Real property - Torrens system - Caveats - Caveat not establishing interest claimed - Defective - Interlocutory injunction to restrain registration

1 ANDERSON J: This action was commenced by writ on 8 July 1999. No statement of claim has been delivered, but the endorsement on the writ claims against the first defendant a declaration that the first defendant does not hold an interest in the land in question as lessee and a declaration that the plaintiff is entitled to possession of the land. The claim against the second defendant, the Registrar of Titles, is for an injunction preventing the registration of caveat number H153296 (or an order for removal of that caveat if it has been registered) and an injunction preventing the registration of any caveat by the first defendant claiming an interest in the land as lessee.

2 On 13 July I heard the plaintiff's summons (a) for an interlocutory injunction restraining the first defendant from lodging the subject caveat and any other caveat in which the first defendant claims a caveatable interest as lessee and (b) an injunction against the Registrar restraining him from permitting the registration of the subject caveat or any caveat in which the first defendant claims an interest in the land as lessee.

3 For present purposes, the facts can be briefly stated. On 2 September 1993, the plaintiff became registered as the proprietor of 539 North Beach Road, Gwelup. The parcel is of some two hectares with a house. At that time, there was a business being conducted on the land and the plaintiff bought the business when it bought the land. The business was that of a soil supplier and the plaintiff almost immediately on-sold the business to the first defendant. As one would expect, this involved discussion between the parties as to the basis upon which the first defendant would have tenure for the purpose of conducting the business and there was a discussion about a tenancy or lease of the land. The discussion was between Mr Ioannidis, a director of the plaintiff, and Mr Pollock, on behalf of the first defendant. The parties are in dispute as to what, if anything, was finally agreed between them concerning the tenancy arrangements. On 17 September 1993, the first defendant wrote to the plaintiff a letter in the following terms:

This letter serves to confirm our agreement whereby Peat Resources of Australia Pty Ltd has purchased the business 'Landscape Liquidators' on the basis you have purchased it and for the sum of $40,000.000 ($30,000.00 Business and $10,000 Plant & Equipment).

The stock will be purchased for the figure (yet to be advised but approximately $30,000.000 to $40,000.00) once confirmation has been confirmed.

Payments for the above amounts will be $10,000.00 on signing of this 'Heads of Agreement' and a further $10,000.00 by 27th September 1993 with the balance to be paid in three equal instalments paid on the 30th of each month and the balance before the 31st December 1993.

Peat Resources of Australia Pty Ltd will also rent the entire property (excluding the house) at 539 North Beach Road for a period of two years with a further option of three years and thereafter a further five years.

It is agreed that the months of September and October to be free of rent and an annual rent of $20,000.00 to apply thereafter with CPI adjustments.

Peat agrees to enter into a formal lease once it is prepared by your solicitor.

If the above is also your understanding of the basis of the agreement would you please sign the attached copy and return it at your earliest convenience."

4 The letter was signed by Mr Pollock on behalf of the first defendant and there was a provision for the signature of Mr Ioannidis on behalf of the plaintiff, but the letter was not signed by Mr Ioannidis. Instead, the plaintiff's solicitors prepared a draft deed of lease running to 24 pages. This draft lease provided for an initial term of two years and two option periods, but each of two years only. It also contained a redevelopment clause entitling the plaintiff to terminate the lease on six months' notice that the plaintiff intended to develop the land. In the draft deed there were, of course, many more provisions governing the rights and obligations of the parties than were referred to in the letter.

5 It appears there was some discussion between the parties about the draft deed. In his affidavit, Mr Pollock contends that he spoke to Mr Ioannidis pointing out that the provisions of the deed departed from the agreement they had made and that Mr Ioannidis agreed that this was so and agreed to come up with a document which was in conformity with their agreement. In his affidavit, Mr Ioannidis avers that there never was an agreement as to the terms of the lease and that he agreed only to grant a lease on terms "drawn by my solicitor". He says that in his discussions with Mr Pollock he always made it clear that any lease would have to contain a redevelopment clause. According to Mr Ioannidis in no final agreement has ever been reached.

6 The first defendant has occupied the land since September 1993 (although apparently not the house) and has paid a form of rental, although not in cash. Apparently, the plaintiff operates a horticulture business and a practice developed whereby the plaintiff would acquire its soil requirements from the first defendant and the price of these purchases were offset against the rental due by the first defendant. For this purpose, the rental due by the first defendant was taken to be $20,000 per annum, the amount referred to in the letter.

7 On 10 December 1997, the plaintiff entered into a contract to sell the land for $915,000 to Australand Holdings Pty Ltd and on 29 April 1999 the plaintiff's solicitors gave notice to the first defendant that it was required to vacate the premises by 1 July 1999. The first defendant did not respond to that notice. However, in early July 1999, not long before settlement of the sale to Australand Holdings Pty Ltd, the plaintiff learned that the first defendant, by its solicitors, had lodged the caveat which is the subject of these proceedings; that is, caveat H153296. By this caveat, the first defendant makes a claim to an estate or interest in the whole of the land "as lessee in leasehold". The caveat is supported by a statutory declaration made by Mr Pollock in which he declares, inter alia, as follows:

"By letter dated 17 September 1993 addressed by the caveator to the registered proprietor it was agreed that the caveator would lease the land, the subject of the caveat, from the registered proprietor upon the terms and conditions contained in the letter ... "

8 Of course, the letter of 17 September 1993 is not an agreement. It is nothing more than a unilateral assertion by the first defendant as to the terms of an alleged antecedent oral agreement. Furthermore, as appears from the fourth paragraph of the letter, the letter does not purport to confirm a lease agreement in respect to the whole of the land, but a lease agreement in respect to the land "excluding the house". The letter does not therefore support a claim to a leasehold interest in the whole of the land. Furthermore, although the letter purports to confirm an agreement for a two-year lease with options of renewal, no commencement date is stipulated. Putting that difficulty to one side and taking the commencement date to be the date of the letter, the initial term would have expired on 16 September 1995. In the absence of material showing that the lease was, in fact, renewed pursuant to the options of renewal, the material does not support a leasehold interest beyond that date. The only reference to the exercise of option in the material lodged in support of the caveat is in par 6 of Mr Pollock's statutory declaration in which he says:

"6. I verily believe that the registered proprietor is estopped at law from denying the existence of a lease agreement which is to expire in the year 2003 pursuant to the options contained in the letter of 17 September 1993."

9 That statement involves a misconception. The misconception is that a lease containing options of renewal expires at the expiration of the last renewal period. This is not correct. Although the right of renewal is an incident of the lease and directly affects the nature of the term itself, the term expires unless the right of renewal is exercised; and if the right of renewal is exercised, a new lease or a new demise comes into existence. Gerraty v McGavin [1914] HCA 23; (1914) 18 CLR 152at p 163; Crown Street Pty Ltd v Hoare [1969] 1 NSWR 193 at 199; Mercantile Credits Ltd v Shell Co of Australia Ltd [1976] HCA 9; (1975-1976) 136 CLR 326 per Gibbs J at 344-345. There is no material put forward by the first defendant with the caveat to show that any option of renewal was exercised. On behalf of the first defendant, Mr Forbes submitted that an exercise of the option of renewal ought to be inferred from the evidence that the first defendant remained in occupation. I cannot accept this submission. That evidence proves no more than that there was a holding-over. Even if the terms of the agreement set out in the letter with respect to the options of renewal are interpreted most favourably to the first defendant, the first defendant would still be required to evince an intention to exercise the option, that is, unequivocally elect to bring a new demise into existence for the renewal period. I am not persuaded that a mere holding-over could be so construed. I do not see how a mere holding-over could bind the parties to a new lease as if there had been a definitive election to renew the lease.

10 In my opinion, therefore, the claim in the caveat to a leasehold estate in relation to the whole of the land is not supported by the material relied on. Putting that another way, the caveat and the statutory declaration do not establish the estate or interest claimed. The failure lies, at least, in the failure to disclose any material which would entitle the caveator to claim a leasehold interest beyond the initial term of two years or a leasehold interest in the whole of the land. The caveat is therefore defective and should not be received for registration. If it has been registered, it should be removed: Kerr: The Australian Land Titles (Torrens) System p 490; Deputy Commission of Taxation v Corwest Management Pty Ltd [1978] WAR 129 per Burt CJ at 131; Lindsay: Caveats Against Dealings in Australia and New Zealand 1995 Federation Press at 149.

11 Because there is no arguable case for the maintenance of this particular caveat, I would grant an injunction restraining the first defendant from proceeding with its application for registration of it, that is, of caveat H153296. I do not grant an injunction against the second defendant at this stage, because there was no appearance for the second defendant and I have not been referred to any material indicating that the second defendant has been served with the application.

12 The plaintiff seeks injunctions in much wider terms, as already noted. In effect, the plaintiff wants me to rule now that the first defendant has no arguable case for a caveatable interest in the land as lessee. That is really the only basis on which an interlocutory injunction could be granted in the wider terms sought. I am not prepared to do so. I think I must confine myself to the question whether this particular caveat can be maintained. The plaintiff's entitlement to relief in wider terms seems to me to involve difficult questions which have not been fully argued. They are questions such as whether the oral agreement spelled out in the first defendant's letter of 17 September 1993 is complete and sufficiently certain to amount to a lease or an agreement to grant a lease; whether, in the particular circumstances, an oral lease or an oral agreement to grant a lease did create a legal leasehold interest or, under the doctrine of Walsh v Lonsdale, an enforceable agreement for a lease entitling the first defendant to an order for specific performance; whether the options of renewal are sufficiently certain and so on.

13 As the plaintiff has been substantially successful in the application, I am inclined to the view that the plaintiff should have the costs of the application. If the defendants wish to attempt to persuade me to a different view, I will hear the parties. Otherwise, I invite the parties to agree on a minute which will give effect to this judgment.