NATURE OF INTEREST OF EACH RETIREE
29 I turn to the nature of the interest of each retiree. In my view, each retiree had an equitable interest in the land by reason of the fact that each was entitled to specific performance of the Contract of Sale or Agreement for Sale of Real Estate or the Deed of Agreement to the possession of the property as a tenant immediately upon settlement. The extent of that interest is to be determined by the form in which specific performance would be granted by a court. The retirees were entitled as against MFLPH to an order requiring MFLPH to sign and deliver to the retirees upon settlement a lease of the property upon the terms agreed, relevantly for life, subject to the condition that the retiree stay in possession for a certain period and pay the nominal rent (see Downie v Lockwood [1965] VR 257; Craddock Bros v Hunt [1923] 2 Ch 136; Chan v Cresdon Pty Ltd (1989) 168 CLR 242; Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 332-333, [53]; Black v Garnock (2007) 230 CLR 438 at 449-450, [32]). It is not necessary that specific performance be available at the time of the hearing: Bunny Industries Ltd v FSW Enterprises Pty Ltd [1982] Qd R 712. It is important to appreciate that the availability and the nature of specific performance is a precondition to the recognition of an equitable interest and the extent of that equitable interest in the property. Here, as I have said, a court, by reference to the terms of agreement between the retirees and MFLPH, would give each retiree possession of the land upon settlement by making an order that MFLPH sign and deliver a lease of the property to each retiree effective from the moment of settlement.
30 In considering the nature of the interest of the retirees and of their possession of the property, Perpetual submitted that it was not aware of any case in which possession has been by the registered proprietor, the party with the ultimate interest. Rather, Perpetual argued, possession has been with a person other than the registered proprietor who specifically establishes an interest, usually as against the registered proprietor. For example:
· a purchaser in possession under a contract of sale (Robertson v Keith (1870) 1 VR (E) 11; Sandhurst Mutual Permanent Investment Building Society v Gissing (1889) 15 VLR 329);
· a lessee of the registered proprietor (Austin Construction Co (Australia) Ltd v Becketts Holdings Pty Ltd (1958) 75 WN (NSW) 444; Downie v Lockwood [1965] VR 257; Abbey National Building Society v Cann [1991] 1 AC 56; Barclays Bank plc v Zaroovabli [1997] 2 All ER 19), including a lessee with an option to purchase (McMahon v Swan [1924] VLR 397);
· a wife with an equitable life interest (Black v Poole (1895) 16 ALT 155);
· a beneficiary under the will of the registered proprietor (Burke v Dawes 59 CLR 1); and
· a party with an option for the creation of an easement granted by the registered proprietor (Barba 136 CLR 120).
31 Perpetual submitted that none of the interests claimed by the retirees created any antecedent interest separate from ownership, capable of creating any tenancy in the retirees which would bind Perpetual.
32 The fact that the retirees were registered proprietors of the properties at the time of entering into the agreement for lease or at the time of the grant of lease is irrelevant. The agreement for lease obliged MFLPH, when it had the ability to do so, to give to the retiree possession of the property upon settlement. In the case of Gainsford and Smith, a lease was in fact granted entitling them to possession on, and from, settlement. If not for such an agreement for lease or the grant of a lease, each retiree would need to vacate the property at settlement, and give possession to MFLPH. However, because of the agreement for lease upon settlement, each retiree would at least have been entitled to the order referred to above, giving to each retiree exclusive possession of the property.
33 From the moment of settlement the retirees remained thereafter in the property as tenants. Again, it does not matter that they also remained registered as proprietors, because they would otherwise have had no right to possession of the property after settlement, if not for the agreement for lease or the lease by MFLPH. MFLPH does not need to be the registered proprietor to effect a lease to the retirees - MFLPH was entitled to possession on settlement, and leased its right to possession to the retirees. There is nothing unusual in a person with a right to possession only of the land granting a right to exclusive possession of the land, as long as it is for a term less than that which the landlord has in the land. Of course, this would be subject to any superior title of a third person, but this is not the situation concerning us in this proceeding.
34 This is not a case where MFLPH, at the time of the actual grant of the lease, had no legal estate or interest in the land at the time of grant. At settlement MFLPH would have had a right to possession if not for the grant of the lease. This is not a case of needing to rely upon the principle of estoppel, each party being prevented from denying each other's title. As I have said, under the sale contracts, there was an obligation on MFLPH to give exclusive possession at settlement, and at settlement this was effected by the lease. At the time of settlement, MFLPH had the ability to perform the obligation to give exclusive possession as the person otherwise entitled to such possession.
35 A tenancy by estoppel arises most commonly on a fee simple conveyance, where the purchaser actually leases the property to a tenant before the purchaser acquires any interest in the land. In such a situation, if the landlord later acquires the necessary interest, usually the legal fee simple estate, the tenant will then automatically acquire a legal tenancy by question of law under the principle of 'feeding the estoppel'. In this proceeding the purchaser (MFLPH) agreed to enter into a lease at some time in the future (at settlement), and at settlement did actually grant the lease (other than to Easterbrook and Gray), that is, after MFLPH had acquired the possessory interest necessary for it to grant the lease.
36 In the case of Easterbrook and Gray, where no actual lease was entered into, the agreement to lease was enforceable in the way I have previously described. At the time of settlement and thereafter, MFLPH was able to lease the property to Easterbrook and Gray, MFLPH being entitled to possession of the property but for the agreement to lease.
37 I should mention that Perpetual argued that a person could not create a lease over an interest in land which it did not possess, and contended that MFLPH did not have the interest it purported to convey under the tenancy agreements. At best, it was contended, MFLPH could only create a tenancy by estoppel, which was 'fed' (giving legal effect to the tenancy) when MFLPH obtained the legal interest upon registration. It was contended that an equitable interest was inadequate to feed the estoppel.
38 If, contrary to my analysis and the tenancy by estoppel principles are applicable and relevant, then on the basis of the sequence of events I have found occurred, the estoppel would be fed prior to the grant of the mortgage. This is either because the mortgage was registered after the transfer of land, or because upon registration of the transfer of land, the title feeds the estoppel, so that the earlier grant of the lease operates retrospectively as if MFLPH had legal title (if that was required) at the time of the earlier grant of the lease or entry into the agreement for lease (see Hedley v Roberts (1977) VR 282 at 285 per Harris J (and the references mentioned therein)).
39 Perpetual also argued that the retirees were not tenants and that an owner cannot lease land to himself or herself relying on Rye v Rye [1962] AC 496. It was said that prior to registration of MFLPH as proprietor, the retirees were owners of the properties and occupied the properties in this capacity. It was said they could not have an interest in a lease in these circumstances.
40 In Rye v Rye, [1962] AC 496, the appellant and his brother carried on a partnership business, the profits of which were divisible between them in unequal shares. They had purchased in equal shares the premises used for the business and in order to reconcile their inequality as partners with their equal ownership of the premises they agreed orally to grant to the partnership a yearly tenancy of the premises at Ł500 per annum to be provided out of the partnership assets. The rent, which it was admitted was calculated from January, 1942, was payable on the usual quarter days and the first payment of rent was made and accepted on Lady Day, 1942. No time for the determination of the lease was agreed but, as the tenancy was an annual one, the law provided for its determination. After the brother's death in 1948, the respondent (his son) as an executor of his estate, became one of the owners of the premises. In 1950 the appellant took the respondent into partnership, but later the partnership was dissolved. After the determination of the partnership, the respondent continued to occupy a room on the first floor of the premises and carried on his own business from that room, although the appellant demanded possession of the room. The appellant brought an action claiming possession of the room on the basis that he was the surviving tenant under the yearly tenancy granted to the partnership in 1942 and was therefore entitled to exclusive possession of the premises as against the respondent.
41 It was held, inter alia, that the lease was invalid because it is not possible at law for a man to grant a lease to himself, nor several persons to grant a lease to themselves. Lord Simonds stated, at 505-506:
In Grey v Ellison ((1859), 1 Giff. 436, 444) Stuart V-C. describes as fanciful and a whimsical transaction the proposal that a man should grant a lease to himself. He had, no doubt, in mind that a lease is in one aspect contractual. Of things necessary to a lease, says Sheppard's Touchstone Of Common Assurances (see 7th ed, Vol II, p 268), one is that: "There must be acceptance, [actual or presumed,] of the thing demised." Yet it is meaningless to say that a man accepts from himself something which is already his own. I recognise that a lease not only has a contractual basis between lessor and lessee, but operates also to vest an estate in the lessee. But what sort of estate is in these circumstances vested in the lessee? I will assume that it will not at once merge in the higher estate from which it springs, though I see no reason why it should not. Yet it must be an estate hitherto unknown to the law. Even a bare demise implies certain covenants at law: but to such an estate as this no covenants can be effectively attached. Nor can the common law remedy of distress operate to enable the lessor to distrain on his own goods. Again, at law in the absence of some special provision the lessee is entitled to exclusive possession of the demised premises. What meaning is to be attributed to this where the lessee is also the lessor? My Lords, my mind recoils against an interpretation of the Act which leads to so fanciful and whimsical a result, and it appears to me to be quite unnecessary.
42 And per Lord Denning at 513-514:
This makes it necessary to determine the point of law: Is it possible for a person to grant a tenancy to himself? or for two persons to grant a tenancy to themselves? At common law it was clearly impossible. Nemo potest esse tenens et dominus. A person cannot be, at the same time, both landlord and tenant of the same premises: for as soon as the tenancy and the reversion are in the same hands, the tenancy is merged, that is, sunk or drowned, in the reversion; see Blackstone's Commentaries (1766 edition) vol II, p 177. Neither could a person at common law covenant with himself, nor could two persons with themselves. Neither could one person covenant with himself and others jointly. Such a covenant, said Pollock CB, is "senseless," see Faulkner v Lowe ((1848) 2 Ex. 595, 597).
…
My Lords, I have come to the clear opinion that even under the 1925 Act a person cannot grant a tenancy to himself: for the simple reason that every tenancy is based upon an agreement between two persons and contains covenants expressed or implied by the one person with the other. Now, if a man cannot agree with himself and cannot covenant with himself, I do not see how he can grant a tenancy to himself. Is the tenancy to be good and the covenants bad? I do not think so. The one transaction cannot be split up in that way. The tenancy must stand or fall with the agreement on which it is founded and with the covenants contained in it: and as they fall, so does the tenancy. And what about notice to quit? If A grants a tenancy to himself A, can he mutter a notice to quit to himself and expect the law to take any notice of it? Or, if A and B grant a yearly tenancy to themselves A and B, can there be a notice to quit unless both agree? Of course not. So that, instead of a yearly tenancy, it becomes a life-long tenancy determinable only by the agreement of both. Which is absurd. The truth is that they cannot grant a tenancy to themselves.
43 The case of Rye v Rye is, in my view, easily distinguishable from the present case if only because the agreements executed between MFLPH and the various retirees were agreements between two separate parties. Each of the parties still had separate and identifiable legal rights or interests under the arrangements entered into between the parties, and each was entitled to enforce its rights according to their terms. This is not a case of one person granting or purporting to grant a lease to himself or herself.
44 Accordingly, I do not consider that Rye v Rye has any application to this proceeding.