to “restitutionary principles” in the context of the plaintiff’s entitlement to a refund of the option payments, neither party suggested that the defendant has a claim for restitution. The limits on claims for restitution were pointed out by Deane J. in Pavey & Matthews Pty Ltd v Paul [32] and David Securities Pty Ltd v Commonwealth Bank of Australia[33]. McGregor[34] states with respect to claims for restitution at para 1508:
However, this new concentration on loss seems to suggest that a plaintiff could be held strictly to what he can show that he has lost, now that through restitution he can reap the benefit gained by the defendant without resort to a damages claim. This however is plainly inconsistent with the result in Inverugie Investments v Hackett[35].
[32] (1987) 162 CLR 221, 256-257
[33] (1992) 175 CLR 353, 379
[34] McGregor, para 1508
[35] [1995] 1 WLR 713
Inverugie Investments was one of the hotel cases that I mentioned.
In my opinion this is not a case of holding over because of the circumstances in which the plaintiff came into possession. Accordingly an award by way of mesne profits would not be strictly appropriate. An alternative to mesne profits, would be to treat the defendants’ counterclaim as a simple claim for compensation for use and occupation. Woodfall[36] states:
We now have to consider the case of a relation of landlord and tenant existing without any arrangement at all for the payment of rent properly so-called, and the case in which the law implies from the conduct of the parties a promise to compensate the landlord for his loss by reason of the tenant’s occupation of his premises. The action which can in such case be maintained is not to recover rent, but damages due on implied agreement to pay for the use of the landlord's property, and arises rather out of what may be called a quasi-tenancy than from the strict relation of landlord and tenant. To quote the words of Lord Ellenborough[37]: "The action for use and occupation does not necessarily suppose any demise; it is enough that the defendant used and occupied the premises by the permission of the plaintiff".
[36] Woodfall, para 1-1031
[37] Rochester (Dean and Chapter) v Pierce (1808) 1 CAMP 466
Woodfall also states that the general basis of compensation of this kind is "a reasonable satisfaction for the use and occupation of the premises held or occupied by the defendant"[38] and where a specific rent has been agreed upon such rent is the proper measure of damages[39]. For practical purposes the compensation for use and occupation of land is assessed on the same principles as mesne profits.
[38] para 1-1063
[39] para 1-1064
I have already set out reasons for my view that in this case the rent required by the lease is not an appropriate measure of the defendants loss. I have not accepted the evidence of Ms Trudy Blakeley as evidence of the market rent.
Nor do I regard a document prepared by Fudali Waterhouse (exhibit D9 p.75) as evidence. It was objected to by the plaintiff and no rental valuation was properly proved. It seems that the valuer was told by Ms Blakeley that the property was tenanted by a long term tenant at $360 per week and the valuer simply accepted that amount as the market rent. In normal circumstances the rent that was being paid for premises might be evidence of the market rent; but the circumstances in this case were not normal. It was not a straight tenancy. There is no evidence that the valuer looked behind what she had been told or carried out an independent assessment of the market rental for the house.
The evidence establishes that the plaintiff was paying a premium in addition to the Option Payments because of the opportunity to purchase the property. That is consistent with the discussion of Rent-to-Buy agreements in Mr McKnight’s book.
If, contrary to my findings, the defendant was entitled to compensation at the rate of the rent specified in the lease, I would have awarded to the plaintiff the difference between the rent specified in the lease and the true market rent of the premises without an option as damages resulting from the defendants misleading and deceptive conduct. However if the amount payable by the plaintiff to the defendant in respect of his occupancy of the house is fixed at the true market rent there would be no need to assess damages for the misleading and deceptive conduct of the defendant under this heading.
While the defendant did not claim either mesne profits or compensation for use and occupation I find the defendant is entitled to compensation based on the plaintiff’s use and occupation of the house. There is no evidence as to the true market rent. I have found that it was not the rent stated in the lease. That is demonstrated by the fact that the two increases in rent were unrelated to the market or other objective criteria such as the CPI.
In the absence of other evidence I have decided to act upon the plaintiff's admission that the value of the rent was between $160 and $200 per week. I treat $200 per week as the true market rent. That is also the amount of rent which the plaintiff said he would have paid in normal circumstances and therefore represents the value of the use and occupation to the plaintiff. I have not taken the defendants profit on the sale of the property into account because the plaintiff’s admission does not require me to do that.
The period from 1 May 2004 until 15 January 2007 was 139 weeks occupancy. At $200 per week I allow $27,800 by way of compensation for the plaintiff’s use and occupation of the land.
The defendant also claims compensation for the period during which the repairs were carried out to the premises. The defendant cannot rely on the covenants on the lease and has not advanced any other basis for this claim. The defendant never intended to let the premises after they were vacated by the plaintiff. The only consequence of the time spent repairing the premises is that there may have been a delay in placing the premises on the market. No loss has been demonstrated under this head and as I have mentioned the property was sold at a profit. Also the period claimed by the defendant included the time that it took for issues between the defendant and its insurer, for which the plaintiff could never be held responsible, to be resolved.
The defendant also counterclaims the cost of making good damage alleged to have been caused by the plaintiff. Again the defendant’s counter-claim is based upon the covenants in the lease, but the lease is void. Furthermore, I do not think that the obligations created by clauses 4, 11 and 12 of the lease, which the defendant relies upon, give rise to an obligation to repair as onerous as that which the counter-claim assumes. No other basis for this claim was advanced by the defendant.
The plaintiff disputed some of the items. For example, the defendant’s counterclaim does not make allowance for wear and tear and there are items such as the need for repainting, the cost of a new dishwasher and microwave oven, damage to an air-conditioner, deterioration of a chimney flute, loss of curtains, a tear in shade cloth, paint on a roller door, the state of the carpet, a smoke detector and the condition of the blinds, which are the subject of genuine disputes. There are others.
Some of the items result from work carried out by the plaintiff to modify the premises. Given his expectation, created by the defendant, that he would purchase the premises when he exercised the option, it is difficult to see why the plaintiff should pay for restoration work such as the cost of replacing light fittings installed by the plaintiff in the expectation that he would purchase the house. The plaintiff’s alterations to the premises were caused by the misleading and deceptive conduct of the defendant. The cost of work which the plaintiff has lost is itself something which could be taken into account in assessing the loss to the plaintiff by reason of the defendants misleading and deceptive conduct, but there is no evidence of that cost.
The counterclaim lists seventy five separate items. The quantum of the loss referred to in the final report of loss adjusters was $9,730 but there is no itemisation of that amount. The defendants’ counsel referred to a different amount but its source is unclear.
The plaintiff's counsel suggested that I should allow one half of the claim. He suggested an amount of $6,000. In the absence of any identification of the basis of the plaintiff’s liability for the cost of restoring the premises, and because of the lack of clear evidence as to the cost of the different items which have been claimed, I allow the sum of $6,000 on the basis of the admission by the plaintiff.
The plaintiff also claims water rates. I am not satisfied that claim has been proved.
The claim in paragraph (a) of the counterclaim for rental arrears is dismissed. I allow the sum of $27,800 for the plaintiff’s use and occupation of the house.
For the cost of rectification of the property under paragraph (b), I award $6,000.
The claim for water rates under paragraph (c) is dismissed.
The claims for indemnity costs in paragraph (d) and interest in paragraph (e) are dismissed.
Summary
The end result therefore is that on the claim that will be judgment for the plaintiff against the defendant for the sum of $57,180.
There will be a declaration that the defendant has engaged in misleading and deceptive conduct.
As to the other claims of the plaintiff there will be no order.
On the counterclaim there will be judgment for the defendant against the plaintiff for $33,800.
There is therefore a difference in favour of the plaintiff.
I will hear counsel as to the form of the judgment, interest and costs.