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Leases

Regulation of leases

Some protection to business tenants – Retail Leases Act 2003 (Vic):

o Applies to ‘retail premises’ (Defined under s 4 – leased wholly/predominantly

for sale/hire of good by retail, or retail provision of services) for at least a year

(s 12);

o Maximum of 5 years (s 21); and

o The Act prevails over lease terms, will be invalid if non-compliant (s 94).

Regulation of residential tenancies – Residential Tenancies Act 1997 (Vic):

o Applies to 5 years or less agreements (s 6) to premises used primarily for

residential purposes (s 7);

o Exclusions: Connected to business (s 8), certain short term leases (s 9),

holiday purposes (s 10), farming/grazing (s 11), contracts of employment (s

12), contracts of sale/mortgages (s 13), prescribed premises/agreements (s 14).

Other lease rules:

o Common law rules;

o Provisions in Property Law Act (Note: patchy);

o Transfer of Land Act (Torrens System rules, in Vic rarely used since leases

unregistered – see s 42(2)(e)); and

o Landlord and Tenant Act (Note: patchy).

RTA – Duties of landlord/tenant

Landlord:

o Premises vacant, clean upon tenant occupation (s 65), give tenant information

(s 66), reasonably ensure quiet enjoyment (s 67), maintain premises in good

repair (s 68), rating compliance when replacing water appliances (s 69),

provide locks on house (s 70).

Tenant:

o Cannot use premises for illegal purpose (s 59),not cause nuisance/interference

(s 60), avoid damaging premises/common areas (s 61), give notice if damage

does occur (s 62), keep premises clean (s 63), not install fixtures unless consent

obtained (s 64).

Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs. Credit: Christopher Angus.

http://law.timdavis.com.au/

Covenants

General

Real property – an obligation that relates to the land.

Person complying with covenant has burden, person with right to enforce the benefit.

Lease covenants – rights and duties

Express covenants/agreement

Lessor/Landlord’s covenant:

o Allow tenant quiet enjoyment – no interference from LL/agent/anyone else.

o Perform structural repairs.

Lessee/Tenant’s covenant:

o Pay rent/rates/taxes.

o Keep premises in good condition/repair.

o Permit LL entry for inspections.

o Restrictions on rights/assignments (e.g. sub-lease), and use premises for

specific purpose only.

o Give up possession at end of lease, or LL has right to re-enter demised

premises.

Implied covenants (apply if not expressly contained in the lease contract)

‘Usual’ common law covenants:

o Landlord:

Fitness for human habitation at beginning of lease.

Quiet enjoyment – test from Hawkesbury Nominees:

Substantial interference – breached where ordinary/lawful

enjoyment is substantially interfered with.

By acts of LL/agent – both QE and ‘Derogate’ breached if LL’s

actions makes premises unfit for purpose of lease.

o Can only complain about things occurring after lease.

LL’s obligation independent of tenant’s covenant to pay rent.

Implied covenants not excluded by express covenant for LL to

make repairs.



Not to derogate from covenant – test from Aussie Traveller:

If grant of lease for a particular purpose…

o Has there been substantial interference with right of

occupation so that the premise is unfit/less fit for the

lease purpose?

If yes, covenant breached.

LL liable for actions of other tenants if has right to stop

interference but failed to do so.

Quiet enjoyment vs non-derogation:

QE – Concerned with enjoyment of premises and disturbances

of such enjoyment;

ND – Concerned with use of leased property that makes

premises less fit for purpose for which let.

o Tenant

To use the premises in a tenant-like manner (i.e. take proper care)

Not to commit waste

Yield up possession (i.e. move out at the end of the tenancy)

Via statute (registered leases only)

Transfer of Land Act:

o Rent, repair, inspection, right to enter if in arrears (without formal notice),

right to re-enter if covenants breached (s 67).

o Sub-lessee duties to do the above (s 71(4)).

Residential Tenancies Act – see specifics under General section.

Covenant against assignment/subletting

Business: Cannot sublet without consent, but consent cannot be withheld

unreasonably (PLA s 144).

o Express provision in contract can override this.

Residential: RTA s 81 has equivalent rules to PLA s 144, as per PLA s 144(15).

o VCAT can order subletting if unreasonable withholding of consent (s 82).



Assignment

Starting Point

1. Who are the parties?

a. Landlord (LL), Reversioner (R), Assignee (A), Tenant/Assignor (T).

2. What scenario has occurred? See individual sections later

a. Assignment by tenant to assignee;

b. Assignment by landlord to reversioner;

c. Assignment by tenant to sub-tenant.

3. What definitions need to be known?

a. Privity of contract - relationship between two contracting parties. Can

enforce everything in a contract between 2 parties, everyone else misses out.

b. Privity of estate - relationship between LL and tenant.

i. Can enforce everything which ‘touches and concerns’ the land (Swift

Investments).

ii. Privity of estate can occur under common law (if T to A - Spencer’s

Case), or statute (if LL to R - PLA ss 141-2).

c. ‘Touch and concern’ the land test (Lord Oliver, Swift Investments):

i. Does it benefit only the reversioner for the time being?

If it benefits anyone else, OR benefits person even after he

leaves land, then it doesn’t T&C the land.

ii. Does it affect the nature, quality, mode of use or value of the land?

e.g. Obligation to repair or renovate would fall under here.

iii. Is it personal to the parties (LL and T)?

If so, doesn’t T&C the land.

iv. Is there a covenant to pay money?

It can T&C the land provided that the previous 3 conditions are

satisfied; AND

The covenant is connected with something to be done to or in

relation to the land.

Same test for ‘sufficient connection’ under PLA ss 141-2.



Tenant to Assignee

Assignee’s right and liabilities:

o Privity of estate - can enforce any covenant that T&C land.

LL’s rights and liabilities:

o Can choose to sue either T or A:

Original tenant.

Privity of contract, depending on contract wording.

Implied indemnity if lease and assignment registered (TLA s

67(2)).

If by deed, implied indemnity too (PLA s 77(1)(c)).

o Assignee.

Privity of estate and subject to provisos (conditions in document).

Is primary debtor because has ultimate control of premises.

Landlord to Reversioner

R’s rights and liabilities.

LL’s rights and liabilities:

o LL gives up right to sue T for past breaches, unless reserved in assignment

document.

After assignment, cannot sue for breaches prior to assignment.

o LL still liable to T for breaches before and after assignment (privity of

contract).

o Can indemnify in contract though and evade liability.

T’s rights and liabilities:

o T can sue LL (privity of contract - LL can get contribution from R), OR R

(privity of estate - R primary debtor).

o Original LL cannot sue T.

Tenant to sub-tenant

No privity of estate: sub-tenant cannot sue landlord.



Easements

Step-by-step guide

1. Does it fulfil the criteria of an easement?

a. Four characteristics as per Re Ellenborough Park;Riley v Pentilla.

2. How was the easement created?

a. Valid creation? Express, implied or long use?

b. Benefit of easement passes with transfer of dominant land (TLA s 54(2)).

3. Can the easement be enforced?

a. In Victoria always enforceable as a paramount interest (TLA s 42(2)(d)).

4. What can the owner of the dominant land do to enforce against subsequent servient

purchaser?

a. Abatement – steps to stop interference with easement.

b. Damages/Injunction – via claim in nuisance because of wrongful interference

with use/enjoyment/rights over land.

5. Has the easement been extinguished?

1) Characteristics of easements

There must be a dominant and servient tenement:

o If the right is granted to someone who does not own the land, more likely to be

a licence.

‘I give you the right to cross my land’ (license); ‘I give my neighbour

the right…’ (easement).

Easement must be for benefit of (‘accommodate’) the dominant tenement:

o Must be reasonably necessary for convenience/better enjoyment of dominant

tenement (question of fact).

Relevant that easement enhances property value.

o Don’t need to be neighbouring properties, but must be ‘close’ for servient to

accommodate dominant (Todrick v Western National).

o Excludes easements in gross – legislation covers this, usually in favour of govt

or service providers.

The dominant/servient tenements not to be owned/occupied by the same person;

o Cannot have easement over own land.



o If D/S tenements enter relationship that extinguishes separate ownership, then

easement is extinguished.

o Tenements will survive if owned, but not occupied by same person (i.e. LL on

one property, tenant in possession on the other).

Once leasehold ends, easement extinguished.

Easement must be capable of forming subject matter of a grant (Re Ellenborough).

o Interest must be grantable by deed.

Re Ellenborough – deed suggested right to use park attached to land,

not merely a personal right).

o Grant cannot be expressed in terms too vague and wide in character.

o Must be more than mere right to recreation – requires some ‘element of

benefit to dominant tenement’.

Re Ellenborough – Easement enhancing land value relevant but not

decisive factor; right has to be connected to normal enjoyment of land.

o Cannot confer exclusive possession or use – if so, lease/license and beyond

scope of associated easement.

Case examples:

o Re Ellenborough Park:

Land subdivided into lots around park, when lots sold each owner had

right to use park subject to maintenance fees.

Affirmed: Satisfied all four elements above, particularly fourth point

and sub-questions.

o Riley v Pentilla:

Use of common reserve granted to adjacent lots for the ‘liberty to

enjoy the reserve for the purpose of recreation or a garden or a park’.

D wanted to build swimming pool in part of reserve fenced off from

rest. Claimed that rights granted were too vague/uncertain to amount to

an easement.

Rejected : Purpose of was to provide lot owners with common use of a

park closed to the public.

o Copeland v Greenhalf:

For 50 years D and father used strip of neighbour’s land for parking

vehicles. D argued that easement had been acquired.



Rejected : Right claimed amounted to joint use of land (adverse

possession claim), went ‘beyond’ any normal idea of an easement.

2) Creation of Easements

If already existing:

o Benefit of easement passes with transfer of dominant land (TLA s 54(2)).

Express Grant:

o Agreement between parties. Can be:

Legal:

Torrens land – expressly created in a transfer, by deed, by

registration of a plan of subdivision.

o Easements usually require registration (TLA s 72).

o However, enforceable against indefeasibility in Victoria

regardless of registration (s 42(2)(d)).

General Law – generally require deed (PLA s 52).

Equitable:

Need four characteristics of easements (above); and

Specifically enforceable contract evidence in writing or

sufficient acts of part performance.

Implied Grant:

o Requirements:

Necessity of easement (e.g. landlocked land).

Common intention to create easement.

Rule in Wheeldon v Burrows.

On subdivision/sale of land purchaser gets:

o All ‘continuous and apparent’ quasi-easements;

o Which are necessary to the reasonable enjoyment of

the property granted; and

o Which are at the time of the grant used by the grantor

for the benefit of the land granted.

Otherwise, must expressly reserve any rights intended to keep.

Implied Reservation:

o Requirements as per Implied Grant:



Necessity of easement.

Common intention to create easement.

Statute:

o Can transfer benefit of existing easements without express words (PLA s 62).

Has incidental effect of converting licenses into easements.

Long use/Prescription:

o Use of land for more than 20 years may give rise to easement – doctrine of lost

modern grant.

Excludes easements of light and air (PLA ss 195-6).

o User must have exercise as of right (Sunshine Retail v Wulff):

Without force, secrecy and permission.

o Owner of servient land must have known/had means of knowing about user

and not stopped it.

o Example case:

Sunshine Retail:

Residents had used shortcut over property to shops for over 20

years.

Developer bought property, sought to close. Residents claimed

easement under doctrine of lost modern grant.

Rejected : Walkway did accommodate dominant tenements so

use not merely recreational. However, servient tenement

unaware of users, therefore no easement.

5) Extinguishing Easements

Express release – agreement between D/S owners.

Abandonment – intention to extinguish, plus non-user (Riley v Penttila).

Possibly by increased and excessive burden to the servient land arising from changed

use of the dominant tenement.

By unity of seisin/merger – anything that results in D/S tenements joining together.

Statute :

o Subdivision Act s 36(1) – Council may require end to easement for

economical/efficiency purposes.

o Also see Planning & Environment Act 1987 (Vic) s 62.



Types of Easements

Accepted Easements

Air or light to a defined aperture;

Windbreak;

Support, e.g. party wall;

Drainage and sewerage;

Right to maintain a wall;

Use of lavatory;

Parking;

Transmission of noise;

Miscellaneous novel easements.

Not accepted Easements

Right of prospect (view);

Overhanging trees;

Hitting cricket balls onto the land.



Profits a Prendres

General

Right to remove natural products from piece of land not owned by person removing

the products.

o Must be natural products (e.g. soil, rock, animals, natural produce).

Clos v Easton – Products that require tending after planting are not

PaPs.

o No need for dominant/servient tenements. – can exist in gross and give the

land no benefit.

Products must be capable of ownership (i.e. all water in stream can’t be removed).

PaP does not extend to right of using land – only removal of what is there.

Creation of Profits a Prendre

At law – deed (PLA s 52). However, can exist at equity.

Can be created by implied grant/reservation, or prescription – as per easements.

Can be extinguished by abandonment, unity of seisin, release – as per easements.



Restrictive Covenants

Making RCs valid for subsequent purchasers

RC must be recorded on the folio of burdened land (TLA s 88(1)).

o RP takes land subject to ‘encumbrances’ recorded on folio (s 42(1)).

o If not recorded, new purchaser takes free of it on registration (TLA ss 42-3)

However, RC has no greater effect than would have under instrument recording it (s

88(3)).

o i.e. Recording RC affects its priority, but not indefeasible.

How RCs can run at equity – 4 requirements

Must be restrictive in nature (Tulk v Moxay).

o Covenants imposing positive obligations will not be enforceable as RCs

(Austerberry v Oldham).

o Look at what owner has to do, not whether the words are positive/negative.

There must be burdened and benefited land – not necessarily touching but sufficiently

close.

o Usually arises via subdivision – one new lot is burdened with RC, another

benefits.

The RC must be intended to run with the land.

o This element always satisfied as written in by s 79 PLA.

Must take the RC with notice.

o Equity’s basis for enforcing RC is that the conscience of the successor in title

in bound because they have had notice of the covenant.

Key case – Tulk v Moxay

T owned fee simple in vacant land, sold to E with covenant in contract.

Covenant – E, heirs and assignors would maintain ground and garden in an open state.

After several conveyances, M bought land. Had knowledge of covenant, but argued

covenant not binding, as he was not privy to contract.

Court – Equity will enforce the covenant :

o Covenant enforceable on grounds of notice, so M must respect it.

o Burden attached to land and ran with it, not the covenator.



Restrictive Covenant examples

Bold = negative covenant:

o Not allow rubbish and weeds to accumulate on the lot;

o Use the lot for retail purposes only;

o Have plans approved by the developer before building on the lot;

o Not sell or transfer the lot until a dwelling house has been erected on it.

Covenants in Torrens System

Can record RC on folio – RP takes land subject to this burden (TLA s 42(1)).

o However, RC does not have greater operation than it has under instrument or

Act creating it (TLA s 88(3)).

o i.e. If notice not given to RP – whether actual or constructive – RC will not be

enforced.

Restrictions under Subdivision Act

Can create statutory restrictions as per easements (Subdivision Act s 24(2)(d)).

o Alternative by council/developers to building scheme covenants.

Developers can also include such restrictions.

o Council cannot object, must certify plan if it complies with SA s 6(1):

Inter alia: Regulations, requirements of the planning scheme, permits

relating to road boundaries, lots, common property, reserves, and the

form/content of the plan.

Removal/Variation of RCs

Express agreement (difficult if large group of benefited lots);

Passage of time (if to expire after certain period);

Equitable defences (laches, acquiescence, delay);

Under planning legislation;

o Can remove/modify in accordance with:

Planning scheme amendment under s 6(2)(g) Planning and

Environment Act 1987; or

A permit under Pt 4 of PEA.



Court order (PLA ss 84-5):

o Court has power to modify/discharge a covenant, and compensate for losses.

o When is a covenant ‘obsolete’ under s 84?

o Stanhill v Jackson two-limb test:

(1)(a): Ought to be deemed obsolete according to ordinary meaning of

term – i.e. outmoded or outdated.

(1)(b): Impedes any reasonable use of the land.

o Also consider (1)(c): Discharge/modification should not harm anyone entitled

to the benefit of the restriction.

Must be of ‘real significance or importance’.



Creation of Unregistered Mortgages

Creation of mortgages - General

RP can mortgage land by instrument of mortgage in an approved, appropriate form

(TLA s 74(1)).

Mortgage acts as security interest over land - fee simple remains with RP (s

74(2)).

Legal vs unregistered mortgage creation

Only legal if registered.

Unregistered mortgages only take effect in equity.

Equivalent to conveyance of fee simple to mortgagee.

Mortgagor has equity of redemption to recover land upon payment of debt.

Not registered doesn’t mean invalid - will simply be unregistered mortgage.

How to create unregistered mortgages?

To be valid in equity, minimum requirements:

Be in writing, or specific part performance.

Enforceable against all but bona fide purchaser for value without notice.

However, is the mortgage subject to the NCC? Code applies if (NCC s 7):

Secures under a credit contract/related guarantee (contract under which credit

may be provided - s 4); and

Mortgagor is a natural person or strata (owner’s) corporation (mortgage for

personal/residential/domestic/renovation for investment purposes - s 5(1)).

If NCC applies...

Writing must be in form of written contract document with signatures of both debtor

and credit provider (s 14; 42).

Copy of mortgage must be given to mortgagor (s 43).

Credit provider has additional duties to provide full disclosure to debtor (ss 14-22).

Includes inter alia: details of contract, info of debtor’s rights/duties, money

being credited, rates of interest.

Cannot contract out of Code (s 191).



Court has powers under NCC as well:

Can extend terms of contract/postpone payments if debtor unable to meet

obligations due to illness/unemployment/other reasonable cause (ss 72-4).

Can re-open unjust cases if debtor requests, can set aside/vary contracts (ss 76-

7).

Can review unconscionable interest, fees and charges and alter them (ss 78-9).



Rights and Duties of Mortgagees - Legal Mortgages ONLY

Right to Possession of Land

Upon default, mortgagee can:

o Claim rents and profits and bring action for ejectment to recover possession

(TLA s 78(1)).

RTA s 268 – Tenants in mortgaged premises need 28-day notice before

ejection.

Also subject to and liable for rates and any covenants

contained/implied in lease (s 78(2)).

o First mortgagee also holds same rights and remedies as legal mortgagee under

the general law with the mortgagor having right of quiet enjoyment (s 81).

So first mortgagee is entitled to take possession upon default without

need for court proceedings for ejectment.

Subsequent mortgagees do not have these rights.

Power of Sale

If notice not complied with, mortgagee can sell property (s 77(1)).

How is power triggered?

If non-NCC:

o If covenant is breached or default continues for over a month (or other express

period in mortgage), mortgagee can serve notice (TLA s 76).

If NCC, follow Code requirements:

o Mortgagee must give at least 30 days from notice to remedy default (s 88(1)

(a)); and

o Default notice must specify information about default and steps to resolve it (s

88(3), and comply with any State law requirements (s 88(8)).

o Mortgagor can apply for postponement of enforcement proceedings to

mortgagee (s 94) or court (s 95).

Default notice considered not given if postponement agreed with

mortgagee and complied with (s 95), or court order made (s 96).



Rights and Duties during sale

If notice not complied with, mortgagee can sell property (s 77(1)).

o Can do so by public auction, private contract or mix; land together or in lots;

at once or several times; subject to conditions as seen fit.

o Must do so:

‘In good faith’; and

Negative duty – cannot act fraudulently/dishonestly/wilful

recklessness.

‘Having regard to interests of mortgagor’.

Positive duty – take reasonable precautions to obtain ‘proper

price’.

o s 77(3): In following order, money of sale goes to (i) sales costs; (ii) mortgage

dues; (iii) subsequent mortgages/charges, and (iv) mortgagor/Supreme Court.

Has mortgagee breached s 77(1) requirements?

Emphasis on ‘reasonable steps’, not price obtained.

No actionable breach if did not follow proper process, but ‘proper price’ obtained

nonetheless (Vasiliou).

o Failure to obtain market price not adequate for breach.

Even if duty breached :

o If purchaser registers, fee simple title (TLA s 42(1)) cannot be set aside.

Case examples:

Vasiliou v Westpac

o No need to advertise, so long as satisfactory price gained from sale.

o Possible that opposite true as well – advertising does not mean low sale price

acceptable.

MBF Investments v Nolan

o Defaulting mortgagors have no home occupation interest (TLA s 81).

o International human rights principles irrelevant – s 77(1) balances

mortgagor/mortgagee interests.

o Good faith = acting conscionably.

See below for additional requirements of ‘good faith’



MBF v Nolan at [100](a) a mortgagee is not a trustee of the power of sale, which is given to the mortgagee to enable the

realisation of the security interest;

(b) a mortgagee must act in good faith, that is conscionably, and cannot sell for a purpose other than that for

which the power of sale is conferred;

(c) a mortgagee is not required to place the interests of the mortgagor above the mortgagee’s interests in

recovering the debt. For example, the mortgagee can sell the property at a time of the mortgagee’s

choice, even though the property might realise a higher price if the sale were postponed;

(d) the mortgagee cannot disregard the interests of the mortgagor by simply selling for a price which will

cover the amount of the loan. The mortgagee must take reasonable steps to obtain the best price

consistently with its right to enforce its security interest. This requires the mortgagee to consider how

the property should be advertised and to allow an appropriate time between the advertisement and the

sale;

(e) the mortgagee must also have regard to the interests of subsequent security holders; and

(f) if there is no doubt that the sale of the lots preferred by the mortgagor would be sufficient to discharge

the debt owed to the relevant mortgagee and of any other security holders whose interest the mortgagee

is required to consider, a failure to sell the preferred lots may breach the mortgagee’s duty to sell in

good faith.



Scope of Indefeasibility

Indefeasibility of covenants upon registration

Mercantile Credits v Shell:

o Mortgages and leases that create covenants will be binding upon new owners

of land to the extent that the rights created are proprietary and not personal.

o In this case, even though the lease extension had not been registered, the

original lease created a covenant granting Shell both the option to renew the

lease, and the right to the new term resulting from the renewal.

These covenants were therefore indefeasible even if the new lease was

unregistered.

Types of mortgages

Traditional mortgage – specifies the amount of the loan in the registered instrument.

All monies – secures all money owing from time to time, including future borrowings.

Collateral – secures a sum in an off-register loan agreement.

Scope of indefeasibility of the covenant to pay in a registered mortgage

If principal sum is mentioned (i.e. traditional mortgage), mortgagor has implied

covenant to pay mortgagee the monies and/or interest owed by the due date (TLA s

75(a)).

Even if forged mortgage, its indefeasibility ‘plainly’ extends to the mortgagor’s

covenant to pay in a forged mortgage (Pyramid Building per Hayne J).

o Innocent mortgagor has obligation to pay the monies owning.

What does an unregistered, forged loan agreement secure?

If nothing connects registered mortgage to loan agreement, then registration secures

nothing (Perpetual Trustees v Tsai):

o PT not fraudulent so registration stands, but indefeasibility would not extend

to separate, unregistered loan agreement.

o Accordingly, PT couldn’t enforce mortgage as it couldn’t prove the debt to

which the mortgage was secured.



However, Doctrine of Incorporation allows a registered mortgage to incorporate by

reference obligations in an unregistered loan agreement.

o Mortgage may incorporate a ‘memorandum of common provisions’ (MCP)

lodged with the Registrar (TLA ss 91A, 91B).

o Solak v Bank of WA (Victorian authority):

The word ‘you’ was consistently used in both the mortgage and MCP

to refer to the innocent landowner.

As a result, the forged loan agreement was incorporated into the

registered mortgage.

Distinguished Tsai – loan agreement not incorporated.

Accordingly, Solak (‘you’) was held to agree to the terms of the

mortgage and pay ‘all moneys’ owed to the Bank of WA.

Victorian authority has been criticised in Westpac v Clark:

o ‘You’ must mean the true registered owner.

o If an imposter has forged an agreement then his covenant to pay is not within

the scope of registered documents and therefore not secured over RP’s land.

Co-owners’ liability (Van den Heuval v Perpetual):

o Issue #1 – Did mortgage secure any debt under forged agreement?

Majority: Yes

PT and husband intended the mortgage to secure loan agreement even

without wife’s signature.

Loan to P secured by mortgage, and because of indefeasibility wife’s

interest in the land was bound as well.

o Issue #2 – Could the mortgage be reopened as an unjust transaction under the

CCC?

Majority: No

Young JA – CCC only protects mortgagor who enters into mortgage.

Wife was ‘statutory mortgage’ by force of indefeasibility provisions

and thus not protected.

Hodgson JA – Because loan was for business purposes not covered by

CCC.



Is the innocent landowner personally liable for the debt, beyond value of land?

Pyramid – there is a covenant to pay any debt.

o Although obiter only, was cited with approval by Solak.

No further Victorian authority on this issue.

o NSW decisions hold that mortgagee can charge land with debt, but not

registered owner (Tsai; Grgic).



Indefeasibility Exceptions

Starting Point

Party A and party B have their own interests, but A has registered.

B must establish that there is an exception to indefeasibility of title on registration in

order to establish own interests.

TLA s 42(1) – RP is indefeasible upon registration, except:

o (a) Registrar makes error and issues two certificates – first in time wins; or

o (b) Mistake by area/boundary – subsequent certificate wins, unless purchaser

purchases innocently for valuable consideration.

What are exceptions to indefeasibility?

Fraud – by RP or agent;

In personam claim;

Inconsistent Legislation;

Paramount Interests;

Volunteers;

Registrar’s Power to correct errors.



Fraud

1. What is the exception?

If fraud has occurred, TLA s 42 provides an express exception to indefeasibility.

2. What is ‘fraud’?

Actual fraud, wilful blindness or moral turpitude brought home to registered

proprietor at the time or just before registration or through an agent’ (Assets Co v

Mere Roihi).

o Wilful blindness only fraud if failure to inquire amounts to actual dishonesty

(Pyramid v Scorpion).

o More than mere negligence (Grgic).

o Notice of prior interest not fraud (TLA s 43; Pyramid).

3. When must the fraud occur?

‘In the acquisition of a currently registered interest’ (TLA s 42).

o Before acquisition of registered interest, not after (Loke Yew).

o cf Mason & Dawson JJ believe that dishonest intent after registration to

repudiate agreement is fraud (Bahr v Nicholay).

However, no majority in case - Toohey & Wilson JJ affirmed Yoke

Lew - so only talking point in exam.

4. What parties can this exception apply to? See sub-sections:

Registered proprietor - fraud against a prior interest holder.

o No sub-section - apply information above to the facts.

Agent - fraud by agent himself.

Agent - knowledge of another’s fraud, failed to communicate.

Agent Fraud - is principal liable?

Fraud must be made by agent for principal to be liable - fraud by another party

insufficient even if principal wilfully blind to it (Pyramid).

If agent alleged to commit fraud, did fraud actually occur? Specifically relevant

legal principles below:

o Agent must act within scope of authority (Schultz).

Must be a sufficiently clear connection between the fraud and the

task the agent is authorised to do (Dollars and Sense).



Witnessing signature is not a mere formality, falls within scope

(AGC v De Jager).

However, if agent genuinely believes that impersonator is

the real RP, then not acting fraudulently (Grgic).

o This falls under ‘dishonesty’ below, but kept

together for simplicity!

o Agent must be dishonest.

Fraud is subjective - need conscious impropriety to constitute

fraud (Russo).

If agent knows they are (i) setting transaction on path to

registration, (ii) falsely attested or (iii) acted recklessly

then likely guilty, but if ignorant likely no fraud will have

occurred.

o Russo - Clerk signed attestation despite not

witnessing signature (false attestation).

o However, had (i) lack of knowledge of importance

of witnessing; (ii) did not understand the

consequences of indefeasibility and (iii) had no

wilful and conscious disregard.

Agent witnesses fraud - is principal liable?

Agent must act within scope of authority (Schultz).

o Must be a sufficiently clear connection between the fraud and the task the

agent is authorised to do (Dollars and Sense).

o Witnessing signature is not a mere formality, falls within scope (AGC v De

Jager).

However, if agent genuinely believes that impersonator is the real RP,

then not acting fraudulently (Grgic).

If in scope, presumption that agent has communicated to principal and thus has

knowledge of fraud (Schultz).

o AGC v De Jager - Employees either knew of false witnessing, or abstained

from further enquiries for fear of learning the truth.



In Personam

What is an IP claim?

o Basically personal equity claims, directed at a single individual rather than the

world at large.

o RP bound by rights arising out of conduct, therefore subject to consequences

of actions.

o Importantly, indefeasibility doesn’t prevent in personam claims (Frazer v

Walker).

To bring an IP claim, two requirements:

o Person bringing claim must have a known legal/equitable cause of action

(Grgic). COA must arise from RP/agent/employee.

e.g. Breach of contract, undue influence, etc.

cf Mercantile Mutual v Gosper – no clear cause of action, but

successful anyway. However, criticised and not followed.

Breach/enforcement of trust (Bahr v Nicolay)

Mason CJ/Dawson J – Express trust, as was in writing in N-T

contract.

Wilson, Toohey, Brennan JJ – Either CICT or remedial

constructive trust.

o Presence of unconscionability.

Forgery alone does not allow IP claim, must be something more

(Vassos).

Hayne J – e.g. misrepresentation, misuse of power, improper

reliance on legal rights, knowledge of other party’s

wrongdoing.

However, must be more than mere notice (TLA s 43).

Inconsistent Legislation

TLA s 42 can be overridden by later statute if both are inconsistent.

Court usually attempts to read Acts together, but if not see what subsequent Act does:



o If subsequent Act renders instrument void – can register to cure defect.

Breskvar v Wall – Instrument invalid for not complying with Stamps

Act, but registration made it valid.

Horvath v Cth Bank:

Strong presumption that Parliament would not intend dramatic

changes to legislation;

s 42 deals with effect of registration rather than validity of

instruments/underlying contracts;

Status quo is that title indefeasible upon registration (Frazer v

Walker), regardless whether instrument was void or valid.

o If subsequent Act renders interest void – registration cannot cure defect

(Calabro v Bayside).

Paramount Interests ( TLA s 42(2))

(a) Crown Grant land.

(b) Adverse possession.

(c) Public rights of way.

(d) Easements.

o RP subject to any unregistered easements existing over property.

(e) Interest of a tenant (protected without registration).

o Equity of rectification: If a lease, tenant hold equitable leasehold interest and

entitled to specific performance of real bargain (Downie v Lockwood).

o In this case , first in time rule applies despite equitable interest (Perpetual v

Smith).

P is deprived of normal indefeasibility, priority dispute as if two

unregistered interests.

Registration of lease irrelevant, and in Vic no apparent limit to

duration of tenancy.

(f) Unpaid land tax.

o Discovered from certificate issued under s 387 Local Government Act 1958; s

158 Water Act 1989.

Volunteers



Occurs when property is passed to a party without consideration. Two scenarios:

o R forges a transfer of O(RP)’s land to himself and registers, then transfers to

the innocent V. Can O recover land from V?

o R has CICT with O(RP) – like Ogilvie v Ryan – but O dies and leaves

property to V in will. Can R enforce her interest against V?

In Victoria, unlike most states, volunteers don’t get better title than predecessor

(Rasmussen; rejected Bogdanovic v Koteff):

o Volunteer RP does not obtain title free from prior equities (Rasmussen).

o If previous RP subject to IP claim, volunteer RP also subject.

o If previous RP defeasible for fraud, volunteer RP’s title also defeasible.

o However, obiter in Farah Constructions appears to uphold Bogdanovic, so law

could change in future (i.e. exam!).

Registrar’s Power to correct errors – Limited Use

No provision allowing Registrar to correct an entry procured by fraud.

o If there is a change, and then fraud – must go to Court.

Registrar must make amendment to register if Court directs (TLA s 103(1)).

Registrar has discretion (‘may’) to correct errors in the register (s 103(2)).

o Registrar has power to cancel titles/folios, create new ones and amend register

in any way to give effect to Act (s 106(e)).

e.g. Correct surveying measurement errors.

o ‘Slip rule’ only – for mistakes only, not fraud (Frazer v Walker).



Equitable Interests Recognised under the Torrens System (Barry v Heider).

[Keep notes as per Unregistered Interests section in main notes]

How to protect equitable interests

Restrictive Covenants

Registrar can record restrictive covenants on folio of burdened land (TLA s 88(1)).

o RP takes land subject to ‘encumbrances’ recorded on folio (s 42(1)).

However, RC has no greater effect than would have under instrument recording it (s

88(3)).

o i.e. Recording RC affects its priority, but not indefeasible.

Caveats

What are they?

Statutory injunction under TLA s 89.

s 89(1): Anyone claiming an unregistered interest on land can lodge a caveat with the

Registrar to prevent registration of any transferee/proprietor, or any instrument

modifying the land.

Step-by-step process

1. Person claiming unregistered interest lodges caveat against dealings - must show

‘caveatable interest’, i.e. ‘estate of interest in land; (s 89(1)).

a. Legal (RP cannot usually caveat to protect own interests - Swanstons

Mortgage v Trepan);

b. Equitable;

c. Personal equities.

d. Not mere equities (Swanston).

2. Caveat recorded on title (s 89(2)), RP is notified (s 89(3)).

3. RP can challenge the caveat:

a. Can request Registrar remove caveat (s 89A); or

b. Go directly to court to challenge (s 90(3)).

4. If caveat lodged without reasonable cause, caveator liable for compensation to RP

(s 118).



Priority Dispute Rules

Method to resolve priority disputes

1. Who are the parties?

2. What are the interests of each party?

a. Legal:

i. Pretty much anything that has been registered under the Torrens

System.

ii. Registered land means legal. If not registered, means not legal – can

still be equitable.

b. Equitable (unregistered/unregisterable interests):

i. Vendor’s lien (Heid v Reliance);

ii. Option to purchase (Jacobs v Platt);

iii. Charge (Moffett v Dillon);

iv. Equity of redemption (Abigail v Lapin);

v. Lease, easement, etc. created through a specifically enforceable

contract.

c. Mere Equity:

i. Right to have transaction set aside for fraud (Latec Investments);

ii. Equity of acquiescence/estoppel (Inwards v Baker);

iii. Equity of rectification (Downie v Lockwood).

3. If legal vs legal:

a. The interest first registered prevails (TLA s 42(1)).

b. Occurs even if RP had notice of the prior interest (s 43).

4. If legal vs equitable/equity:

a. RP’s title is indefeasible upon registration (TLA s 42(1)).

b. However, exceptions may apply (See Indefeasibility Exceptions section):

i. Fraud;

ii. In personam claim (e.g. personal cause of action);

iii. RP is a volunteer;

iv. Inconsistent legislation; and

v. Paramount interests.



1. NOTE: use equitable vs equitable rules if s 42(2)(e) applies

(Perpetual v Smith).

5. If equitable vs equitable (see detailed section below):

a. Start with ‘notice’ test – Moffett v Dillon;

b. Merits test (Abigail) – ‘prima facie first in time’

i. Identify any conduct by prior holder that could justify postponing

them.

ii. Failure to caveat possible factor, but not fatal (depends on

circumstances).

c. Is the above conduct sufficient to postpone the first (Heid)?

i. Estoppel best for ‘arming’ cases (Jacobs v Platt – see discussion in

case).

ii. Reasonable foreseeability best for ‘inconsistent interest’ cases (Just

Holdings).

d. Finally, ‘better equity’ test if still unresolved (Rice v Rice).

6. If prior equity vs subsequent equitable:

a. Is the equitable interest a bona fide purchaser for value without notice (Latec)?

i. Cannot caveat a mere equity interest (Swanston v Trepan).

Equitable vs Equitable – Additional Detail

Notice Test (Moffett v Dillon):

o Did the subsequent interest holder have notice of the prior interest?

o Definition of ‘notice’ – actual, constructive or imputed (PLA s 199).

If notice, then stop – prior interest holder wins.

If no notice, continue.

Merits Test (Abigail v Lapin):

o Prima facie priority in time will decide the matter.

o Exception: Postponing conduct has occurred (essentially means that prior

interest holder has brought the situation upon themselves).

Postponing Conduct – Failure to lodge caveat:

o Is lodging a caveat necessary?



Purpose of caveating is to prevent registration of subsequent dealings –

not a notice to the world regarding the interest (Barwick CJ, Just

Holdings).

Failure to caveat a consideration of postponing conduct, not a

basis.

cf Callinan J in Black v Garnock – can be both an injunction

and a notice to the world.

o Examples:

Abigail – Failure to search for caveats irrelevant, as no caveat there in

the first place.

Jacobs – Failure to caveat does not count as a representation (for

estoppel purposes below).

Postponing Conduct – Heid v Reliance tests:

o Estoppel/‘Arming’ (e.g. Abigail; Heid):

RP ‘arms’ a third party with the ability to represent himself to the

subsequent interest holder.

This representation by TP leads to creation of subsequent equitable

interest, and detriment were this interest revoked.

Example (Heid):

H signed acknowledgement that he had been paid in full for

sale (though hadn’t – therefore had vendor’s lien), and gave it

to CI.

CI registered transfer, then mortgaged to R. H discovered fraud,

claimed priority over R’s mortgage.

Gibbs CJ, Murphy & Wilson JJ – because H signed document

R acted in its reliance, and detriment would occur if retracted.

o Failure to caveat also occurred, but conduct main issue.

o Reasonable foreseeability/Inconsistent Interest (e.g. Just Holdings, Jacobs):

RP grants an interest to A, then a subsequent inconsistent interest

(normally an identical one) to B.

Questions to ask:



Was it reasonably foreseeable at the time of the relevant

conduct that a subsequent interest would be created in the belief

that the prior interest did not exist?

Is it reasonably foreseeable that the first party’s action would

lead to the creation of the second party’s interest?

Example (Heid):

Mason & Deane JJ – It was reasonably foreseeable that, at the

time of the act/omission by H, a later interest would be created

on the assumption that there was no prior interest.

‘Better Equity’ test (Rice v Rice):

o Seems highly similar to Abigail, but first in time is a last resort.

o Probably use to back up the Abigail principle that, without any exceptions

favouring one equitable interest over another, the prior interest will win.

General Law Land

Prior legal vs. subsequent legal:

o Priority = whichever interest was acquired first.

Prior equitable vs. later legal:

o Subsequent legal unless legal titleholder had notice (actual, imputed or

constructive).

o If notice present, interest invalid.

Prior legal vs. later equitable:

o Prior legal unless fraud has occurred.

Prior equitable vs. later equitable:

o If interests in all other respects equal first in time prevails (Rice v Rice per

Kindersley VC).

o ‘Better equity’ test in Rice v Rice – must evaluate:

Nature and conditions of respective interest (plays little role in modern

decisions);

Circumstances and matter of acquisition; and

Whole conduct of each party.

Prior equity vs. subsequent equitable:



o Bona fide purchaser of equitable interest who takes for value without notice of

prior equity prevails.



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