ANZ Banking Group Ltd v 112 Acland St Pty Ltd [2000] VSC 428

Supreme Court of Victoria|2000-10-20|Before: Byrne J

LANDLORD AND TENANT - liability for land tax - rate or charge - whether land tax is a "rate or charge assessed in respect of the demised premises". Land Tax Act 1958

Before the Magistrates' Court of Victoria sitting at Melbourne in April of this year was a proceeding brought by complaint number M01984874 filed on 27 August 1999. It was a claim by the appellant, Australia and New Zealand Banking Group Ltd, the tenant of commercial premises situate at and known as 122 Acland Street, St Kilda, and a counterclaim by the respondent, 112 Acland Street Pty Ltd, the landlord, concerning the incidence of land tax assessed upon the landlord as owner of those premises pursuant to s. 6 of the . I shall refer to this legislation simply as "the Act". The claim of the tenant was for the recovery of land tax totalling $28,499.01 assessed in respect of the years 1992 to 1997 (both inclusive) which the tenant had paid to the landlord under the mistaken belief that this was its obligation under the terms of its leases. The counterclaim of the landlord was for $35,961.40 being the land tax assessed in respect of the years 1998 and 1999 which the tenant had refused to pay.

The pleadings in the Magistrates' Court raised a number of incidental issues, including a defence based on the statute of limitations, but the magistrate determined in favour of the landlord the fundamental issue as to the obligation of the tenant under the leases to pay the tax so that, on 15 June 2000, the claim was dismissed and an order was made on the counterclaim for the sum claimed plus $6,840.98 in interest plus costs.

Two points only were certified by the master and argued before me.

"(a) Whether on the proper construction of the current lease between the parties dated 10 April 1997, and the preceding lease between the parties dated 4 June 1992, the Appellant is (or was in the case of the preceding lease) obliged, pursuant to clause 1(b) of each lease, to pay to the Respondent land tax assessed against the Respondent in respect of the subject premises. (b) if the Appellant is (or was in the case of the preceding lease) so liable, whether the land tax is or was (as the case may be) payable as aforesaid on a single holding basis or on a proportional basis."

The bank had held the tenancy for some years, using the premises for commercial purposes. The tenancy was not a retail premises lease within the meaning of the Retail Tenancies Act 1986. Neither were the premises used for purposes which brought the lease into the definition of a residential tenancy agreement within the meaning of the Residential Tenancies Act 1997 or s. 13K of the Act.

In the periods with which I am concerned, the tenant held the premises pursuant to a lease dated 4 June 1992 under which the landlord granted a term of five years with two five year options at a commencing rental of $67,000 per annum. On the expiry of the term the tenant exercised the first option and a fresh lease dated 10 April 1997 was entered into on terms which were, for my purposes, identical. The lease in each case used a familiar standard form called "the 1958 Copyright Lease", subject to certain amendments. The tenant's covenants in cl. 1 included the following:

"1. The Lessee doth hereby covenant with the Lessor:- (a) to duly and punctually pay during the demised term unto the Lessor at his address herein the said rent on the days and in the manner as set out in the said schedule;

(b) to pay during the term of this Lease all municipal and other rates and charges including excess water rates assessed in respect of the demised premises and all telephone, gas and electricity charges and other like outgoings in respect thereof;

(i) to duly comply at his own expense with the provisions of the Labour and Industry Act 1958 and the Health Act 1958 or any Statutory reenactment, modification or amendment of any such Act and any regulations issued thereunder and any Commonwealth or State enactment or regulations, notices, directions, orders, requirements or demands of any Government, Municipal or other authority affecting the demised premises provided always that the Lessee shall not be required hereby to perform or carry out structural work unless the same be required by reason of the nature of the business carried on in the demised premises..."

The first issue is whether the obligations cast upon the tenant by cl. 1(b) include that of paying land tax assessed, charged and levied on the landlord, to adopt the terminology of s. 8 of the Act.

Clause 1(b) has been construed by the Full Court of this Court[1] as falling into two parts. The first part obliges the tenant to pay "all municipal and other rates and charges including excess water rates assessed in respect of the demised premises", the second obliges it to pay "all telephone, gas and electricity charges and other like outgoings in respect thereof". It was this second part which received attention in Lang v Asemo Pty Ltd where the issue was whether that part imposed upon the tenant the obligation to pay body corporate charges. The Full Court concluded that it did not, because the outgoings falling within the second part are all charges likely to be incurred by the occupier and not by the owner. In any event, it did not appear in that case whether the body corporate charges related to the demised premises or to the common property.

It was common ground before me that land tax did not fall into this second part. If the landlord is to succeed it must appear that the tax falls within "other rates and charges... assessed in respect of the demised premises". The argument of counsel for the tenant was put on four bases. First, that land tax was not a rate or charge; second that it was not a charge of the kind which was dealt with in cl. 1(b) in that it did not concern the occupancy and use of the premises rather than its ownership; third, that the nature of the tax and the fact that it is levied upon the owner suggests that it is not to be imposed upon the tenant unless by clear words; and, fourth, that it was not assessed in respect of the demised premises.

I turn now to examine the nature of land tax, at least as things stood on 4 June 1992 when the first lease before me was entered into. The relevant legislation was the Land Tax Act 1958 as amended up to the Land Tax Revision Act 1991 (No.74 of 1991).

The scheme of the legislation then, as now, was to impose tax each year upon the owner of land. The tax payable was assessed at a statutory rate, calculated on the aggregate of the unimproved values of all land owned by the taxpayer on 31 December of the year preceding the year for which the tax was imposed. Certain land was exempted from tax pursuant to s. 9, notably, for present purposes, Crown land, and, pursuant to Part IIA, the taxpayer's principal place of residence. On the other hand, the definition of owner, for the purposes of being liable to an assessment of land tax, was extended in many respects by different provisions in the Act so that these non-owners were deemed to be owners. These exceptions and extensions are very complex.

One such deemed owner in 1992 was a tenant of the land, except a tenant of Crown land.[2] This meant that, in respect of demised land, the lessor/owner was liable for tax under s. 8 and the lessee under s. 42(1). By s. 42(2) the owner was entitled to a deduction from tax payable of a sum equal to the sum paid by the tenant in respect of the same land. This had the consequence, first, that the land was taxed once only and, further, that the tax fell primarily on the tenant and was paid by the tenant at the rate appropriate to its total land holdings.

Section 71 provided that an agreement was void "insofar as directly or indirectly it has or purports to have the purpose or effect of in any way directly or indirectly altering the incidence of the tax...". By an amendment made in 1968 a new sub-section (3) was introduced to this section:

"(3) Notwithstanding anything in this section a covenant by the lessee in any lease entered into on or after the 31st day of December 1968 to reimburse to the lessor the whole or any part of the tax paid by the lessor in respect of the land demised to the lessee is valid and enforceable by the lessor but any such covenant shall not relieve the lessor from liability to pay to the Commissioner any tax for which he is liable under this Act."

The significance of this amendment for my purpose is that, whatever may have been the position previously, it was lawful for a landlord in 1992 to require the tenant to reimburse this tax as well as conventional outgoings.

There were, as may be supposed, extensive provisions in the Act for the collection of the tax. By s. 66(1) the tax is a first charge on the land in respect of which it is payable. Under s. 69, where an owner makes default in the payment of tax in respect of land which is let to a tenant, the tenant is liable for this tax.

The rate of tax was in 1992, and still is, progressive. In 1992 no tax was payable on the first $200,000 of the taxpayer's total landholding. Where the total landholding was valued at between $200,000 and $540,000 the tax payable was $60 plus 0.15 cents for each dollar in excess of $200,000; where the total landholding was valued at between $540,000 to $2.7M the tax was $570 and 1.5 cents for each dollar in excess of $540,000; and where the value of the total landholding exceeded $2.7M the tax was $32,970 and 3 cents for each dollar in excess of $2.7M. These rates changed from time to time during the years with which I am concerned but the progressive nature of the tax did not change.

Before me attention was devoted to the width of the word "charge" in its ordinary meaning. One such meaning is simply the liability to pay money, although the word may take a different meaning from its context. In Davison v Bathurst City Council[3] the New South Wales Court of Appeal noted that, in a local government statute, "charge" often means a liability to pay money laid upon real property and, when used in this context in the expression "a charge or fee", it denotes a price demanded for services or goods. A levy for the construction of a footpath adjacent to the subject land was not, therefore, a charge or fee due and payable to the council.

In Sunskill Investments Pty Ltd v Townsville Office Services Pty Ltd [4] the Full Court of the Supreme Court of Queensland had to determine the expression "all other charges" in a clause in a lease which imposed these on a tenant in contra-distinction to rates and taxes which were to be borne by the landlord. In the course of his judgment McPherson J made some general observations[5] about these expressions:

"It is possible therefore to view the words `all other charges' in section 3.3 as referring generally to costs or expenses for goods or services supplied to, and so chargeable `against', the demised premises. That is something different from a `rate' or `tax'. Textbooks and judgments are notably reticent about defining the term `rate'; but the underlying conception is of a levy to defray the expenses of local government imposed on all owners or occupiers of property in a particular area. Its essence is that it is calculated according to values of land or buildings in the locality rather than the cost of supplying the service to particular premises, so that each owner or occupier bears his rateable share of those expenses. Hence the word `rate'."

The word "charge" is used widely throughout the Act as it stood in 1992, and in two senses. It is used, first, to denote an imposition: the owner of land shall be charged a duty of land tax,[6] and, second, to denote an hypothecation: the tax is the first charge on the land.[7] "Charge" in the first sense, which is the sense which it is said to bear in cl. 1(b) of the lease, is used throughout the Act.

On behalf of the tenant it was argued cl. 1(b) speaks of rates or charges "assessed in respect of" the demised premises. This conjunctive phrase was said to be inappropriate to refer to a tax which is assessed against a landowner in respect of the total landholding and, therefore, not assessed in respect of the demised premises. The conjunctive phrase "in respect of" is used throughout the Act to connect the tax or the assessment of the tax with the particular piece of land in question. The expression "tax payable in respect of" land, or cognate expressions, are found in ss. 6A, 42(2), 50, 66(1), 1(A), (2), 69(9), 71(3) and 91A(b). The expression "assessed and liable for tax in respect of" land, or cognate expressions, are also to be found in ss. 45(2), (3), 51(1) and 64(a). I mention these, first, to demonstrate that, contrary to the submission presently under consideration, the relationship between the tax and the land can, as a matter of English be so expressed; second, to show that these expressions were current in this area of law in 1992. It may be supposed that the drafter of the form of lease was familiar with conveyancing and associated taxation usage.

All of this leads me to conclude that the word "charge" is capable of including land tax. So much was conceded before the magistrate and before me. Furthermore, the words "charge assessed in respect of the demised premises" are capable of including the land tax assessed on the landlord as owner of the demised premises. The question, however, is whether they do bear this meaning in the context of the whole clause and the whole lease.

It was put that, if the parties did intend to impose this tax on a tenant they would have done so in clear language. This, it was said, follows from the statutory imposition of the burden of the tax on the owner and, further, in the case of tenanted premises, the statutory distribution of this burden on each of the landlord and tenant under s. 42. As an example of how this might be achieved by a careful conveyancer, I was referred to a number of cases which concerned leases where land tax was specifically referred.[8]

It was put further that, if the owner's land tax obligations were to be recouped from the tenant, this would mean that the tenant's burden was to this extent unconnected with the benefit received by it under the lease. In short, the burden of land tax would depend, not upon the value of the premises, but on the wealth of the landlord so that the more wealthy the landlord the greater the tenant's burden. This situation arose from the progressive nature of the rates of the tax and from the fact that the tax was assessed on the total holding of the taxpayer. This might have the following consequences. If a person is a tenant of a property with a relevant value of $100,000 and is the owner of no other property, that tenant would pay no tax under s. 42. If the tenant held under a lease which contained a covenant obliging the tenant to pay the landlord's tax in respect of the tenanted property, the tenant may have to pay no tax, or $150 or $1500 or $3000 depending on which tax bracket in 1992 the landlord occupied, unless the tenant's obligation was to pay the landlord's tax on a single holding basis. Where the tenant was the owner of other taxable land which, together with the leasehold interest, took its total landholding over $200,000, the consequence of the covenant and s. 42 may be that the tenant would pay in respect of the demised land both the tenant's tax and the landlord's tax, subject to any credit under s. 42(2). And this burden might change from year to year as the landlord's total landholding increased or diminished.

Now, it was not suggested that a lease could not have this effect. It was put, rather, that it would be unlikely that the parties to the lease would make such a bargain otherwise than in clear terms. Moreover, it might be expected that, if they did, they would have addressed the second question before me, whether the tax to be reimbursed to the landlord by the tenant is the pro-rata share of the landlord's total tax or tax calculated on a single holding basis.

Against this background, I turn to the whole lease and to the whole of cl. 1(b). The first thing to note is that the demised premises are part only of a shopping complex owned by the landlord in Acland Street. To address this, the parties included a special provision in cl. 3:

"3(n) The Lessor and the Lessee agree that in respect of any outgoings duly payable or reimbursable by the Lessee being any outgoings chargeable in respect of the whole Building of which the demised premises forms a part that the percentage share of such outgoings duly attributable to the demised premises is 10.24%."

This clause is clearly intended to relate to the outgoings referred to in cl. 1(b) with which I am concerned. I shall set this clause out again.

"(b) to pay during the term of this Lease all municipal and other rates and charges including excess water rates assessed in respect of the demised premises and all telephone, gas and electricity charges and other like outgoings in respect thereof."

It is clear that in drafting cl. 3(n) the parties turned their minds to the need to apportion certain expenses of the landlord so that they applied only to the demised premises. It is surprising, in these circumstances, that, if they intended to include the landlord's land tax, they did not consider the further apportionment of this to the whole building.

An examination of the tenant's obligations generally throughout the lease shows that they generally relate to the use and occupation of the demised premises, including, in cl. 1(i), its obligation to comply with various statutory requirements affecting the premises. The only exceptions are the municipal rates and water rates, or such part of these as are not referable to services provided by the rating authority in respect of the premises.

I turn now to look more closely at the terminology used in cl. 1(b). It is divided into two parts as Lang v Asemo Pty Ltd points out. The second part concerns outgoings such as telephone, gas and electricity charges. These are charges imposed for services and the like used by the tenant. The first part concerns "other rates and charges assessed in respect to the demised premises". Much of the argument, as appears from what I have written above, turned upon a detailed examination of the meanings which the words "rates" and "charges" might or do bear. This argument exposed a difficulty in the use of the word "charge". If charge is intended to mean a sum demanded for the provision of goods or services, it is difficult to see how it may be "assessed in respect of "certain land.

To my mind, the key to this is to be found in the example provided by the drafter of the clause, excess water rates. This draws attention to the statute dealing with this in 1992, the Melbourne and Metropolitan Board of Works Act 1958. Part II of that Act, dealing with water supply, has a division entitled "Rates and Charges and Recovery Thereof". Section 98 of that Act empowers the Board to make and levy rates upon the occupiers or owners of land. These impositions may be calculated as a rate based on the net annual value of the land[9] or by by-law fixing a scale of charges for water supply or fees for other services.[10] Part III of this Act, dealing with sewerage, likewise contemplates that the costs of the Board of performing its functions may be recovered by striking a rate upon all sewered properties[11] or by recovering the cost of works from the owner of the land served by the sewer.[12] Division 6, entitled "Recovery of Charges, Costs, Expenses and Interest" deals with the recovery of "all costs and expenses" made payable to the Board, and Division 7 deals with "Sewerage, Rates etc and Recovery thereof". It is clear from the terminology of this statute that the expression "rates and charges" is intended to cover sums payable to the Board which may be either assessed as a rate upon the value of the property affected or charged for services provided to that property. Water rates and charges were imposed upon the person requiring, receiving or using the water or the owner or occupier of the premises to which the water is supplied.[13] In the case of sewerage rates, these are imposed upon the owner or occupier of the sewered land.[14]

And the Local Government Act 1989 as it stood in 1992 used the same terminology, so that municipal rates and charges may be assessed on land within the municipality generally, or upon the land which derives special benefit from the service for which the rate or charge is imposed.[15] In each case, the burden falls on the owner.[16]

It is clear that the drafter of the lease in 1992, when preparing the first part of cl. 1(b), had this terminology in mind. I do not, however, conclude that no rate or charge other than those for water, sewerage or municipal purposes is covered by the first part of the clause. What is clear is that an imposition, such as land tax, stands in a very different position from a rate or charge of the kind mentioned. I conclude that clause 1(b) does not cast on the tenant the burden of the landlord's land tax or any part of it.

The lease expired in 1997 and a fresh lease was entered into in identical terms, so far as is here relevant. By this time there had been some changes to the Act including, in s. 13K, prohibition against the landlord passing land tax to the tenant of a residential tenancy. By an amendment to s. 42(2) made in 1995, the tenant of the lease such as the present ceased to be deemed to be an owner of the demised land and, accordingly, was not directly liable to pay land tax on that land. In introducing the amendment in the Legislative Assembly on 12 October 1995, the Honourable the Treasurer explained it this way:

"The bill also introduces an anti-avoidance provision to limit the ability to apportion land tax between the lessor and lessee where a landlord is disadvantaged by the terms of a lease. Section 42 of the Land Tax Act was intended to cover old-style long-term leases where a peppercorn rent is being received for valuable central business district property. Today virtually all modern leases impose rental at market rates, and therefore section 42 should not have wide application. This bill limits the application of section 42 to leases entered into before 30 December 1978."[17]

This shows the intention of Parliament to be that, thereafter, with respect to modern leases, that is those granted after 1978, the burden of land tax should not fall on the tenant as previously.

It was submitted on behalf of the tenant that, since the lease was renewed in identical terms, it should be given an identical construction. I am not altogether sure that this follows, but I see nothing in the statutory background as at 1997 which causes me to conclude that cl. 1(b) in the new lease should be read to include land tax which had not been included previously. I am satisfied that the landlord's obligation to pay this tax was not passed to the tenant under the 1997 lease.

These conclusions make it unnecessary for me to consider the second certified question of law. I will, however, add, in case the matter may go further, that absent some alternative intention spelt out in the lease, I would have concluded, on the authority of and for the reasons set out in Tooth & Co Ltd v Newcastle Developments Ltd[18] and Centrepoint Custodians Pty Ltd v Lidgerwood Investments Pty Ltd [19] that the tenant should pay the proportion of the landlord's total land tax liability as the unimproved capital value of the demised premises bears to that of the landlord's total holding. The lease is silent on this point so that this consequence would follow.

It follows from this that the appeal must be allowed and the order of the Magistrates' Court set aside. The matter must be remitted to the Magistrates' Court since there are other issues to be determined. I propose, therefore, the following orders:

2. The order of the Magistrates' Court of Victoria at Melbourne of 15 July 2000 be set aside and the proceeding remitted to that court to be determined in accordance with law.

I will hear counsel further on the precise terms of the order to be made and as to the costs, including a certificate under the Appeals Costs Act 1998.

I leave this case with an acknowledgment of my gratitude to the magistrate for his careful and comprehensive reasons. Although I have come to a different conclusion on this difficult point, I have derived great assistance from the way he set out the issues and analysed them.

[1] Lang v Asemo Pty Ltd [1989] VicRp 67; [1989] VR 773 at 779

[2] Section 42. A tenant of Crown land was assessed under s. 43.

[8] Hartley v Hudson (1879) 4 CPD 367 at 369; Emmerton v Smith (1898) 24 VLR 491 at 496-7; Re Walker's and Kelly's Lease [1924] VicLawRp 11; [1924] VLR 85; Centrepoint Custodians Pty Ltd v Lidgerwood Investments Pty Ltd [1990] VicRp 36; [1990] VR 411; FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343; City Parking Pty Ltd v Ausvest Holdings Pty Ltd (1999) Conv R 54-597 (CA (Vic)).

[17] Hansard, Legislative Assembly, vol. 426, p. 674

Land Tax Revision Act 1991

Metropolitan Board of Works Act 1958

Appeals Costs Act 1998

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