Thirsty Mack's Pty Ltd v Hasbeen Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Thirsty Mack’s Pty Ltd v Hasbeen Pty Ltd [2008] FCA 32

LANDLORD AND TENANT – OPTIONS AND AGREEMENTS TO PURCHASE – where applicant leased premises from first respondent – where lease registered – where lease contained option to purchase – where first respondent later leased premises to second respondent – where applicant subsequently exercised option to purchase – where first respondent delivered contract for sale and purchase of fee simple subject to lease to second respondent – where separate questions to be decided – whether option to purchase created equitable interest in property subject of lease – whether any such equitable interest enjoyed priority in relation to lease to second respondent – whether first respondent required to provide to applicant contract for sale and purchase of unencumbered fee simple

Held: Option to purchase gave applicant optionee equitable interest in property – s 117 Real Property Act 1886 (SA) gave option to purchase indefeasibility or priority in relation to lease to second respondent – whether first respondent permitted to lease property to second respondent a question of parties’ intention revealed by terms of option – parties intended applicant optionee to take unencumbered fee simple – first respondent required to provide to applicant contract for sale and purchase of unencumbered fee simple.

Federal Court Rules O 29 r 2
Real Property Act 1886 (SA) ss 56, 116, 117, 119
Trade Practices Act 1974 (Cth) ss 51AA, 80, 87

Braham v Walker (1961) 104 CLR 366 referred to
Carter v Hyde (1923) 33 CLR 115 referred to
Cook v Taylor [1942] Ch 349 referred to
Commissioner of Taxes (Qld) v Camphin (1937) 57 CLR 127 referred to
Crosby’s Contract, Re; Crosby v Houghton [1949] 1 All ER 830 applied
Fowler v Willis [1922] Ch D 514 referred to
Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 referred to
Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 59 referred to
London and South Western Railway Co v Gomm (1882) 20 Ch D 562 referred to
Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326 referred to
Rice v Rice (1853) 2 Drew 73; 61 ER 646 referred to

THIRSTY MACK'S PTY LTD v HASBEEN PTY LTD AND GUNABEE PTY LTD
SAD 168 OF 2007

BESANKO J
25 JANUARY 2008
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

SAD 168 OF 2007

BETWEEN:

THIRSTY MACK'S PTY LTD
Applicant

AND:

HASBEEN PTY LTD
First Respondent

GUNABEE PTY LTD
Second Respondent

JUDGE:

BESANKO J

DATE OF ORDER:

25 JANUARY 2008

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:

1.The questions ordered to be determined separately pursuant to O 29 r 2 of the Federal Court Rules be answered as follows:

1.Does the applicant have an equitable interest in the property (defined in paragraph 12.1 of the Statement of Claim) pursuant to the Option to Purchase contained in clause 2(d) of the Extension of Lease dated 22 March 2006 (defined in…

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Details
Case
[2008] FCA 32
Decision Date

CaseChat Overview and Summary

In the case of Thirsty Mack's Pty Ltd v Hasbeen Pty Ltd, the applicant, Thirsty Mack's, sought to establish an equitable interest in a property through an option to purchase that was included in a lease agreement. The dispute arose when the applicant failed to exercise the right of renewal for the lease within the stipulated timeframe and subsequently attempted to claim relief against forfeiture. The applicant also sought to enforce an option to purchase the property, which was contained in a Memorandum of Extension of Lease. The first respondent, the owner of the property, and the second respondent, the previous leaseholder, executed a new lease agreement (Gunabee Lease) and lodged a caveat on the property titles. The applicant argued that this new lease agreement should be disregarded as it was not registered, and that it had an equitable interest in the property due to the option to purchase.

The court had to decide whether the applicant had an equitable interest in the property that took precedence over the new Gunabee Lease. Additionally, the court needed to determine whether the first respondent was obligated to provide a contract for the sale and purchase of the property that was free from any other interests, including the new Gunabee Lease. The court examined the terms of the Memorandum of Extension of Lease and the option to purchase, considering the legal principles governing equitable interests and options to purchase in lease agreements. The court found that the applicant did indeed have an equitable interest in the property as per the option to purchase, which was a prior equitable interest to the new Gunabee Lease. Furthermore, the court concluded that the first respondent was required to provide a contract for the sale and purchase of the property that was free from any other interests, including the new Gunabee Lease.

The court's reasoning was grounded in the interpretation of the legal documents and the principles of equity. It found that the applicant's equitable interest was established by the option to purchase, which was part of the original lease agreement and had not been waived or extinguished. The court also determined that the first respondent's obligation to provide a contract for sale and purchase was not affected by the new Gunabee Lease, as the applicant's equitable interest took precedence. The court ordered that both questions be answered in the affirmative, and that the parties could make submissions on any other orders that may be appropriate.

The final orders of the court were that the questions ordered to be determined separately pursuant to O 29 r 2 of the Federal Court Rules be answered as follows: 1) The applicant has an equitable interest in the property pursuant to the Option to Purchase contained in clause 2(d) of the Extension of Lease dated 22 March 2006, which is a prior equitable interest to the new Gunabee Lease dated 28 September 2007. Answer: Yes. 2) The first respondent is required pursuant to the Option to Purchase to provide to the applicant a contract for the sale and purchase of the property free of any other interests, including the new Gunabee Lease. Answer: Yes. The parties were also granted leave to make submissions as to any other orders.

Orders

Orders of the court

1. The questions ordered to be determined separately pursuant to O 29 r 2 of the Federal Court Rules be answered as follows:

1. Does the applicant have an equitable interest in the property (defined in paragraph 12.1 of the Statement of Claim) pursuant to the Option to Purchase contained in clause 2(d) of the Extension of Lease dated 22 March 2006 (defined in paragraph 12.6 of the Statement of Claim) (which clause 2(d) created clause 3.18 in the Lease dated 28 November 2002 (defined in paragraph 12.6 of the Statement of Claim)) which is a prior equitable interest to the new Gunabee Lease dated 28 September 2007 (defined in paragraph 29 of the Statement of Claim)?

Answer: Yes.

2. Is the first respondent required pursuant to the Option to Purchase to provide to the applicant a contract for the sale and purchase of the property free of any other interests, including the new Gunabee Lease?

Answer: Yes.

2. The parties have leave to make submissions as to any other orders.

Background

Background to the litigation

The parties agreed a Statement of Agreed Facts and Documents and that was put before me.The facts In February 2006 the applicant purchased a hotel and motel business carried on upon a property in Mount Pleasant from the second respondent. The property is the whole of the land comprised and described in Certificate of Title Register Book Volume 5103 Folio 566 and Volume 5104 Folio 189 and commonly known as 43-45 Melrose St, Mount Pleasant South Australia (“the property”). Upon the sale and purchase of the business, the second respondent transferred to the applicant its leasehold interest in the property. The lease was a registered lease (“the lease”). The first respondent is the lessor and registered proprietor of the property. By Memorandum of Extension of Lease between the first respondent and the applicant and registered on 13 April 2006 (“the Extension of Lease”), the term of the existing lease was extended by one day, such that the lease was to expire on 2 December 2007. The lease contained rights of renewal and an option to purchase and the Memorandum of Extension of Lease, among other things, included another option to purchase. When I refer to the lease in the discussion below I will be referring to the lease as varied by the Memorandum of Extension of Lease. Under the terms of the lease, the right of renewal was exercisable “not more than six and not less than three months prior to the end of the relevant period.” The right of renewal expired, therefore, on 2 September 2007. The applicant did not exercise the right on or before this date. On 28 September 2007, the applicant gave to the first respondent a notice purporting to renew the lease but the first respondent declined the request for renewal. In these proceedings the applicant claims relief against forfeiture in relation to its failure to serve the notice exercising the right of renewal within time. That claim is not in any way the subject of the separate questions. On 28 September 2007, the first respondent and the second respondent executed a Memorandum of Lease for the Premises (“the Gunabee Lease”). On the same day, the second respondent lodged a caveat on the titles for the property claiming an equitable lease over the property. The Gunabee Lease was to commence at the expiration of the lease on 2 December 2007 for an initial term of five years with seven rights of renewal, each of five years. The applicant’s solicitors were advised of the Gunabee Lease by letter dated 28 September 2007. The Gunabee Lease has not been registered. The terms of the Option to Purchase are set out in Clause 2(d) of the Memorandum of Extension of Lease, which provides as follows:2. (d) A new clause 3.18 is inserted in the Lease as follows:3.18 OPTION TO PURCHASEThe Lessor grants to the Lessee an option to purchase the Premises subject to the following terms:(a)The Lessee may exercise the option by written notice (“Notice”) signed by and on behalf of the Lessee and served upon the Lessor on or before 30 April 2007 (“the First Option”).(b)The Lessee may exercise the option by written notice (“Notice”) signed by and on behalf of the Lessee and served upon the Lessor during the period commencing 1 May 2007 and expiring 30 April 2008 (“the Second Option”).(c)The purchase price shall be $825,000.00 (GST exclusive) if the Lessee exercises the First Option.(d)The purchase price shall be $850,000.00 (GST exclusive) if the Lessee exercises the Second Option.(e)In the event that either the First or Second Options are exercised by the Lessee, the Lessor and the Lessee shall within 7 days after the date of the Notice execute a contract to give effect to the sale in the form of contract for sale approved from time to time (“Contract”) by the Law Society of South Australia Inc. which Contract shall be prepared by the solicitors for the Lessor and shall include terms to the following effect:ASettlement shall take place on or before one calendar month from the execution of the Contract.BA deposit equal to 10% of the purchase price shall be paid on the signing of the Contract to the Solicitors for the Lessor who shall immediately pay the same into its Trust Account and such deposit shall not be withdrawn except for the purpose of completing the transaction.CThe Contract shall be subject to the assignment of the agreement (if any) between the Lessor and ‘Budget Motels’ to the Lessee prior to settlement. DAll rents rates and taxes insurance premiums and other outgoings and incomings in respect of the Land shall be adjusted to the date of settlement under the Contract.EThe lessee shall pay all costs, stamp duty, registration fees and GST (if any) payable in respect of the sale.FSettlement shall be made at the Lands Titles Office or such other place as may be nominated by the Lessor.(Original emphasis.)

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

BESANKO J
Both questions should be answered in the affirmative. Conclusion I will answer both questions, yes, and I will hear the parties as to any other orders.

Ratio Decidendi

Legal Principle Established

Established by: BESANKO J

Full text does not contain this section.