Lawrom Nominees Pty Limited v Kingsmede Pty Ltd

[2000] NSWSC 1048

Reported Decision: (2001) NSW ConvR 55-979

New South Wales

Supreme Court

CITATION:	LAWROM NOMINEES PTY. LIMITED V. KINGSMEDE PTY. LTD. & ANOR [2000] NSWSC 1048
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 3258/00
HEARING DATE(S):	4 October 2000
JUDGMENT DATE:	14 October 2000
PARTIES :	Lawrom Nominees Pty. Limited - plaintiff Kingsmede Pty. Limited - 1st defendant Pamiers Pty. Limited - 2nd defendant
JUDGMENT OF:	Hodgson CJinEq at 1

COUNSEL :	A. Meagher SC/D. Raphael for plaintiff S. Robb SC for defendants
SOLICITORS:	Esplins, Sydney for plaintiff Middleton Moore & Bevins, Sydney for defendants
CATCHWORDS:	LANDLORD & TENANT - REAL PROPERTY - Strata and related titles and occupancy - Landlord seeks registration of strata plan - Tenant of one floor of building applies for injunction to restrain registration - Landlord offers undertakings to protect tenant from being disadvantaged - Injunction refused.
LEGISLATION CITED:	Conveyancing Act 1919, ss.117, 118. Strata Schemes (Freehold Development) Act 1973 ss.5, 7, 16, 18, 21, 25. Strata Schemes Management Act 1996 ss.11, 12, 13, 43, 44, 47, 49, 53, 55, 154, 245, Dictionary.
CASES CITED:	Ashington Holdings Pty. Ltd. v. Wipema Services Pty. Ltd. (No.2) (1998) 9 BPR 16,515 at 16,518-20. Burchard v. Holyroyd Municipal Council (1984) 2 NSWLR 164. Hurlfite Pty. Ltd. v. Coles Myer Limited (1990) NSW Conv.R. 55-515.
DECISION:	See end of judgment

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

CORAM: HODGSON, CJ in Eq.

Tuesday 14th November 2000

NO. 3258 OF 2000
LAWROM NOMINEES PTY. LTD. V. KINGSMEDE PTY. LIMITED & ANOR.

JUDGMENT

1   The plaintiff Lawrom is the lessee, under a lease originally granted by Permanent Trustee Co. Limited, of the whole of Level 6 of 261 George Street, Sydney, for a term of six years expiring 31st May 2005. The defendants Kingsmede and Pamiers purchased the building 261 George Street under a contract of sale dated 14th March 2000, and they became registered proprietors of the property on 16th June 2000. 2   In May 2000, the defendants requested the consent of plaintiff to registration of a proposed strata plan for the building. The plaintiff did not consent, and on 30th May 2000 lodged a caveat on the title. Notice to lapse the caveat was served on the plaintiff on 3rd July 2000, and on 17th July 2000, the plaintiff received notice from the Registrar-General that the Registrar-General intended to register the defendants’ strata plan unless restrained by the Supreme Court. 3   These proceedings were commenced on 20th July 2000, initially seeking an order extending the caveat. 4   Orders were made extending the caveat, and an Amended Summons filed on 16th August 2000 sought orders inter alia restraining the defendants from pursuing registration of the strata plan.

OUTLINE OF FACTS

5 The plaintiff’s lease was registered on 17th December 1999. 6 The property leased is described as “whole of Level 6, being part of 261 George Street Sydney Volume 15229 Folio 26”, but, according to the Reference Schedule to the Lease “excluding Common Areas”. The lease incorporates, with amendments, a Memorandum No.W288827 filed in the Land Titles Office, and according to this Memorandum, the “Demised Premises” include “the fixtures, fittings, furniture, plant, machinery and equipment (if any) of the Lessor ... installed therein”. 7 Clause 4.4 of the Memorandum provides to the effect that the lessee should not, without the prior approval in writing of the lessor, display signs on the interior or exterior of the building. Clause 4.11 provides to the effect that the lessee should give to the lessor prompt notice of any defect in the services to the demised premises. 8 Clause 4.5 provides to the effect that the lessee should comply with the Rules and Regulations (set out in the Second Appendix), which could be altered by the lessor, provided that no amendment or variation was inconsistent with the lessee’s rights under the lease. Clause 13 of the Rules and Regulations gives the lessee right of access to the demised premises 24 hours a day, seven days a week. 9 Clause 6.1 of the Memorandum provides to the effect that, where air conditioning or elevators are provided, the lessor is to endeavour to keep them working, and to effect repairs without undue interference to the lessee. Clause 7.3 provides to the effect that the lessee should not, without the prior consent of the lessor, make alterations to the demised premises. 10 Clause 12.1 of the Memorandum provides to the effect that the lessee should have quiet enjoyment of the demised premises; and cl.12.2 provides to the effect that the lessee might, at the expiration of the lease, remove the lessee’s fixtures. Clause 14.12 provides to the effect that in exercising its right to make alterations to the building the lessor should endeavour to cause as little inconvenience to the lessee as is practicable. 11 Clause 3 of the First Appendix to the Memorandum provides to the effect that the lessee should pay to the lessor a proportion (stated by the lease to be 9.57%) of all increases of rates and taxes in respect of the building or land, and of other outgoings in respect of the building paid or payable by the lessor. 12 The premises currently leased include partitioning, ducting, pipes, pumps and lighting. 13 The contract for sale to the defendants was expressed to be subject to the lease, and a copy of the lease was attached to it. 14 On 23rd March 2000, letters were sent to the lessees of various parts of the building, seeking their consent to the proposed strata plan, being a subdivision into ten lots and common property. Floor 6 (apart from access areas) comprised one lot. 15 By 4th May 2000, the defendants had received consents from all lessees, apart from the plaintiff; although they have not sought or obtained consent from a registered sub-lessee of part of the building, namely Pruside Willow Pty. Limited. 16 On 16th June 2000, the defendants lodged their proposed strata plan with the Registrar-General; and on 23rd May 2000, the defendants offered to waive the right to recover outgoings for the remainder of the lease. On 26th May 2000, the plaintiff suggested that the defendants should waive rent for the remainder of the lease; and this was rejected by the defendants on 29th May 2000. 17 During May 2000, the defendants entered into two contracts for the sale of strata lots, for $4.75 million and $1.6 million respectively, subject to registration of the strata plan by 31st December 2000. It was negotiating for other sales, but these negotiations were halted because of these proceedings. 18 On 30th June 2000, the defendants caused the Registrar-General to take action to serve lapsing notices under s.74I of the Real Property Act. 19 On 10th July 2000, the Registrar-General sent a written notice to the plaintiff pursuant to s.196AA(2) of the Conveyancing Act, stating that strata plan 62822 had been lodged for registration, and inviting submissions, but advising that, unless the Supreme Court restrained the Registrar-General, the Registrar-General intended to register the strata plan. These proceedings were commenced on 20th July 2000. 20 On 6th September 2000, the defendants, as the original proprietors of all lots in the strata plan, offered to the plaintiff to procure the owners corporation under the strata plan to pass a by-law authorising it to enter into a deed poll and prohibiting variation or termination thereof, and to procure execution by the owners corporation of that deed poll. The deed poll in question purported to recognise the rights of lessees under all leases of the building, including their right to exclusive possession of parts of the building which would become common property under the strata plan, and their rights to use other common property, and purported to provide that the lessees would not be bound by by-laws inconsistent with the terms of their leases, and included terms to ensure the provision of services to lessees and to ensure that they could remove tenants’ fixtures.

ISSUES

21 The main issues in the case are whether, by procuring registration of the strata plan, the defendants would breach the terms of the lease to the plaintiff or give rise to a threat of breach thereof; and if so, whether the breach or threat would be such as would justify the remedy of an injunction. Relevant to the second question, involving the exercise of discretion, is the adequacy of the deed poll proposed by the defendants to protect the interests of the plaintiff; and also a question of possible adverse taxation consequences. 22 These issues involve consideration of the effect of ss.117 and 118 of the Conveyancing Act 1919 (NSW), and of various provisions of the Strata Schemes Management Act 1996 (NSW) (the “Management Act”), and the Strata Schemes (Freehold Development) Act 1973 (NSW) (the “Development Act”). 23 The rights and obligations of transferees of leases and of reversions expectant upon leases are dealt with by ss.117 and 118 of the Conveyancing Act 1919, which are in the following terms:

117(1) Rent reserved by a lease and the benefit of every covenant or provision therein contained having reference to the subject-matter thereof and on the lessee's part to be observed or performed, and every condition of re-entry and other condition therein contained shall be annexed and incident to, and shall go with the reversionary estate in the land or in any part thereof immediately expectant on the term granted by the lease, notwithstanding severance of that reversionary estate, and shall be capable of being recovered, received, enforced, and taken advantage of by the person from time to time entitled, subject to the term, to the income of the whole or any part as the case may require of the land leased.
This subsection extends to a covenant to do some act relating to the land, notwithstanding that the subject-matter may not be in existence when the covenant is made.
(2) The benefit of every condition of re-entry or forfeiture for a breach of any covenant or condition contained in a lease shall be capable of being enforced and taken advantage of by the person from time to time entitled, subject to the term, to the income of the whole or any part, as the case may require, of the land leased, although that person became, by conveyance or otherwise, so entitled after the condition of re-entry or forfeiture had become enforceable.
(3) This section shall not render enforceable any condition of re-entry or other condition waived or released before the person became entitled as aforesaid.
(4) This section applies to:
(a) leases made after the commencement of this Act, and
(b) leases made before the commencement of this Act, but with respect only to rent accruing due after the commencement of this Act and to the benefit of a condition of re-entry or forfeiture for a breach committed after the commencement of this Act of any covenant, condition, or provision contained in the lease.

118(1) The obligation of a covenant entered into by a lessor with reference to the subject-matter of the lease shall, if and as far as the lessor has power to bind the reversionary estate immediately expectant on the term granted by the lease, be annexed and incident to, and shall go with that reversionary estate, or the several parts thereof, notwithstanding severance of that reversionary estate, and may be taken advantage of and enforced by the person in whom the term is from time to time vested by conveyance, devolution in law, or otherwise, and if and as far as the lessor has power to bind the person from time to time entitled to that reversionary estate, the obligation aforesaid may be taken advantage of and enforced against any person so entitled.
(2) This section applies to:
(a) leases made after the commencement of this Act, and
(b) leases made before the commencement of this Act so far only as relates to breaches of covenant committed after the commencement of this Act.

24 The subject is also dealt with in s.40(3) and s.51 of the Real Property Act; but it seems clear that those provisions do not affect the requirement that, for a covenant in a lease to bind the transferee of the lessor, it must be a covenant “with reference to” the land in question, as contemplated by ss.117 and 118 of the Conveyancing Act. 25 The subdivision of land by way of strata schemes is dealt with by the Development Act. 26 Section 5 of that Act contains definitions, including the following definitions of “common property”, “lot”, “parcel” and “structural cubic space”:

”common property" means so much of a parcel as from time to time is not comprised in any lot.

"lot" means one or more cubic spaces forming part of the parcel to which a strata scheme relates, the base of each such cubic space being designated as one lot or part of one lot on the floor plan forming part of the strata plan, a strata plan of subdivision or a strata plan of consolidation to which that strata scheme relates, being in each case cubic space the base of whose vertical boundaries is as delineated on a sheet of that floor plan and which has horizontal boundaries as ascertained under subsection (2), but does not include any structural cubic space unless that structural cubic space has boundaries described as prescribed and is described in that floor plan as part of a lot.

" parcel " means:
(a) except as provided in paragraph (b), the land from time to time comprising the lots and common property the subject of a strata scheme, and
(b) in relation to a plan lodged for registration as a strata plan, the land comprised in that plan.
"structural cubic space" means:
(a) cubic space occupied by a vertical structural member, not being a wall, of a building,
(b) any pipes, wires, cables or ducts that are not for the exclusive enjoyment of one lot and:
(i) are in a building in relation to which a plan for registration as a strata plan was lodged with the Registrar-General before the day appointed and notified under section 2 (3) of the Strata Titles (Development Schemes) Amendment Act 1985 , or
(ii) in any other case - -are in a building or in a part of a parcel that is not a building,
(c) any cubic space enclosed by a structure enclosing any such pipes, wires, cables or ducts.

27 Section 5(2) of the Act provides as follows:

5(2) The boundaries of any cubic space referred to in paragraph (a) of the definition of "floor plan" in subsection (1):
(a) except as provided in paragraph (b):
(i) are, in the case of a vertical boundary, where the base of any wall corresponds substantially with any line referred to in paragraph (a) of that definition---the inner surface of that wall, and
(ii) are, in the case of a horizontal boundary, where any floor or ceiling joins a vertical boundary of that cubic space---the upper surface of that floor and the under surface of that ceiling, or
(b) are such boundaries as are described on a sheet of the floor plan relating to that cubic space (those boundaries being described in the prescribed manner by reference to a wall, floor or ceiling in a building to which that plan relates or to structural cubic space within that building).

28 Section 7(2) of the Act provides as follows:

7(2) Land including the whole of a building may be subdivided into lots, or into lots and common property, by the registration of a plan as a strata plan.

29 Section 16 deals with the signing of or consent to strata plans, as follows:

16(1) The Registrar-General shall not register as a strata plan, a strata plan of subdivision, a strata plan of consolidation or a building alteration plan a plan lodged in the office of the Registrar-General unless the plan is signed:
(a) by the registered proprietor of the land comprised in the plan, and
(b) by every mortgagee, chargee or covenant chargee under a mortgage, charge or covenant charge recorded in the folio of the Register kept under the Real Property Act 1900 relating to that land.
(2) Without limiting the effect of subsection (1), the Registrar-General may refuse to register a plan referred to in that subsection unless consents in writing to the registration of the plan signed by (or by an agent authorised by) such of the following persons as the Registrar-General may determine:
(a) the lessee under any lease, or the judgment creditor under any writ, recorded in the folio of the Register kept under the Real Property Act 1900 relating to the land comprised in the plan,
(b) the caveator under a caveat affecting any estate or interest in that land,
are lodged in the office of the Registrar-General.
(3) In relation to any particular plan lodged for registration as referred to in subsection (1), the Registrar-General may, without giving notice to any person, dispense with the requirement for a person mentioned in that subsection to sign the plan.

30 Section 18 deals with the vesting of common property, as follows:

18(1) Upon registration of a strata plan any common property in that plan vests in the body corporate for the estate or interest evidenced by the folio of the Register comprising the land the subject of that plan but freed and discharged from any mortgage, charge, covenant charge, lease, writ or caveat affecting that land immediately before registration of that plan.
(2) The Registrar-General shall, upon registration of a strata plan, create a folio of the Register for the estate or interest of the body corporate in any common property in that strata plan.
(3) Upon registration of a strata plan of subdivision creating common property, the common property so created vests in the body corporate for the estate or interest evidenced by the folio of the Register comprising the land the subject of that plan but freed and discharged from any mortgage, charge, covenant charge, lease, writ or caveat affecting that land immediately before registration of that plan.
(4) Upon registration of a notice of conversion, any lot thereby converted into common property vests in the body corporate for the estate or interest evidenced by the folio of the Register comprising the land the subject of that notice at the time when the notice is registered but freed and discharged from any mortgage, charge, covenant charge, lease, writ or caveat affecting that land before registration of that notice.
(5 ) Nothing in subsection (1), (3) or (4) affects any right or remedy that may be exercised otherwise than in relation to common property by a person who is a mortgagee, chargee, covenant chargee, lessee, judgment creditor or caveator, even though the person may have signed or consented to the registration of the plan or signed the notice creating the common property.
(6) In this section (other than this subsection), "lease" does not include a lease granted to the provider of an electricity, telephone or telecommunication service that is required by that provider for the provision of the service. In relation to land the subject of such a lease, the lessor is taken to be the body corporate and the land leased is taken to be common property on registration of the plan or notice.

31 Sections 21 and 25 provide in relation to dealing with common property, as follows:

21. Common property shall not be capable of being dealt with except in accordance with the provisions of this Act.
25(1) A body corporate may, pursuant to a unanimous resolution, execute a transfer or lease of common property other than common property the subject of a lease accepted or acquired by the body corporate under section 19 (2).
(1A) Subsection (1) does not authorise a transfer by the body corporate under a strata scheme that is part of a community scheme under the Community Land Development Act 1989.
(2) A body corporate, pursuant to a unanimous resolution, may, if not prevented by the terms of the lease, transfer a lease of common property accepted or acquired by the body corporate under section 19 (2) or grant, by way of sub-lease, a lease of its estate or interest in common property the subject of a lease so accepted or acquired.
(3) A body corporate may, pursuant to a unanimous resolution, accept a surrender of a lease, or, if otherwise empowered so to do, re-enter under a lease, granted under subsection (1) or (2).
(4) The Registrar-General shall register a dealing referred to in subsection (1), (2) or (3) by making in the Register such recordings with respect to the dealing as he considers appropriate.
(5) (Repealed)

32 The Management Act provides for the management of strata schemes and the resolution of disputes in connection with them. 33 Sections 11, 12 and 13 provide for the establishment of an owners corporation and the exercise of its functions, as follows:

11(1) The owners of the lots from time to time in a strata scheme constitute a body corporate under the name "The Owners ---Strata Plan No X" (X being the registered number of the strata plan to which that strata scheme relates).
(2) The Corporations Law does not apply to or in respect of an owners corporation.

12. An owners corporation has the functions conferred or imposed on it by or under this or any other Act.

13(1) An owners corporation may employ such persons as it thinks fit to assist it in the exercise of any of its functions.
(2) An owners corporation must ensure that any person employed to assist it in the exercise of a function has the qualifications (if any) required by this Act for the exercise of that function.
Note:
An owners corporation may employ such persons to assist it as, for example, caretakers and persons providing services to retirement villages. However, where a strata managing agent is appointed the appointment must be in accordance with Part 4. In addition, the Act requires certain functions to be performed by particular persons or persons having particular expertise. For example, section 24 places restrictions on the persons who can exercise functions relating to the finances and accounts of an owners corporation.
(3) An owners corporation may not delegate any of its functions to a person unless the delegation is specifically authorised by this Act.

34 Part 5 of the Management Act deals with by-laws. Sections 43, 44, 47, 49, 50, 51, 52, 53 and 55 are in the following terms:

43(1) By-laws may be made in relation to any of the following:
safety and security measures
details of any common property of which the use is restricted
the keeping of pets
parking
floor coverings
garbage disposal
behaviour
architectural and landscaping guidelines to be observed by lot owners
matters appropriate to the type of strata scheme concerned.

(2) This section does not limit the matters for which by-laws may be made.
(3) The regulations may prescribe model by-laws which may be adopted as the by-laws for a strata scheme.

44(1) The by-laws for a strata scheme bind the owners corporation and the owners and any mortgagee or covenant chargee in possession (whether in person or not), or lessee or occupier, of a lot to the same extent as if the by-laws:
(a) had been signed and sealed by the owners corporation and each owner and each such mortgagee, covenant chargee, lessee and occupier, and
(b) contained mutual covenants to observe and perform all the provisions of the by-laws.
(2) There is an implied covenant by the lessee in a lease of a lot or common property to comply with the by-laws for the strata scheme.
(3) In this section, "lessee" means, in relation to a lot in a strata leasehold scheme, a sublessee of the lot.

47. An owners corporation, in accordance with a special resolution, may, for the purpose of the control, management, administration, use or enjoyment of the lots or the lots and common property for the strata scheme, make by-laws adding to, amending or repealing the by-laws for the strata scheme.

49(1) By-law cannot prevent dealing relating to lot
No by-law is capable of operating to prohibit or restrict the devolution of a lot or a transfer, lease, mortgage, or other dealing relating to a lot.
(2) By-law resulting from order cannot be changed
If an order made under Chapter 5 has effect as if its terms were a by-law, that by-law is not capable of being amended or repealed except by a by-law made in accordance with a unanimous resolution and, in the case of a strata leasehold scheme, with the consent of the lessor of the scheme.
(3) By-law cannot restrict children
A by-law for a residential strata scheme has no force or effect to the extent to which it purports to prohibit or restrict persons under 18 years of age occupying a lot. This subsection does not apply to a by-law for a strata scheme for a retirement village or housing exclusively for aged persons.
(4) By-law cannot prevent keeping of guide dog
A by-law has no force or effect to the extent to which it purports to prohibit or restrict the keeping on a lot of a dog used as a guide or hearing dog by an owner or occupier of the lot or the use of a dog as a guide or hearing dog on a lot or common property.

50(1) An owners corporation must not, during the initial period, make, amend or repeal a by-law in such a manner that a right is conferred or an obligation is imposed on one or more, but not all, owners or in respect of one or more, but not all, lots.
(2) An owners corporation may recover from the original owner, as damages for breach of statutory duty, any loss suffered by the owners corporation as a result of a contravention of this section.
(3) An owner may recover, as damages for breach of statutory duty, any loss that has been suffered by the owner as a result of a contravention of this section.
(4) It is a defence to an action under this section for damages if it is proved that the original owner:
(a) did not know of the contravention on which the action is based, or
(b) was not in a position to influence the conduct of the owners corporation in relation to the contravention, or
(c) used due diligence to prevent the contravention.
(5) A remedy available under this section does not affect any other remedy.

51(1) This Division applies to a by-law conferring on the owner of a lot specified in the by-law, or the owners of several lots so specified:
(a) a right of exclusive use and enjoyment of the whole or any specified part of the common property, or
(b) special privileges in respect of the whole or any specified part of the common property,
and to a by-law that amends or repeals such a by-law.
(2) This Division does not prevent an owners corporation making a by-law in accordance with section 54 of the Community Land Management Act 1989.

52(1) An owners corporation may make, amend or repeal a by-law to which this Division applies, but only:
(a) with the written consent of the owner or owners of the lot or lots concerned and, in the case of a strata leasehold scheme, the lessor of the scheme, and
(b) in accordance with a special resolution.
(2) A by-law to which this Division applies may be made even though the person on whom the right of exclusive use and enjoyment or the special privileges are to be conferred had that exclusive use or enjoyment or enjoyed those special privileges before the making of the by-law.
(3) After 2 years from the making, or purported making, of a by-law to which this Division applies, it is conclusively presumed that all conditions and preliminary steps precedent to the making of the by-law were complied with and performed.

53. A by-law to which this Division applies may confer rights or special privileges subject to such conditions as may be specified in the by-law (for example, a condition requiring the payment of money by the owner or owners of the lot or lots concerned, at specified times or as determined by the owners corporation).

55(1) A by-law to which this Division applies, while it remains in force, continues to operate for the benefit of, and is binding on, the owner or owners for the time being of the lot or lots specified in the by-law.
(2) If a person becomes owner of a lot at a time when, under a by-law or under this subsection, a former owner is liable to pay money to the owners corporation, the person who becomes owner is jointly and severally liable with the former owner to pay the money to the owners corporation.
(3) Any money payable by an owner to the owners corporation under a by-law to which this Division applies or under subsection (2) may be recovered, as a debt, by the owners corporation.

35 “Initial period” referred to in s.50 is defined in the Dictionary as follows:

"initial period", in relation to an owners corporation, means the period commencing on the day on which that owners corporation is constituted and ending on the day on which there are owners of lots the subject of the strata scheme concerned (other than the original owner) the sum of whose unit entitlements is at least one-third of the aggregate unit entitlement.

36   Chapter 5 of the Act deals with disputes, Part 4 of that Chapter deals with orders of adjudicators, and Division 8 of that Part deals with orders relating to by-laws. Section 159(1) provides as follows:

159(1) An Adjudicator may make an order declaring a by-law to be invalid if the Adjudicator considers that an owners corporation did not have the power to make the by-law.

37 Contracting out of the provisions of the Act is prohibited by s.245, which is in the following terms:

245(1) The provisions of this Act have effect despite any stipulation to the contrary in any agreement, contract or arrangement entered into after the commencement of this section.
(2) No agreement, contract or arrangement, whether oral or wholly or partly in writing, entered into after the commencement of this section operates to annul, vary or exclude any of the provisions of this Act.

SUBMISSIONS

38 The parties have provided written submissions, which I will leave with the papers. 39 Mr. Meagher SC for the plaintiff submitted that the defendants acquired the building subject to the lease; and that there was no implied term in the lease requiring the lessee to consent to the registration of a strata plan. Those matters were in fact conceded by the defendants. 40 Next, Mr. Meagher submitted that registration would necessarily involve breaches of the lease, and threats of further breaches. 41 He submitted that the demised premises would cease to exist as such. The defendants, as owners of a strata lot in respect of Level 6, would own only the air space, whilst the walls, floors, ceilings and fixtures would become common property owned by the body corporate: see Development Act, ss.5, 18(1). Accordingly, the defendants would be unable to lease the demised premises to the plaintiff. 42 Mr. Meagher referred to Ashington Holdings Pty. Ltd. v. Wipema Services Pty. Limited (No.2) (1998) 9 BPR 16,515 at 16,518-20. In that case, an agreement for lease arose from the lessee’s exercise of an option, in relation to a floor in a commercial building. Subsequently, a strata plan was registered with the lessee’s consent, and the owner offered a lease of the relevant strata lot. Young, J. refused specific performance, because what was offered was different from the agreed lease. Young, J’s decision was reversed by the Court of Appeal, but only on the ground that the proposed lessee's consent to the strata plan gave rise to an estoppel by convention. 43 Next, Mr. Meagher submitted that what had previously been common property owned by the defendants as owners of the building would become common property owned by the body corporate, so that the defendants would no longer be in a position to comply with their covenants in the lease to provide access, lifts, air conditioning, water and electricity, and this in turn could lead to infringement of the plaintiff’s right to quiet enjoyment. Mr. Meagher submitted that they may not even be bound to provide these services: the defendants were not the original lessor, with obligations arising from privity of contract, but were assignees whose obligations arose from privity of estate: see Progressive Mailing House Pty. Limited v. Tabali (1984-5) 157 CLR 17; Auscott Limited v. Panizza (1988) NSWConv. 55-395; Kumar v. Dunning (1989) QB 193-9. 44 The lessor’s obligations in relation to services were not “with reference to” the air space of Level 6, within ss.117 and 118 of the Conveyancing Act. Even if the obligation to provide those services bound the defendants, they would not bind assignees of the defendants; so that even if the availability of a claim for damages would be an incentive to the defendants to ensure that the services were provided, that claim would not lie against lessor assignees of the defendants. 45 Next, Mr. Meagher submitted that a number of the provisions of the lease would become unworkable: for example, the provision to the effect that the lessee could erect signs and make alterations with the consent of the lessor; and provisions providing for percentage increases in outgoings. 46 Next, Mr. Meagher submitted that the plaintiff would become bound by entirely new obligations, namely the by-laws for the strata scheme: see s.44 of the Management Act. These could involve serious disadvantages, for example reduced access to the building, or access to the plaintiff’s premises by workers authorised by the body corporate, without the protection given by cl.14.12 of the Memorandum. 47 Mr. Meagher submitted that the plaintiff could become liable also to additional payments under clauses of the Memorandum providing for contributions to expenses, including cl.3(c), (cc), (dd) and (ee) of the First Appendix. 48 In relation to the deed poll offered by the defendants, Mr. Meagher submitted first that cl.2 thereof, purporting to provide for exclusive use and enjoyment by the lessee of common property previously within the demised premises, would be invalid, because the owners corporation does not have power to give lessees exclusive use and enjoyment of common property: at most, it could give a licence to owners, pursuant to ss.51, 52 and 55 of the Management Act, which is not an interest in land. See Victorian Professional Group Management Pty. Limited v. The Proprietors “Surfers Aquarius” Building Units Plan No.3881 (1989) NSW Strata Title Cases 30-088 at 50-785-6; Rugby Court Pty. Limited v. The Proprietors Strata Plan No.7712 (1979) NSW Strata Title Cases 30-030 at 50-391-2. 49 Mr. Meagher submitted that cl.4(b) of the proposed deed poll, purporting to authorise non-compliance with by-laws inconsistent with rights under the lease, would be invalid, because the owners corporation does not have power to authorise such non-compliance: see s.44 of the Management Act. Furthermore, s.47 of the Management Act meant that any purported attempt to prevent amendment would be invalid. 50 Next, Mr. Meagher submitted that s.50 of the Management Act prevented by-laws, during a relevant “initial period”, conferring rights on owners unless all owners were given the same rights: Bapson Pty. Limited v. Puyeti Pty. Limited (1990) NSW Strata Title Cases 80-002 at 60,057. Even though this deed poll purported to apply to all leases, leases had different obligations and expired at different times, so that the rights given to different owners by the deed poll would be different. 51 Mr. Meagher submitted that cl.6 of the deed poll, purporting to permit lessees to take away fixtures, was invalid: ss.21 and 25 of the Development Act meant that common property could be dealt with only by a unanimous resolution of lot holders at the time of the transfer of common property. 52 Mr. Meagher submitted that cl.7, purporting to appoint lessors as agents of the owners corporation for the purpose of consents, was invalid: see ss.12, 13(3) of the Management Act, and cl.3.1 of the by-laws. 53 Finally, Mr. Meagher pointed out that cl.12 of the deed poll, which purportedly required the owners corporation to carry out certain work, contained no obligation upon the lessor to give notification to the owners corporation or to fund the repair work. 54 Mr. Raphael, also for the plaintiff, submitted that there could be adverse tax consequences to the plaintiff. The registration of the strata plan would result in a release of rights by the plaintiff, possibly in return for the benefits of the deed poll, and that release of rights would be a supply on which GST was payable. If there were any lessening of the plaintiff’s obligations to pay outgoings, that would constitute firstly, a one-off income or capital gain (see Warner Music Australia Limited v. FCT (1996) 96 ATC 5,046 at 5,055-6) and would involve an ongoing loss of deductions. 55 Mr. Robb QC for the defendants submitted that the Development Act confirmed a right to achieve the benefits of strata title as an incident of property ownership, that all lessees but the plaintiff had consented, and that the defendants had indicated a willingness to take whatever steps were necessary to ensure that there would be no disadvantage to the plaintiff. Section 16(2) of the Development Act showed that a strata plan can be registered without a lessee’s consent, so that the Court did have a discretion to permit registration, notwithstanding the lack of consent from the plaintiff. 56 Next, Mr. Robb submitted that a lessee is not entitled to an injunction against breaches of a lease unless substantial interference with its rights occurred or was threatened: Martin’s Camera Corner Pty. Limited v. Hotel Mayfair Limited (1976) 2 NSWLR 15; Kohua Pty. Limited v. Tai Ping Trading Pty. Limited (1985) 3 BPR 9,705; Todburn Pty. Limited v. Taormina International Pty. Limited (1990) 5 BPR 11,173. Trivial interference was insufficient: Lincolnshire Railway Co. v. Anderson (1898) 2 Ch. 394 at 401, 404. Where the alleged breach was derogation from grant, it was necessary to show that the premises were rendered materially less fit for the intended purpose: Vasile v. Perpetual Trustees WA Limited (1987) NSW Conv.R. 55-345. 57 The deed poll was offered in order to ensure that the defendants as lessors could comply with the lessor’s obligations, and that the owners corporation would not exercise its powers inconsistently with the rights of the lessee. It would complement the obligations of the owners corporation under Part 2 of Chapter 3 of the Management Act. 58 Mr. Robb submitted that the majority of the Court of Appeal in Ashington took the view that the change to strata title in that case was not material; and cf. Gourmet Pizza Kitchen Pty. Limited v. Sikes (1998) 8 BPR 15,971. 59 Mr. Robb submitted that although the defendants, as owners of a strata lot, would cease to have an interest in the fixtures, there would be no breach sufficient to grant an injunction. Similarly, the circumstance that the control of the building would pass to the owners corporation, the power of the owners corporation to make by-laws, and the need for concurrence of other lot owners for financial contributions, did not involve any breach or threat of breach sufficient to grant an injunction. The defendants’ offer to waive the lessee’s obligation to pay a percentage of increases in outgoings ensured that this would not involve a burden on the plaintiff. 60 Purchasers from the defendants of the strata lot would be bound by all the terms of the lease: see Hurlfite Pty. Limited v. Coles Myer Limited (1990) NSW Conv.R. 55-515. 61   Turning to the deed poll, Mr. Robb submitted that there was a wide power to make by-laws: see Hamlena Pty. Limited v. Sydney Endoscopy Centre Pty. Limited (1990) 5 BPR 11,432 and 11,436; Salerno v. Proprietors of Strata Plan No.42724 (1997) 8 BPR 15,457; Humphries v. The Proprietors (Surfers Palms North) Group Titles Plan (1994) 179 CLR 597 at 616. 62 Mr. Robb submitted that cl.2 impliedly confirmed the lot owner’s rights to exclusive use and occupation of the relevant property; and in any event, cl.2 could be amended so as expressly to give the right to the owner which would be passed on to the lessee under the lease. Mr. Robb submitted that, although amendment of by-laws could not be prevented, the deed poll would contractually bind the body corporate not to amend: cf. Craig Gordon v. Proprietors of Strata Plan No.16 (1964-5) NSWR 1576. This was also consistent with company law principles, which according to Hamlena were relevant. In any event, the defendants were prepared to offer a covenant not to amend by-laws and a promise that it would cause all future owners of lots to enter into a similar covenant. 63   Mr. Robb submitted that in so far as the deed poll purported to give the lessees the right to take away tenants’ fixtures, the deed poll itself would be an expression of a unanimous resolution of unit holders made at this time, which was sufficient.

DECISION

64 In my opinion, as submitted by Mr. Robb, the Development Act does contemplate that subdivision into strata lots is an incident of ownership of property suitable for that subdivision, and also that strata plans may be registered without the consent of lessees. I also accept that the question is not just whether there would be breaches of the lease, but rather whether an injunction would be justified; and that this requires substantial interference with the rights of the plaintiff, or the threat of such interference, and also requires that damages would be an inadequate remedy. This is very different from the question considered in Ashington, of whether an agreement for lease of a floor of a building should be enforced by compelling an unwilling lessee to enter into a lease of a strata lot: in that case, the onus was squarely on the lessor to have the Court exercise a discretion in the lessor’s favour. 65 I was initially persuaded by Mr. Meagher’s submission that the registration of the strata plan would involve an actual breach of the lease, in taking away the plaintiff’s right to exclusive possession of fixtures etc.; although I took the view that this would justify an injunction only if it was associated with a real threat of interference or some other actual burden or disadvantage. However, on further consideration I have concluded that all fixtures and internal walls within the cubic spaces of the lot (not including structural cubic spaces) are part of the lot. Paragraph (b) of the definition of “structural cubic space” makes it clear that the Development Act is not using the expression “cubic space” as excluding physical objects within the cubic space in question, but rather includes such objects if they are part of a “parcel”, that is, land. This approach is confirmed by Ilkin, Strata Schemes and Community Schemes Management and the Law (3rd ed), p.44. and Burgchard v. Holyroyd Municipal Council (1984) 2 NSWLR 164. In those circumstances, I see no reason why the provision in the lease for removal of tenant’s fixtures would not remain efficacious. There would still in my view be a technical breach of the lease in relation to floors, ceilings and external walls, and pipes and wires within them; but that breach seems plainly immaterial. 66 In my opinion, the defendants, and also future assignees from the defendants, would be bound by the terms of the lease, notwithstanding the registration of the strata plan, even though the premises then owned by them and affected by the lease would be “cubic spaces” only. In my opinion, the lessee’s rights to to access and services such as lifts, air conditioning, water and electricity, and the lessor’s corresponding obligations, are plainly “with reference to” the cubic spaces of the relevant lot, considered as being leased for use as commercial offices. In my opinion, the fact that the property required for the supply of these rights and services would be owned by the owners corporation, rather than the lessor, is in no way inconsistent with that. 67 I think this is supported by my decision in Hurlfite. In that case, I held that the lessor’s obligation to maintain a car park in association with a leased shopping centre was “with reference to” the demised premises, notwithstanding that part of the car park was owned, not by the lessor but by the local Council. It could be argued that that decision is distinguishable, because the car park was treated as a whole, and it was partly owned by the lessor; and also because the lease itself recognised that the car park was partly owned by the Council. I think it is extremely unlikely that the decision could be distinguished on that ground. However, out of abundant caution it may be appropriate to require the defendants to undertake a contractual obligation to the plaintiff to fulfil all the terms of the lease, and also promise that the plaintiff will not be any worse off by reason of the registration of the strata plan, together with an obligation to ensure that the same obligations are undertaken by any assignee of this strata lot from the defendants: this promise could be secured by a charge over the lot itself. 68 Turning to the question of tax, there would in my opinion be no supply by the plaintiff by reason of refusal of the injunction and registration of the strata plan: all it would mean would be that the plaintiff’s existing rights were not such as to justify an injunction or to preclude the registration of the strata plan, and the plaintiff would retain contractual rights in relation to future breaches. In so far as outgoings are waived, this could conceivably be a one-off capital gain or income receipt, and it would involve an on-going loss of deductions, but there would be a net gain to the plaintiff. 69 Leaving aside any question of a deed poll or other agreement, there could be a basis for granting an injunction. First, there is the need to obtain consent from the owners corporation, rather than the lessor, for various operations in respect of the demised premises. Next, there is the reduced ability of the lessor to provide the access and the services to which I have referred. Next, there is the circumstance that by-laws passed by the owners corporation could be more onerous, and give less rights, than provided by the lease, for example in relation to access to the premises; and that these by-laws could be amended from time to time. Finally, unless increases in outgoings are waived, it is conceivable that outgoings could be increased. 70 There is force in Mr. Meagher’s criticisms of the proposed deed poll. In my opinion, the deed poll could not validly authorise non-compliance with by-laws, nor could it prevent by-laws being varied, nor could it validly appoint lot owners as agents of the owners corporation for the purpose of giving consents. Although companies can validly make contracts, I do not think an owners corporation can contractually bind itself and future owners corporations not to amend by-laws: I can find no such power in either Act, and I do not think the analogy with companies is sufficient to imply such a power. 71 Such a deed poll, authorised by a by-law, could in my opinion validly require the owners corporation to provide access, lifts, air conditioning, etc., in accordance with the terms of leases, except to the extent that this was inconsistent with either the Act or the by-laws. I do not think the different terms of leases would mean that any of these provisions would be in breach of s.50 of the Management Act. 72 This would meet some of the possible disadvantages to which I have referred. However, in addition to procuring such a deed poll, I think the defendants should undertake contractual obligations in favour of the plaintiff:

(a) to ensure that the plaintiff has all the rights purportedly granted by the lease;
(b) to ensure that the plaintiff would not be disadvantaged in relation to any term of the lease by reason of the registration of the strata plan;
(c) secured by charge over the strata lot (giving security for damages, and the right to lodge a caveat); and
(d) to ensure that any purchaser of the lot would undertake the same obligations, including this one.

I would not require waiver of increases in outgoings. It may be that the lease, on its true construction, will not require them; but in any event, I think a contractual undertaking in terms of (b) gives sufficient protection.

73   On the basis of the defendants procuring a deed poll covering the matters I have referred to, and undertaking the above contractual obligations, I would refuse relief to the plaintiff. 74   My tentative view on costs is that the plaintiff should pay one-half of the defendants’ costs. The conditions I am imposing on the defendants are not exactly as offered, but the defendants were prepared to submit to any reasonable conditions and asked the plaintiff what it wanted. However, my tentative view is that the plaintiff was entitled to the interim protection it obtained, so should not be liable on its undertaking as to damages.

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Last Modified: 11/17/2000