In 2014 Australia Avenue Developments Pty Ltd (AAD) entered into a Project Development Agreement (PDA) with the Sydney Olympic Park Authority (SOPA) under which it agreed to develop a parcel of land (Site 68) being Lot 73/1134933 and Lot 76/1134933 at Sydney Olympic Park ("the Land").
SOPA was the owner of the Land. It was also a statutory body representing the Crown established under the Sydney Olympic Park Act 2001(SOP Act).
The PDA provided in great detail for a development on Site 68 that involved the design, construction and sale of a strata title commercial/residential building and a strata commercial building which included a childcare centre and associated car park amongst other things. There was a formula for dividing profits between AAD and SOPA.
The PDA provided for the entry into a "Construction Lease" from SOPA to AAD to enable the development to proceed. A lease was entered into and registered. The CCSR has assessed AAD to land tax pursuant to s21C of the Land Tax Management Act 1956 (LTMA) which in broad terms imposes land tax on lessees under Crown leases (the Crown is exempt from land tax).
AAD's principal argument is that this "lease" was not in law a lease. The CCSR takes the opposite view.
[2]
Jurisdiction
The Chief Commissioner has assessed the applicant to land tax for the 2016 and 2017 land tax years. The tax payer has objected pursuant to s86 of the Taxation Administration Act 1996 (TAA). The objection, having been disallowed by the Commissioner has been referred to the Tribunal pursuant to s96 TAA. The tax payer has the onus of establishing its case before the Tribunal (s100(3) TAA). The Tribunal stands in the shoes of the Commissioner and can either confirm or revoke the assessment, make an assessment, or remit it back to the Chief Commissioner (s101 TAA).
[3]
The Facts
On 20 March 2014 a Project Development Agreement was entered into between AAD as the developer, Ecove Group Pty Ltd as guarantor (the guarantee is not relevant here) and the SOPA in relation to the Land at Sydney Olympic Park. It is common ground that SOPA was the registered proprietor of the Land and LPI Searches were in evidence.
Under the PDA AAD undertook to perform and complete Works for the development of SOPA's land including obtaining necessary approvals; designing and constructing strata buildings; landscaping the site etc; and marketing the strata lots in the buildings. SOPA was to retain ownership of certain strata lots including the childcare centre including a car park and affordable housing units (Clause 40.1 PDA definition of Retained Lots). Of particular significance to the present case are the terms of Clause 11.4 and Annexure 'O' to the PDA.
Clause 11.4 of the PDA provides as follows:
"11.4 Construction Lease
(a) SOPA must grant and the Developer must accept the Construction Lease on the terms of this clause 11.4.
(b) The form of the Construction Lease will be in accordance with Annexure 'O' subject to completion of the commencing date and the term.
(c) The commencing date of the Construction Lease will be the later of:
(i) the day the Developer pays the second instalment of the Premium in accordance with Clause 2.1;
(ii) the Date of Satisfaction; and
(iii) the date on which the Developer provides the documents and information to SOPA that it has effected insurance in accordance with its obligations under Clause 25.
(d) The Developer must at its cost prepare the Construction Lease in accordance with this clause and submit it to SOPA for execution.
(e) SOPA and the Developer agree to do everything necessary to promptly finalise and execute the Construction Lease and permit the Developer to register the Construction Lease on title to the Land
(f) From the commencement date of the Construction Lease the Developer grants to SOPA and SOPA's employees, agents and contractors a licence to come on to the Land for the purpose of doing anything which SOPA is permitted to do under this deed."
Annexure 'O' - Construction Lease provides in relevant part as follows:
"2.1 Grant
The Lessor grants the Lessee for the duration of this Lease exclusive possession of the land on the terms and conditions in this Lease....
2.3 Project Delivery Agreement
(a) The Lessee must comply with its obligations under the Project Delivery Agreement as the obligations relate to the Land.
(b) If there is any inconsistency between this Lease and the Project Delivery Agreement, the terms of the Project Delivery Agreement apply.
3 Rent
The Lessee must pay to the Lessor rent in the sum of $1.00 per annum, payable on demand.....
5 Lessor's Covenant for Quiet Enjoyment
The Lessor covenants with the Lessee that, subject to the Project Delivery Agreement, whilst the Lessee complies with its obligations under the Lease and the Project Delivery Agreement, the Lessee may occupy and have use and enjoyment of the Land for the term of this Lease without interruption or disturbance from the Lessor and other persons lawfully claiming through under the Lessor except where permitted under this Lease."
SOPA also received a substantial premium under the PDA (Clause 2.1 - 2.3).
Annexure 'O' was reflected in a document headed "Lease" executed by the parties in December 2015 in the form approved for purposes of the Real Property Act 1900 which was in evidence. The Lease term was to end on 16 May 2020. The LPI searches for 2 lots comprising the Land showed the leases as encumbrances (Item 12, Schedule 2 for Lot 73, Item 15, Schedule 2 for Lot 76).
[4]
Legislation
The Land Tax Management Act 1956 (LTMA) provides in relevant part as follows:
21C Liability of lessees of land owned by Crown or local government bodies
(1) The Crown, a local council, a county council or a joint organisation is not liable for land tax in respect of land it owns (except as specifically provided by Part 3).
(2) A lessee (other than a sub-lessee) of land or part of land owned by the Crown, a local council, a county council or a joint organisation is for land tax purposes deemed to be the owner of a parcel of land ( "the notional parcel" ) consisting of the land or part leased. The Crown, local council, county council or joint organisation is then not to be considered owner of the notional parcel.
It is common ground that none of the exceptions in s 21C(6) LTMA apply.
Section 7 LTMA provides for owners to be liable for land tax:
7 Land tax on taxable value of land
Land tax at such rates as may be fixed by any Act is to be levied and paid on the taxable value of all land situated in New South Wales which is owned by taxpayers (other than land which is exempt from taxation under this Act).
Section 9(1) LTMA provides as follows:
9 Taxable value
(1) Land tax is payable by the owner of land on the taxable value of all the land owned by that owner which is not exempt from taxation under this Act.
Section 3 LTMA relevantly provides the following definitions:
"Crown" includes a statutory body representing the Crown.
"Owner" includes:
(a) in relation to land, every person who jointly or severally, whether at law or in equity:
(i) is entitled to the land for any estate of freehold in possession, or
(ii) is entitled to receive, or is in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise,
(c) in relation to any leasehold estate in land, whether legal or equitable (other than under any lease to which section 21C or 21D applies), a person, or a person who is a member of a class or description of persons, prescribed for the purposes of this paragraph, and
(d) a person who, by virtue of this Act, is deemed to be the owner.
The SOP Act 2001 provides as follows:
5 Constitution of Authority
(1) There is constituted by this Act a corporation with the corporate name of the Sydney Olympic Park Authority.
(2) The Authority may also be called SOPA and the use of that name has the same effect for all purposes as the use of its corporate name.
6 Status of Authority
The Authority is, for the purposes of any Act, a statutory body representing the Crown.
The Interpretation Act 1987 provides further in respect of the Crown as follows:
13A NSW Government agencies and statutory bodies representing the Crown
(1) If an Act provides that a body is:
(a) a NSW Government agency, or
(b) a statutory body representing the Crown,
the body has the status, privileges and immunities of the Crown.
(2) If an Act provides that a body:
(a) is not or does not represent the Crown, or
(b) is not a NSW Government agency or a statutory body representing the Crown,
the body does not have the status, privileges and immunities of the Crown.
(3) This section extends (without limiting its operation):
(a) to a provision that is expressed to be made for the purposes of any Act or more generally, and
(b) to privileges and immunities conferred by law expressly or as a matter of construction.
(4) In any Act or instrument:
(a) a reference to a NSW Government agency includes a reference to a body that is declared to be a statutory body representing the Crown, or
(b) a reference to a statutory body representing the Crown includes a reference to a body that is declared to be a NSW Government agency.
(5) In this section, the "Crown" includes the State and the Government of the State.
[5]
Applicant's Submissions
The applicant submits that there were three bases upon which it should not be assessed to land tax.
First the applicant submitted that it was not a lessee from the Crown because, despite the wording of the PDA and the description of the executed document as a lease it was in substance an arrangement that should not be characterised as a lease for legal purposes, and therefore the applicant was not a lessee. This argument had three limbs:
1. There was no grant of exclusive possession of Land to AAD. Exclusive possession was submitted to be necessary for a lease to exist. Even though Clause 11.04 and Annexure 'O' to the PDA stated that the AAD had "exclusive possession" this was subject to the terms and conditions of the PDA (which had precedence over the agreement for a "Construction Lease" - cl 2.3(b) Annexure O) and the rights of control, governance and interference reserved to SOPA meant that AAD did not have exclusive possession.
2. AAD had no complete right of quiet enjoyment of the Land. This was also submitted to be necessary for the arrangement to be treated as a lease. Even though Clause 5 of Annexure 'O' provided that the lessee should have quiet enjoyment, this was also subject to terms and conditions of the PDA (which had precedence over the Construction Lease and which in substance denied the right of quiet enjoyment).
3. That the arrangement the parties called a Construction Lease was really an ancillary arrangement granting access to the Land referrable to what was in substance a building/development contract and thus simply incidental and subsidiary to that wider arrangement.
The second and third submissions of the applicant were bold.
The second submission was that the Crown did not own the Land although SOPA did. SOPA being a statutory body representing the Crown did not mean that land owned by SOPA was owned by the Crown for the purpose of s21C LTMA.
Thirdly the applicant argued that although SOPA was the owner of the Land, and although SOPA was defined to be a representative of the Crown, it was liable to land tax and therefore the lessee AAD was not.
[6]
Respondent's Submissions
The respondent took issue with each of the applicant's submissions. In short the respondent contended that the relationship between AAD and SOPA was that of lessor and lessee under a lease; that the restrictions imposed on AAD's use of the Land did not mean that AAD had lost exclusive possession of the Land; similarly that it had not lost its right of quiet enjoyment; and finally that even though their lease arose in the context of a wider PDA arrangement it was not relevantly referrable to, or merely incidental to the PDA.
The respondent also submitted that the applicant was wrong in submitting that SOPA was not the representative of the Crown; and that it was wrong to submit that the Land owned by SOPA was not owned by the Crown for the purposes of s21C LTMA.
[7]
Is This A Lease?
It is a difficult starting position for the applicant to deny that there was a lease when, in an arrangement between two sophisticated commercial parties advised by leading law firms:
The PDA called it a lease in Clause 11.4 and Annexure 'O'.
Annexure 'O' provided expressly for there to be a lease and granted exclusive possession and quiet enjoyment subject to terms and conditions.
The document signed by the parties took the form of a lease approved for Real Property Act purposes and on its face was called a Lease.
Lease to AAD was noted as encumbrances on the title to the two lots compromising the Land according to the searches.
Both parties agreed that it was necessary to look beyond the form of words used to decide whether the substance of the arrangement between AAD and SOPA constituted a lease.
The applicant indicated various provisions of the PDA which in its submission derogated so much from the rights to exclusive possession and quiet enjoyment that the arrangement could not be said to be a lease for the purposes of s21C(2) LTMA.
In particular the applicant pointed to the following provisions of the PDA as constituting reservations or derogations from its rights as a lessee and I have also set out the respondent's answers to these contentions some of which contain a summary of the subject matter of the relevant provision, and for those which do not I have added a summary and some observations in brackets:
cl 1.4:
Respondent's submission: this is not truly a reservation. It refers to SOPA's discretion to use other land within Sydney Olympic Park. It is of no material relevance to the question of whether exclusive possession has been granted;
cl 1.6:
Respondent's submission: this is not truly a reservation. It refers to SOPA's discretion to pursue other development projects within, or outside, Sydney Olympic Park. Such matters are part of SOPA's statutory functions: s 13 of the SOPA Act. The clause is of no material relevant to the question of whether exclusive possession has been granted.
cl 4.3:
Respondent's submission: this is not truly a reservation. It refers to SOPA giving access to the Applicant over "Access Roads". That expression is defined on PIAWE 108 of the PDA to mean roads within Sydney Olympic Park. The clause is of no material relevance to the question of whether exclusive possession has been granted.
cl 4.15:
Respondent's submission: this is not truly a reservation. It refers to SOPA's ability to impose restrictions on movement within Sydney Olympic Park on certain occasions. SOPA has statutory powers to impose such restrictions: see SOPA Act, Pt 4, Div 4. The clause is of no material relevance to the question of whether exclusive possession has been granted;
cl 6.1:
Respondent's submission: this is not truly a reservation. It relates to the design of building and related works. It says nothing about the ability of the Applicant to exclude third parties from the Property;
cl 6.5:
Respondent's submission: this is not truly a reservation. It relates to the design and specifications of the child care centre. It says nothing about the ability of the Applicant to exclude third parties from the Property;
cl 8.1:
Respondent's submission: this is not truly a reservation. It relates to applications for obtaining necessary approvals. It says nothing about the ability of the Applicant to exclude third parties from the Property;
cl 8.5:
Respondent's submission: the fact that SOPA is able to withhold consent in circumstances where a development application is not accompanied by documents which SOPA considers to be reasonably required is a reflection of the fact that, in conjunction with leasing the Property, the Applicant is undertaking development works for SOPA. The clause says nothing about the ability of the Applicant to exclude third parties from the Property.
cl 9.1(a) and (c):
Respondent's submission: these two provisions [dealing with retention of the child care centre lot and a right to access the roof top to install etc a security camera] serve to reinforce the fact that exclusive possession has been granted. Put another way, this clause is premised on the Applicant otherwise being able to exclude persons from the Property (and hence the need to include a reservation of this type);
cl 9.2:
Respondent's submission: this provision [dealing with the ability of SOPA to direct AAD to vary relevant Prescribed Works by written notice] reflects the fact that, in conjunction with leasing the Property, the Applicant is undertaking development works for SOPA. The clause says nothing about the ability of the Applicant to exclude third parties from the Property;
cl 9.3(a)-(e):
Respondent's submission: this provision [dealing with the process for SOPA to vary the Prescribed Works by obtaining a quotation of cost and approving it] reflects the fact that, in conjunction with leasing the Property, the Applicant is undertaking development works for SOPA. The clause says nothing about the ability of the Applicant to exclude third parties from the Property;
cl 9.5:
Respondent's submission: this clause [dealing with the number of Retained Lots to be dedicated to Affordable Housing] is a reflection of the fact that, in conjunction with leasing the Property, the Applicant is undertaking development works for SOPA. The clause says nothing about the ability of the Applicant to exclude third parties from the Property;
cl 9.7:
Respondent's submission: this clause [dealing with AAD's cost and risk relating to Retained Lots] is a reflection of the fact that, in conjunction with leasing the Property, the Applicant is undertaking development works for SOPA. The clause says nothing about the ability of the Applicant to exclude third parties from the Property;
cl 11.4(f):
Respondent's submission: this clause [which, in my view importantly, deals with the grant of a licence by AAD to SOPA to come on to the Land for the purpose of doing anything that SOPA is permitted to do under the PDA] serves to reinforce the fact that exclusive possession has been granted. Put another way, this clause is premised on the Applicant otherwise being able to exclude persons from the Property (and hence the need to include a reservation of this type);
cl 11.11(b):
Respondent's submission: this provision [which give SOPA and an Independent Certifier ability to inspect and test materials used in the Works] serves to reinforce the fact that exclusive possession has been granted. Put another way, this clause is premised on the Applicant otherwise being able to exclude persons from the Property (and hence the need to include a reservation of this type);
cl 13.9:
Respondent's submission: this clause is not truly a reservation. By cl 13.9(b), the Applicant is obliged to partially surrender the Lease "in respect of the Child Care Centre" at the Date of Practical Completion. Thus, at that point, (i) the Lease will not apply in respect of the Child Care Centre and (ii) cl 13.9(a) will apply;
cl 13.10:
Respondent's submission: this clause is not truly a reservation. By cl 13.10(b), the Applicant is obliged to partially surrender the Lease "in respect of the Affordable Housing Lots" at the Date of Practical Completion. Thus, at that point, (i) the Lease will not apply in respect of the Affordable House Lots and (ii) cl 13.10(a) apply;
cl 20.2(a)(i);
Respondent's submission: this provision [requiring the subdivision by AAD to ensure the child care centre and associated car park to be a single stratum lot] is a reflection of the fact that, in conjunction with leasing the Property, the Applicant is undertaking development works for SOPA. The clause says nothing about the ability of the Applicant to exclude third parties from the Property;
cl 30.2(b):
Respondent's submission: this provision deals with the circumstances where, in essence, there is a change of ownership of the Property [i.e. the Land] (hence the title of the clause). The provision says nothing about the rights conferred on the Applicant under the existing lease. Moreover, it says nothing about SOPA's ability to grant a concurrent lease whilst the current Lease remains on foot. [The provision assumes that SOPA has the ability to grant a concurrent lease, which arguably supports the proposition that the current arrangement constitutes a lease]. The clause is of no material relevance to the question of whether exclusive possession has been granted;
cl 30.3:
Respondent's submission: this clause [which empowers SOPA and its agents to enter and remain on the Land to rectify anything not done or improperly done by AAD, while not interfering with parts of the Land not required for rectification purposes] serves to reinforce the fact that exclusive possession has been granted. Put another way, this clause is premised on the Applicant otherwise being able to exclude persons from the Property (and hence the need to include a reservation of this type);
cl 30.6:
Respondent's submission: this provision [dealing with SOPA's right to deal with the Land by way of creating easements, public positive covenants and encumbrances and AAD's obligation to comply with them] is a reflection of the fact that, in conjunction with leasing the Property, the Applicant is undertaking development works for SOPA. Moreover, this serves to reinforce the fact that exclusive possession has been granted;
cl 31.5:
Respondent's submission: this clause [dealing with SOPA's right to remedy (including by entering the Land) any Event of Default] serves to reinforce the fact that exclusive possession has been granted. Put another way, this clause is premised on the Applicant otherwise being able to exclude persons from the Property (and hence the need to include a reservation of this type).
The respondent's further submission was that these provisions are to be expected in most modern lease arrangements particularly where they sit within a commercial arrangement like the PDA. The right of entry to inspect and repair is an ordinary feature of most leases of real property.
The applicant placed reliance on texts by Gray & Gray "Land Law" 7th edition 2011 Oxford University Press and Megarry & Wade "The Law of Real Property" 8th edition 2012 Sweet & Maxwell London.
In Gray & Gray the authors state:
"4-014 It is consistent with the proprietary character of leaseholds that the 'proper touchstone' of a lease or tenancy should comprise the legal right to exclusive possession of the land (Radaich v Smith (1959) per Windeyer J). A tenant without exclusive possession is a contradiction in terms: no tenancy can exist unless such a right has been conferred on the occupier. Exclusory power is of the essence of proprietary estates in land (1-127). As Lord Templeman confirmed in Street v Mountford (1985), the tenant is, in reality, owner pro tempore, and is entitled to 'keep out strangers and keep out the landlord unless the landlord is exercising limited rights reserved to him by the tenancy agreement to to enter and view and repair'….Irrespective of its duration or scope, the lease guarantees the tenant a right of territorial control coupled with a general immunity from any detailed supervision of his activities on the demised premises. Correspondingly, the reservation for the freeholder of an unlimited right of access or of overall supervisory control clearly precludes any assertion of tenancy"…
4-016 Clearly no arrangement can constitute a lease unless it confers a right of exclusive possession. Equally clearly, however, some apparent instances of exclusive possession are attributable to other categories of legal relationship than that of landlord and tenant [The paragraph goes on to discuss arrangements involving lodgers in bed sits; occupants of serviced, sheltered and charitable housing and hostel residents as well as accommodation provided out of friendship, generosity or family ties where no tenancy arises]…
4-019 In determining the nature and quality of an occupancy, the subjective intentions of the parties are largely irrelevant….The definitional intent of the parties is relevant only in so far as it correctly conveys the inner substance - the jural reality- of the transaction. As Bingham LJ graphically pointed out in Antoniades v Villiers (1990),'[a] cat does not become a dog because the parties have agreed to call it a 'dog'.
I pause to note my general acceptance of the propositions stated by the learned authors of Gray & Gray. Ultimately it comes down to an objective determination of the substance or 'jural reality' of the arrangement. One of the vital indicia in these cases is exclusive possession, but underlying that is question 'what is sufficient exclusive possession in the circumstances'? I am unable to accept the argument apparently advanced by the applicant here that almost any derogation from the right of exclusive possession can result in the relationship being determined not to amount to a tenancy. Gray & Gray cite reservation to the landlord to enter and view and repair as consistent with exclusive possession, but go on to say that an unlimited right to access or to exercise overall supervisory control would preclude a tenancy. The issue is to find the point at which it can be said that the objective intention of the parties is resolved on one side of the coin rather than the other. The reservations in favour of SOPA cited by the applicant do not in my view undermine the principle that AAD has sufficient exclusive possession in the present circumstances.
[8]
Is The Lease Referrable To An 'Other Relationship'?
Turning now to the submission that the lease in question is to be regarded as merely an incident of and/or attributable to a wider relationship and arrangement being the development joint venture of Site 68 between AAD and SOPA.
It is to be noted that the lease was granted for the limited purpose of performing the building Works (including design, construct and marketing of end product), which required a right of access to the Land. The lessee was prohibited from assigning, subleasing and licensing (indicating an appreciation of the distinction) except in accord with the PDA (Annexure O cl 4.2).
The applicant made reference in its written submissions to the passage in par 17-015 of Megarry & Wade "The Law of Real Property" 8th ed. quoted above that an occupier of land having exclusive possession is not a lessee if the occupation is referrable to some other relationship like that of a developer; and to the words of Lord Hoffmann in Bruton v London and Quadrant Housing Trust [1999] All ER 481 at 485-6 who defined a lease as "a contractually binding agreement, not referrable to any other relationship between the parties, by which one person gives another the right to exclusive occupation of land for a fixed or renewable period or periods of time, usually in return for a periodic payment in money" .
The applicant's submission was that this lease was referrable to the "other relationship" between SOPA and AAD of land owner and developer and thus should not be classified as a lease so that the taxpayer was not a lessee for the purposes of s 21C LTMA.
That submission did not go into detail as to the relative importance of the "other relationship" in a determination of the character of the arrangement. The respondent's submissions (RS) also did not really grapple with the point (RS 4.9 and 4.10).
My researches have failed to turn up anything relevant to guide my decision as to when a lease is not a lease because it is referrable to some "other relationship". Gray & Gray at par 4-016 referred to earlier, mention relationships such as lodgers in bedsits, occupants of certain social housing, hostel residents and accommodation provided to family and friends as unlikely to be construed as giving rise to a tenancy. I do not find them helpful here.
The applicant referred to Facchini v Bryson (1952) 1 TLR 1386, but it does not really assist its case. The Court of Appeal held that there was a tenancy between an employer and employee (which the Court referred to as a 'service tenancy') notwithstanding the "other relationship" of employment, because of the terms of the agreement, and notwithstanding the attempt to label it a licence.
I found the following in "Hudson's Building & Engineering Contracts" 13th Edition Sweet & Maxwell London 2015 by Nicholas Dennys and Robert Clay at para 3-135 which states:
".... in the case of a new project the Main Contractor will normally be entitled to undisturbed possession of the entire site in the absence of expressed stipulation to the contrary …although the word "possession" is almost invariably used in the expressed provisions of main contracts and in the terminology of the industry, it is clear that this does not mean exclusive possession in the legal sense (as would be the case in a tenancy, for example), but merely a temporary and revocable right of occupation incidental to, and only to the extent reasonably required by, the work undertaken by the Contractor in their contract". (footnotes omitted).
In the present case AAD is granted "exclusive possession" (not just "possession") by cl. 2.1 Annexure O; and its right of occupation is for a term (i.e. it is not temporary); and is not revocable (SOPA can only terminate the lease by notice or re-entry if AAD does not comply with an essential term of the lease, or does not comply with an obligation and non compliance is not remedied or is irremediable cl.7.5 Annexure O). Further, AAD is not under general supervision by the land owner, as may be the case in other building contracts. I am not really assisted by Hudson's Building and Engineering Contracts here because of the nature of the contractual arrangement. The position may well be different in other circumstances.
So a determination of this point as submitted by the applicant seems to be a matter of first impression. In my view the applicant has failed to convince the Tribunal that the lease is either not a lease because it is referrable to the "other relationship", or is merely incidental to the wider arrangement between the parties. The connection with the "other relationship" is clear but, in my view, in the circumstances that connection is insufficiently closely referrable to the other relationship. By 'circumstances' I mean the method by which the Construction Lease was dealt with in the PDA by these particular commercially astute parties; the clarity and substance of its terms; the execution of a form of lease and its registration on title all combine to impress me as a deliberate choice by the parties to have a true lease arrangement as a foundation for the PDA.
I have considered (somewhat anxiously) whether the nominal rent payable under the lease if demanded, and the provisions for payment of the premium by AAD to SOPA being located in a different part of the PDA from cl 11.4 dealing with the Construction Lease (in clause 2- some of which was redacted due to commercial confidentiality) should make a difference to my view. I do note that in addition to payment of the rent and the premium, that AAD is contractually obliged under cl 2 of the PDA to meet all outgoings, charges, levies, and developer contributions in relation to the Land. In the end I have reached the conclusion that the lease is a lease as ordinarily understood and that renders the applicant a "lessee" of land for the purposes of s 21C LTMA.
[9]
Is Land Owned By SOPA Owned By The Crown?
As to the applicant's second argument- that the Land was not owned by the Crown for the purposes of s21C(2) LTMA, the applicant says that the definition of "Crown" in s3(1) LTMA (which states that "Crown" includes a body representing the Crown) does not mean land owned by SOPA is owned by the Crown. It says that land cannot be both owned by the Crown and owned by SOPA. Section 6 of the SOP Act states specifically that SOPA is a statutory body representing the Crown. Furthermore s 13A of the Interpretation Act 1987 invests a statutory body representing the Crown with the status, privileges and immunities of the Crown.
The applicant placed reliance on the decision of the Court of Appeal in Williams v State Transport Authority of NSW [2004] NSWCA 179 at [59] where Mason P (with whom Sheller and Tobias JJA agreed) stated that a cognate provision in the Transport Administration Act 1988 (s20(2)(b)) did not deem the Crown to be the owner of land vested by statute in the corporate body.
In my view it is useful to look more closely at what the learned President said:
"56 First, it is submitted that STA is not "the Crown" for the purpose of this section.
57 In my view, this submission must be rejected in light of the clear terms of s20(2)(b) of the Transport Administration Act 1988 which states that STA "is, for the purposes of any Act, a statutory body representing the Crown".
58 The AJC submits that s178 [of the Conveyancing Act 1919] operates only in relation to land owned by the Crown, and that s20(2)(b) is inapt to pick up a provision like s178. Stronger language would have been required to achieve this result (cf Local Government Act 1919, s4 (definitions of "Crown", "Owner" and "Statutory body representing the Crown"). The AJC cited Wynyard Investments Pty Ltd v Commissioner for Railways (NSW) [1955] HCA 72; (1955) 93 CLR 376 at 382-3 where it is pointed out that the purpose of a provision stating that a body is to be regarded as agent or servant of the Crown is to endue it with the benefits, privileges and immunities of the Crown, including the so-called "shield of the Crown" when exercising statutory powers.
59 The AJC submitted, correctly, that a provision such as s20(2)(b) does not deem the Crown to be the owner of the land vested by statute in the corporate body (Galibal Pty Ltd v Chief Commissioner of Land Tax (1994) 96 ATC 4143, Chief Commissioner of State Revenue v Darling Harbour Authority (2000) 114 LGERA 97).
60 In my view, these submissions do not undercut the clear meaning of s20(2)(b) or preclude STA from taking the benefit of s178. Section 178 confers a certain statutory immunity upon "the Crown". Section 20(2)(b) ensures that STA shares in that statutory entitlement in circumstances where it would enure to the benefit of "the Crown".
61 The fact that the busway land is owned by the statutory corporation is neither here nor there on the present matter."
In my view Williams confirms that here SOPA is the Crown and has the benefits, privileges and immunities of the Crown. It also establishes that the clear meaning of s 3(1) LTMA definition of "Crown" includes SOPA. The cases referred to in par 59 of Williams (Galibal and Darling Harbour Authority) were decided before a definition of "Crown" was inserted into the LTMA. Section 21C(1) LTMA provides that the Crown is not liable in respect of land it owns (subject to some exceptions not presently relevant) and so SOPA would have the benefit of that provision. Section 21C(2) LTMA goes further to deem a lessee of land owned by the Crown to be the owner of the land for land tax purposes, and the Crown is not then considered to be owner
This seems to be a complete answer to the argument put forward by the applicant, but for completeness I note that the applicant further relied on McNamara v Consumer Trading and Tenancy Tribunal [2003] NSWSC 349, though I do not gain assistance from that case. Nor do I find assistance from Restaurants of the Rocks Pty Ltd v Chief Commissioner of State Revenue [2008] NSWADT 30 cited by the applicant as authority for a proposition that if a statutory authority considers that land tax would be payable by the lessee a specific provision to that effect would be disclosed to the lessee. Nor does the reference to the Second Reading speech of Mr Unsworth the then State Treasurer when s 21C was introduced in 1985 assist. It was said the section was designed to put commercial tenants, private owners and lessees from the Crown on a level playing field. Apart from questions about the use that should be made by courts and tribunals of Second Reading speeches, there is no ambiguity that needs to be resolved here. AAD in any case appears to be on a level playing field with other lessees from the Crown.
Under this leg of its submissions the applicant sought to distinguish the case of L and T (Sales) Pty Ltd v Chief Commissioner of State Revenue [2007] NSWSC 1061 on the basis that the arrangement there (lease by a Council to the taxpayer, with a shorter term licence back to Council) looked much more like a typical lease with a long term, a 'market' rent, and exclusive possession. I consider that the case supports the view I have taken that the arrangement here is a lease. Gzell J took particular account of reservations in the document to support his view that they presupposed there was exclusive possession (at pars 30-31). His Honour went on to discuss the use by the parties of certain words in the document, and a form of lease approved under the Real Property Act 1900 s53(1), saying:
"43 L & T argued that there was no definition of "lease", "leased" or "lessee" in the Land Tax Management Act 1956 and the provisions of the Real Property Act 1900 should not be imported into that legislation.
44 But the terms must be given some meaning and when the parties chose to record their transaction by an instrument that said that the Council as Lessor thereby leased to L & T as Lessee the land described, that instrument answered the meaning given to a lease under the general law. The provisions of the Real Property Act 1900 had the effect that upon registration of the dealing the estate or interest specified, passed to L & T.
45 There is no reason to give to the word "lessee" in the Land Tax Management Act 1956, s 21C(2) a meaning different from that achieved by operation of the Real Property Act 1900. Counsel was unable to point to any decision in which a lease registered under Torrens Title legislation has been held not to be a lease for other purposes….
53 When parties chose to use the approved form of lease under the Real Property Act 1900, s 53(1) and use the words of lease and cl 3.1 can be given a meaning consistent with the grant of a lease, they ought to be given that meaning and the provisions of the Real Property Act 1900 ought to apply….
55 The arrangements between the parties may have been structured differently. The Council might have granted L & T an agreement for a lease. But, in my view, it did not. The parties executed a lease and L & T granted a licence back to the Council. The Land Tax Management Act 1956, s 21C(2) operated with respect to the five tax years before L & T assigned the lease to Kavlyn. L & T in those years was deemed to be the owner of the land."
[10]
Is SOPA Liable To Land Tax?
The third argument advanced by the applicant is also answered by the analysis used in respect of the second argument. The gist of the third argument is that SOPA is the owner of the Land; it is not exempt from land tax as a State owned corporation (s 10(1)(m) LTMA) because it not one of the state entities specified in the regulations; it is not the Crown but is a body representing the Crown; and that it (SOPA) is therefore liable to land tax and the lessee AAD is not by operation of s21C(6)(e) LTMA which provides the section does not apply to a lease of land where the Crown is liable for land tax (which can happen if specifically provided by Part 3 - see s21C(1) LTMA). I am unable to accept this argument. It flies in the face of the plain words of s21C LTMA. I am unable to see how SOPA becomes liable to land tax so as to trigger s21C(6)(e) LTMA.
[11]
Orders
1. Pursuant to s101 of the Taxation Administration Act 1996, that the Assessments be confirmed.
[12]
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 11 July 2018
Parties
Applicant/Plaintiff:
Australia Avenue Developments Pty Ltd as trustee for the SOP Site 3 Partner Trust
Megarry & Wade state that there is an "infinite variety" of contracts that grant the use of land which are not leases [par 17-012]; and that no lease arises when a person who grants use of land retains 'general control' of the land [par 17-013]; and an occupier who has exclusive possession is not a lessee if the occupation is referrable to some other legal relationship like that of developer [par 17-015]. This could form the basis of possibly the strongest argument available to the applicant
The respondent placed reliance on the decision of Justice Croft in the recent Victorian case of Living & Leisure Australia Ltd v CSR [2017] VSC 675 (Living and Leisure) in which a very similar point to that in the present dispute arose, and was resolved against the taxpayer.
In that case the taxpayer and two subsidiaries were the lessees of ski fields on Crown land at Mount Hotham and Falls Creek. The leases were entered into by the Governor in Council. The taxpayer objected to land tax assessments on the basis that the arrangements were not leases as such. If it was correct it would not be subject to land tax. Although the arrangements were called leases they made substantial provision for supervision, control and entry by the Crown body governing the Victorian alpine snow country, and required the grant of entry to the public to the ski fields provided it did not interfere with the operation of the lessees.
His Honour Justice Croft discussed the distinction between leases and licences citing amongst other cases Radaich v Smith (1959) 101 CLR 209 and Lewis v Bell [1985] 1 NSWLR 731. Speaking of the test of exclusive possession His Honour noted that the courts have looked first at the nature of the rights which have been granted, and secondly at the intention of the parties. His Honour agreed with the taxpayer's submission that the existence and nature of rights of exclusive possession are not determined by the nomenclature which has been used in the relevant instrument; rather it is what the parties intention was as ascertained from objective consideration of the terms of a particular agreement and having regard to the surrounding circumstances to the extent permissible under ordinary rules of construction. (See par 13). His Honour did note, however, that it may be significant to consider what label is used in a private agreement particularly when drafted by lawyers. He also said that technical language may be relevant where the circumstances of the creation of the lease reveal that the parties are sophisticated (see pars 14 and 15).
It is interesting to note that the agreements in Living and Leisure did not expressly provide for exclusive possession or for quiet enjoyment (see pars 16 and 18) but His Honour noted that there was no magic in the use of such words.
His Honour after referring to the decisions of the High Court in Queensland v Congoo (2015) 256 CLR 539 and Western Australia v Brown (2014) 253 CLR 507 said at para 21
"while these cases set out the content of the unfettered grant of exclusive possession, their Honours clearly did not intend to say that a grant of exclusive possession which was subject to any reservation at all would necessarily fail".
And at para 22 His Honour said
"...a reservation can be seen as the manifestation of an intention that but for the reservation, the grantor would not have the rights which are conferred by the reservation, which may well, depending on the terms of the reservation, be indicative of a lease".
At para 26 His Honour discussed the High Court decision of Western Australia v Ward (2002) 213 CLR 1. In that case the majority of the High Court concluded that the pastoral leases granted under Western Australian legislation did not confer a right of exclusive possession and thus did not extinguish native title rights. His Honour considered that the situation under a statutory lease indistinct from its legislative genesis, differed from a lease given under a statutory power to grant a lease which is then governed by the terms of the lease agreement and the common law (see para 28).
His Honour then went on to discuss in some detail the various restrictions and reservations constraining the rights of the ski field lessees. His Honour noted that it was in the commercial interests of the lessees to have a lease because it prevented the government or any other statutory authority from building a competing ski lift and gave them broader power over the members of the public to ensure that they behaved correctly in the lease area. In all the circumstances His Honour came to the conclusion that the reservations must be regarded as sufficiently limited and to be compatible with a grant of exclusive possession. The significant powers of management and control retained by the Crown were regarded as inconsequential for the purposes of the case; and the rights of the public to have access to the land was also insufficient to derogate from the lessee's rights (see par 55). In effect there was the grant of exclusive possession (see par 59). His Honour quotes Lightwood, A Treatise on Possession of Land: with a Chapter on the Real Property Limitation Acts,1833 and 1874 (1894, Stevens and Sons Limited, 2017 reprint) 20 for the proposition that "the requirement of absence of interference on the part of strangers is not to be pushed to an unreasonable extent"…, and goes on to say:
"This passage serves to emphasise the position made clear in the authorities to which reference has been made that the question whether or not exclusive possession has been granted in any particular case depends on the nature of the subject matter with respect to which this question is raised.".[at par 32]
Further His Honour did not consider that the absence of a covenant for quiet enjoyment detracted from characterisation of the arrangement as a lease. His Honour also took into account the fact that the lease was granted by the Governor in Council pursuant to an express power to grant leases. He said at par 48:
"However, this is of little moment, given that it is obvious from the terms of the Agreements that the parties intended to create a "lease" and the present enquiry is directed to whether the Agreements as made did in fact grant a right of exclusive possession."
The respondent also relied on the authority of the High Court of Australia in the cases of Wik Peoples v State of Queensland (1996) 187 CLR 1 (Wik); Western Australia v Ward (2002) 213 CLR 1(Ward);and WA Government v Brown (2014) 253 CLR 507(Brown) as they related to determining the defining indicia of a lease.
In the Wik case the principal question was whether Queensland pastoral leases granted pursuant to statute had extinguished native title of the Aboriginal inhabitants of the lease area. The answer depended on whether leases conferred rights to exclusive possession of the leased areas. Four members of the High Court of Australia (Toohey, Gaudron ,Gummow and Kirby JJ) held that the pastoral leases had not conferred exclusive possession and thus had not extinguished native title. The decisions of Toohey J and Gaudron J were discussed in the hearing in some detail.
The applicant drew attention to the remarks of Toohey J in Wik where His Honour after referring to Radaich v Smith (1959) 101 CLR 209 said at page 116 "the point is not so much that a 'lease' confers exclusive possession; it is that the conferring of exclusive possession is an indication that the arrangement in question is a lease rather than, say, a licence". Toohey J went on to refer at page 117 to the decision of Mason J in Goldsworthy Mining Ltd v Federal Commissioner of Taxation (1973) 128 CLR 199 as an example of a case where a lease was held to exist even though there were significant reservations to the right of exclusive possession, and noted that the existence of the access rights assumed that otherwise the lessee had exclusive possession.
On page 118 Toohey J concluded :
"Certainly, the authorities point to exclusive possession as a normal incident of a lease. They do not exclude, however, an inquiry whether exclusive possession is in truth an incident of every arrangement which bears the title of lease.".
Gaudron J at page 152 and then later at pages153-154 stated:
"It is well settled that the question whether an instrument creates a lease or a license is a question of substance not one of language. It is also well settled that it is a question to be answered, at least in the first instance, by asking whether the instrument in question confers a right of exclusive possession. These principles of interpretation are equally applicable in the construction of a statute concerned with a particular type of holding not known, as such, to the common law, but devised to suit the peculiar conditions of the Australian colonies. Thus, the word "lease" and the expression "demise for a term of years" cannot, of themselves, provide a basis for holding that a pastoral lease under the 1910 Act conferred a leasehold estate, as understood by the common law and, thus, conferred a right of exclusive possession. Rather, the search must be for indications within the Act that it was intended that pastoral leases should confer that right…
Quite apart from the difficulties involved in approaching the provisions of the 1910 Act on the basis that the word "lease" and the expression "demise for a term of years", of themselves, indicate that pastoral leases were true leases in the traditional common law sense, there were provisions in the Act indicating that they were not. Certainly, there were indications that they did not confer a right of exclusive possession which, as already mentioned, is an essential feature of a lease at common law." (footnotes omitted, though they refer inter alia to Radaich v Smith and Goldsworthy Mining Ltd v FC of T)
While Justice Toohey referred to exclusive possession as a "normal incident" of a lease, and Justice Gaudron referred to exclusive possession as an "essential feature" of a lease at common law, neither of their Honours went into detail concerning the meaning of exclusive possession in the abstract. Both referred to Goldsworthy Mining, which is an example of a lease with reservations still bearing the character of a lease. Their Honours (Toohey J at page 122; and Gaudron J at page 154) looked at the features and reservations in the pastoral leases (including the reservation of the right for any authorised person to go onto the leased land at any time and for any purpose) which enabled them to conclude that the pastoral leases did not confer a right of exclusive possession.
In Ward the High Court similarly found in relation to the original Western Australian pastoral leases that they had not extinguished native title rights and said at par 186:
"In considering whether a lease confers the right of exclusive possession on the lessee the proper order of inquiry is first to examine what are the rights granted and only then to classify the grant. Here the rights granted were limited in the respects that have been noted. Especially were they limited in respect of the grantor of the interest. Under the early forms of lease, the Crown reserved to itself very extensive rights of entry - "for any purposes of public defence, safety, utility, convenience, or enjoyment, or for otherwise facilitating the improvement and settlement of our Colony". Under the Land Act 1933 , it retained power to sell, lease or otherwise dispose of any part of the lease at any time as well as power to reserve or dispose of any part of it for any of a number of purposes, including those described in the reservation of right of entry just mentioned as reserved under the earlier forms of lease. Pastoral leases granted under the early Land Regulations, the Land Act 1898 or the Land Act 1933 conferred no right of exclusive possession on the grantee. The reservation or provision in favour of Aboriginal access cannot, then, be seen as qualifying an otherwise general right to exclude. It follows that upon the happening of the contingency of enclosure or improvement contemplated by the reservation or provision, those who would enter or use the land as native title holders could continue to do so. Those who could no longer do so were those Aboriginal persons who, although within the terms of the reservation, were not native title holders….". (footnotes omitted).
Later in Ward the High Court held that mineral leases while providing exclusive possession for mining purposes, did not thereby extinguish all native title rights to the land (at pars 308-309).
In Brown the High Court found that mining leases at Mt Goldsworthy did not grant a right to exclude anyone from the land for any reason, and thus did not necessarily extinguish native title in the land subject to the mineral leases and were no different in effect than the leases at issue in Wik and Ward (at par 57).
The guidance I distil from the High Court and Victorian Supreme Court decisions is that it is necessary to examine all the relevant rights as between the parties to the arrangement to determine what, in substance, they intended. The words used by the parties do not necessarily determine the question of substance, although they might be relevant where the parties appear to be well advised commercial operators. It is a necessary feature of a lease for the lessee to have exclusive possession, but according to the circumstances, the carve out of reservations in a grant does not, of itself mean that the arrangement is not a lease. Indeed, the parties by specifically carving out reservations may be indicating their intention that the arrangement is a lease, and that certain exceptions to exclusive possession are agreed. It is the extent of those reservations, depending on the nature of the subject matter, which is to be considered in making an objective determination of the substance.
My conclusion in the present case is that this arrangement between the parties as commercial operators, on the face of it, having regard to the references to a Construction Lease in par 11.4 and Annexure O of the PDA; the provisions for (conditional) exclusive possession and quiet enjoyment in Annexure O; the entry into a Lease for a term in the form approved for purposes of the Real Property Act 1900; the registration of the Lease and notification on title of the lease as an encumbrance would be characterised as a lease.
Then having regard to the matters identified by the applicant as derogating from the prima facie right of exclusive possession provided by the documents, I am of the view that none of them, whether considered individually or collectively, is sufficiently material to render the lessee's right of exclusive possession effectively nugatory. I agree with the respondent's submissions that they are either not true reservations, or are part of what could ordinarily be expected to be found as part of the machinery for a joint venture between land owner and developer of that land. The powers reserved to SOPA in the PDA could not be said to amount to rights of intensive or detailed supervisory control of the Land. SOPA's rights under the PDA are quite limited. Rights of entry are governed by the PDA (cl 13 Annexure O). There is a right to enter upon notice to inspect and test materials. There is a right to enter to rectify incomplete or inadequate work. There is a right to enter when there has been an Event of Default. None of these materially detracts from the right of exclusive possession granted by the Construction Lease.
As to the taxpayer's submissions regarding the right of quiet enjoyment, in my view the same considerations as those outlined in the previous two para- graphs apply. The right of quiet enjoyment granted by the covenant in par 5 of Annexure O is not sufficiently materially impacted by any reservation to change the substance of the arrangement as a lease.