Vicisa Sarkat Pty Ltd v O'Connor
[2010] QSC 312
•27 August 2010
SUPREME COURT OF QUEENSLAND
CITATION:
Vicisa Sarkat Pty Ltd v O’Connor [2010] QSC 312
PARTIES:
VICISA SARKAT PTY LTD
ACN 133081455
(applicant)
v
ROGER ARTHUR O’CONNOR
(respondent)FILE NO/S:
SC No 6145 of 2010
SC No 8036 of 2010
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
27 August 2010
DELIVERED AT:
Brisbane
HEARING DATE:
24 August 2010
JUDGE:
Chief Justice
ORDERS:
1. Declare that by the applicant’s solicitors’ letter dated 8 February 2010 to the solicitors for the respondent, the applicant duly exercised an option to renew its lease over the land referred to in para one of the originating application filed 2 August 2010, for a further term of five years expiring 7 July 2015;
2. Order that the respondent pay the applicant’s costs, to be assessed on the standard basis;
3. Order that the further hearing of the application be adjourned to a date to be fixed.
CATCHWORDS:
LANDLORD AND TENANT – OPTIONS AND AGREEMENTS TO PURCHASE – GENERALLY – where respondent is owner of land at Coominya and applicant is the assignee of a lease over the land – where the term of the assigned lease was to expire on 6 July 2010 – where applicant claims to have exercised an option to renew the lease for a further five years by letter from its solicitors to the respondent’s solicitors dated 8 February 2010 – where respondent contends that the letter amounted to no more than a statement of future intention – where respondent further contends that applicant was in breach of the lease at the time of the purported exercise of option to renew and therefore, had no entitlement to exercise the option – where applicant argues that the respondent did not give prescribed notice, in respect of the alleged breaches, under s 128(4) of the Property Law Act 1974 (Qld) – whether applicant exercised the option to renew the lease – whether the respondent failed to give a prescribed notice under s 128(4) Property Law Act 1974 (Qld)
Property Law Act 1974 (Qld), s 128
Re Tabtide Pty Ltd [1989] 1 Qd R 604, cited
Evanel Pty Ltd v Stellar Mining NL [1982] 1 NSWLR 380, cited
COUNSEL:
C D Coulsen for the applicant
A L Brook for the respondentSOLICITORS:
Patane Lawyers for the applicant
Walker Pender Solicitors for the respondent
CHIEF JUSTICE:
Introduction
The respondent is the owner of land at Coominya. The applicant is the assignee of a lease over the land. The term of the assigned lease, following prior exercise of options to renew, was to expire on 6 July 2010. The applicant claims to have exercised an option to renew the lease for a further five years.
The applicant relies for that on its solicitors’ letter to the respondent’s solicitors dated 8 February 2010. The respondent contends that that letter amounted to no more than a statement of future intention, but that in any case, the applicant was then in breach of the lease, so that it had no entitlement to exercise the option to renew (because of the terms of the lease).
The applicant acknowledges that I could not summarily determine whether or not it was in breach. The applicant relies however on the respondent’s failure to give prescribed notice, in respect of the alleged breaches, under s 128(4) of the Property Law Act 1974, such as would have triggered the applicant’s right to apply for and secure an order relieving the applicant, in relation to the exercise of the option, from the otherwise adverse effect of any breaches.
The respondent alleges that it gave such a notice, but that in any case, the applicant has applied for such relief (para four originating application filed 2 August 2010), and the court’s jurisdiction is ample enough to determine whether or not the relief should be granted.
The exercise of the option
The first question is whether the option was exercised. Clause 4.8 of the lease obliged the lessee, if wishing to exercise the option, to give “notice in writing” of its “intention to further renew or extend…”.
In the applicant’s solicitors’ letter of 8 February 2010, the solicitors referred to cl 4.8 of the lease and said:
“Our client wishes to exercise the third Option to Renew pursuant to Clause 4.8 of the Lease.”
In the following paragraph, the applicant’s solicitors deal with a consequence of the exercise of the option, that is determining the rent payable for the extended term. The letter says:
“The Lease provides under Clause 4.9 that the rent payable shall be agreed between the parties and if that is not possible then the rent shall be ascertained by a member of the Commonwealth Institute of Valuers. We therefore request that you make contact with your client to determine initial instructions regarding a potential agreeable rent figure between the parties. Our client proposes that the current rent be increased by CPI as a fair rent. We will also request that a new lease be drafted for the third Option or an instrument of variation as provided for under section 67 of the Land Title Act 1994.”
I consider that the solicitors expressed more than an intention on the part of the applicant to exercise the option at some time in the future, and that on behalf of the applicant they actually exercised the option by that letter.
Significantly, the solicitors for the respondent apparently proceeded on the basis that the applicant had purported to exercise the option, challenging the efficacy of that exercise only on the basis that the applicant was then in breach of the lease.
(The respondent queried the efficacy of the “service” of the notice of exercise of option, referring to clause 4.10 of the lease, but its provisions are facultative not mandatory.)
Relevance of breaches
In their letter of 19 February 2010, the solicitors for the respondent contended that the applicant was in default in paying rent and royalties, and said:
“Under the circumstances your client is not in a position to exercise the option and in fact our client had been speaking with us about issuing a notice of default…[o]ur client will consider the question of the option if and when your client is no longer in breach under the lease and is performing satisfactorily under the lease. This is ‘without prejudice’ to our client’s right to issue a notice of default and to take steps to terminate the lease.”
Mr Coulsen, for the applicant, submitted that the respondent had not given a “prescribed notice” under s 128. Sub-section (4) provides:
“(4)Where an act or omission that constituted a breach by a lessee of the lessee’s obligation under a lease containing an option would, but for this section, have had the effect of precluding the lessee from exercising the option, the act or omission shall be deemed not to have had that effect where the lessee purports to exercise the option unless, during the period of 14 days next succeeding the purported exercise of the option, the lessor serves on the lessee prescribed notice of the act or omission and –
(a)an order for relief against the effect of the breach in relation to the purported exercise of the option is not sought from the court before the expiration of the period of 1 month next succeeding service of the notice; or
(b)where such relief is so sought –
(i)the proceedings in which the relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief; or
(ii)where relief is granted upon terms to be complied with by the lessee before compliance by the lessor with the order granting relief, the lessee fails to comply with those terms within the time stipulated by the court for the purpose.
The term “prescribed notice” is defined in sub-section (3):
“(3) In this section –
prescribed notice means a notice in writing that –
(a) specifies an act or omission; and
(b)states that, subject to any order of the court under subsection (6), a lessor giving the notice proposes to treat that act or omission as having precluded a lessee on whom the notice is served from exercising an option contained in the lease.
Sub-section (6) provides:
“(6)The court may, in proceedings in which relief referred to in subsection (4) is sought –
(a)make such orders (including orders affecting an assignee of the reversion) as it thinks fit for the purpose of granting the relief sought; or
(b)refuse to grant the relief sought.
Although the respondent’s solicitors’ letter of 19 February 2010 specified omissions (sub-section (3)(a)), and asserted that they excluded the exercise of the option (sub-section (3)(b)), the letter did not draw attention to the prospect of the court’s granting relief under sub-section (6), as required by sub-section (3)(b).
That is an important requirement, alerting a lessee interested in upholding the exercise of an option, where breach is alleged against it, to the need to respond to a “prescribed notice” in accordance with the timeline prescribed by section 128(4), that is, within a month of the service of the notice, and to prosecute the court application for relief to a successful conclusion.
Ms Brook, for the respondent, acknowledged that the applicant did not apply for relief under s 128(4)(a), within one month of the receipt of the letter of 19 February 2010, but relied on para four of the originating application filed 2 August 2010 as enlivening the court’s jurisdiction to grant relief, a discretion to be exercised in liberal way without resort to technicality (Re Tabtide Pty Ltd [1989] 1 Qd R 604,607; Evanel Pty Ltd v Stellar Mining NL [1982] 1 NSWLR 380, 386-8).
The respondent failed to give a prescribed notice under s 128(4). In consequence, the deeming effect of sub-section (4) came into operation, removing the respondent’s capacity to rely on breaches to exclude the applicant’s right to exercise the option of renewal.
The legislation places the burden of instigating the process for curial intervention on a lessor. The simple fact here is that the lessor did not take the necessary step, namely the giving of a prescribed notice. In the result, the opening words of sub-section (4) deemed that the alleged breaches, if they occurred, did not have the effect of precluding the lessee from exercising the option.
Since the applicant had otherwise effectually exercised the option, that was the established position, and it is of no consequence that the applicant sought the relief claimed in para four of the originating application.
Orders
Mr Coulsen sought the adjournment of the claims for relief in paragraphs one and four of the application, and that is appropriate where the court is constrained to a summary determination.
I make the following:
1. declaration, that by the applicant’s solicitors’ letter dated 8 February 2010 to the solicitors for the respondent, the applicant duly exercised an option to renew its lease over the land referred to in para one of the originating application filed 2 August 2010, for a further term of five years expiring 7 July 2015;
2. order, that the respondent pay the applicant’s costs, to be assessed on the standard basis;
3. order, that the further hearing of the application be adjourned to a date to be fixed.
It is not necessary for me to order that the respondent must comply with his obligations under clause 4.9 of the lease as to the setting of rent etc (para three application), and that is because there is a default provision should the respondent fail to cooperate.
I was asked to order the assessment of costs on the indemnity basis, but no adequate basis for such an order was put before me.
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