Cihan v Oncu

2054/04 MEHMET CIHAN as trustee of the Cihan Family Trust v RAVBUN ONCU JUDGMENT Outline 1 The question is whether a sub-lessee under a lease from a mesne lessor who has surrendered his head lease to his landlord is entitled as against the head lessor to exercise an option granted pursuant to the sub-lease for a further term of years. 2 By summons the registered proprietor of the freehold seeks a declaration that the option for renewal in the sub-lease is invalid and of no effect and the purported exercise of the option ineffective as it is not enforceable against the plaintiff. By amended cross-claim the sub-lessee seeks a declaration that he has exercised an option for renewal and seeks an order for specific performance of the covenant to grant a new lease. None of the other claims in the amended cross-claim was argued or pursued. Facts 3 The plaintiff, Mehmet Cihan (Cihan) is registered proprietor of the property 77-79 Liverpool Street Sydney, being the land in Folio Identifier E/23162. 4 Cihan purchased the property from Tovel Pty Limited (Tovel) pursuant to contract of sale dated 18 September 2002. On 18 April 1994, Tovel leased to Pinemaze Pty Ltd (Pinemaze) part of the property, being the ground floor shops and the first floor. The lease was for ten years terminating on 17 April 2004 and was registered number 2065747. This lease (the head lease) contained an option to renew for a further term of ten years. It contained a covenant not to assign or sub-let without consent such consent not to be unreasonably withheld. By deed executed in June 1999, Tovel granted to Pinemaze or its nominee, an option to purchase the subject premises and by agreement made on 18 July 2002, Pinemaze agreed to nominate Cihan as the person entitled to exercise the option to purchase. 5 Pinemaze was placed under administration on 30 April 2002. By sub-lease dated 27 July 2002 registered number 9068961F the administrator appointed to Pinemaze leased to the defendant cross-claimant, Mr Oncu (Oncu) part of the ground floor of the premises for a term of two years expiring on 16 April 2004, with an option for a further period of five years. Cihan had knowledge of the sub-lease when he purchased the property. 6 By notice dated 14 November 2002 the administrator of Pinemaze, pursuant to s443B(2) of the Corporations Act 2001 gave notice to Tovel that the company would cease to use and occupy the premises the subject of the head lease after 17 November 2002 and by surrender of 15 November 2002 the said administrator surrendered the head lease to Tovel. This form of surrender, which was in the form required under the Real Property Act 1900 has not been registered. It seems that it might not have been possible to register it after the registration of the transfer from Tovel to Cihan. Settlement of that sale was it seems completed on 15 November 2002, but none of this is of significance. The surrender was accepted by the head lessor. Oncu has paid rent to Cihan since November 2002 and Cihan has accepted the rent. No reliance was placed on the s443B notice. It could only have operated to protect the administrator against claims for rent. It did not bear on the liability of the company. It was not the same as a disclaimer by a liquidator. 7 On 19 January 2004, Cihan gave notice to Oncu requiring possession of the premises the subject of the sub-lease on 16 April 2004 and on 3 February 2004, Oncu purported to serve a notice of exercise of the option for a further term under the sub-lease. This has given rise to these proceedings as Cihan seeks possession. It is accepted that if the cross-claim fails then he will be entitled to possession. Relevant Legislation 8 Conveyancing Act 1919 s122: 122 When reversion on a lease is surrendered etc the next estate to be deemed the reversion When the reversion expectant on a lease of land made either before or after the commencement of this Act is surrendered or merges after the commencement of this Act, the estate which for the time being confers as against the tenant under the lease the next vested right to the land, shall, to the extent and for the purpose of preserving such incidents to, and obligations on, the reversion as, but for the surrender or merger thereof, would have subsisted, be deemed the reversion expectant on the lease. The Law 9 The main argument of Mr Street, SC for the plaintiff was that the sub-lessor had no power to grant a leasehold estate greater than in the head lease. This seems to me to be beside the point. The leasehold estate created by the sub-lease terminated on 16 April 2004. The head lease had it gone to expiry terminated on 17 April 2004. The surrender operated as a surrender of the reversion expectant upon the determination of the sub-lease. It did not put an end to the estate of the sub-lessee there being no privity between head lessor and sub-lessee: Doe d. Beadon v Pyke (1816) 5 M & S 1465; 105 ER 1005; Wilson v Jolly (1948) 48 SR(NSW) 460 at 464 (which cites a number of relevant cases). Section 122 of the Conveyancing Act entitled the head lessor, Cihan, to enforce against the sub-lessee the obligations of the sub-lessee under the sub-lease. That enabled Cihan to collect the rent. 10 The option for renewal under the sub-lease was not in itself ineffective. Had the head lease not been surrendered and had the head lessee exercised its option under the head lease, the option in the sub-lease could have been validly exercised: Conoid Pty Ltd v International Theme Park Ltd [2000] NSWCA 189 at [16]. The covenant in an agreement for renewal upon notice is one which binds the land. It was binding upon Cihan so far as the head lease was concerned. In fact it is even possible that had the head lessee remained in possession after expiry upon the terms of Clause 6 of the head lease, namely holding over from month to month, the head lessee could have granted to the sub-lessee a new lease for a term pursuant to the option although such lease would have come to an end on termination of the monthly tenancy under the head lease: Wilson v Jolly at 465. 11 It follows from this that it is not a question of power. What the defendant seeks is recognition of a right of renewal against the registered proprietor with whom he has no relationship other than that brought about by s122 of the Conveyancing Act. It is to be understood that s122 was enacted to enable head lessors to collect rent from sub-lessees under the leases the reversion in which had been surrendered. Without the section that was not possible, as there was no privity of contract or of estate between head lessor and sub-lessee. The estate of the sub-lessee remained without the obligation to pay rent. 12 It would be extraordinary if, as a result of surrender of a head lease, that head lessee could put a sub-lessee in a stronger position than he would have been had it not been for the surrender. I can see no basis on which, had there been no surrender, the sub-lessee could have asserted entitlement to a renewed lease for a term of five years unless the head lessee had exercised its option for a new term. No order could be made requiring the head lessee to exercise an option for a new term of ten years so that a new sub-lease of five years could be granted to the sub-lessee, unless of course there were a covenant in the sub-lease requiring the sub-lessor to exercise its option under the head lease if notice of exercise of option under the sub-lease were given. Assuming without deciding that the sub-lessor could have granted a new lease to the sub-lessee for a term of five years on the basis of a holding over clause in the head lease, even though the relevant sub-lease would commence on the last day of the head lease, this would have been terminated upon termination of the holding over. It follows that if the right of renewal were an obligation on the reversioner under the sub-lease and for that purpose the obligation rests on the registered proprietor by s122, then that obligation could be brought to an end immediately upon termination of the head lease period. That is what the owner, namely Cihan, has done by the notice requiring possession. I should add that I do not consider the assumption correct because I do not consider the power to grant a renewed sub-lease would exist unless a tenancy from month to month under the head lease came into existence. However, it is not necessary to decide this. It would lead to the same result. Section 122 does not bring into existence new rights against the head lessor. What it does is to preserve obligations on the reversion of the sub-lease and impose those ogligations on the head lessor. 13 The plaintiff is entitled to the declarations sought in paragraph 2 of the summons. As the original terms of the head lease and sub-lease have expired he is entitled to the order for possession. Orders 14 Declare that the purported exercise of the option for renewal in sub-lease 9068961 is not enforceable against the plaintiff. 15 Judgment for possession of the property ground floor shop 79 Liverpool Street, Sydney in favour of the plaintiff. 16 Cross-claim be dismissed. 17 Defendant/cross-claimant to pay plaintiff/cross-defendant's costs of the proceedings. 18 Exhibits may be returned. 19 Leave to issue warrant for possession forthwith. 20 Stay the order referred to paragraph 19 for fourteen days on terms that the defendant on or before 4.00 pm on 29 April 2004 pay security in the sum of $6,600.00 into the trust account of Andresakis & Associates. 21 Order that the order is without any admission on the part of the plaintiff that any claim it has for mesne profits is limited to the sum referred to in that order.

Note that the order for possession, although not claimed in the summons is made by consent of the defendant. **********

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