LANDLORD AND TENANT – ASSIGNMENT, SEVERANCE AND SUBLEASE –
ASSIGNMENT OF LEASE – Where the lessee of a Crown Lease
used as a private
resort refused its consent to the assignment of a sub-lease due to the refusal
Source
Original judgment source is linked above.
Catchwords
LANDLORD AND TENANT – ASSIGNMENT, SEVERANCE AND SUBLEASE –ASSIGNMENT OF LEASE – Where the lessee of a Crown Leaseused as a privateresort refused its consent to the assignment of a sub-lease due to the refusalof the assignee to execute a deedproviding covenants not contained in theoriginal sub-lease – Whether the refusal to execute the deed meant thatthe assigneewas not “respectable” within the meaning of clause1(g).1 of the sub-lease – Whether the refusal to assign wasunreasonableunder s 121 of the Property Law Act 1974 (Qld)Ashworth Frazer Ltd v Gloucester City Council [2001] UKHL 59[2001] 1 WLR 2180[2002] 1 All ER 377Bickel v Duke of Westminster [1977] QB 517Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019[1982] 2All ER 890Colvin v Bowen (1958) 75 WN (NSW) 262Daventry Holdings Pty Ltd v Bacalakis Hotels Pty Ltd [1986] 1 Qd R
406
Haberect v Chapman (1993) ANZ Conv R 277
Houlder Bros & Co Ltd v Gibbs [1925] Ch 575
International Drilling Fluids Ltd v Louisville Investments (Uxbridge)
Ltd [1985] EWCA Civ 2
[1986] Ch 513
[1986] 1 All ER 321
[1986] 2 WLR 581
JA McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty
Ltd [1992] 2 Qd R 121
Mills v Cannon Brewery Company Ltd [1920] 2 Ch 38
St Hilliers (Developments) Pty Ltd v Radmanovich [2002] NSWSC 524
(2002) 11 BPR 20
(2003) NSW ConvR 56-030
Sargeant v Macepark (Whittlebury) Ltd [2004] 4 All ER 662
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty
Ltd [1979] HCA 51
(1979) 144 CLR 596
Tamsco Ltd v Franklins Ltd [2001] NSWSC 1205
(2001) 10 BPR
19,077
Treloar v Bigge (1874) LR 9 Ex 151
Building Act 1975 (Qld), s 21
Building Regulation 2006, s 8
Integrated Planning Act 1997 (Qld)
Property Law Act 1974 (Qld), s 121
Judgment (192 paragraphs)
[1]
LANDLORD AND TENANT - ASSIGNMENT, SEVERANCE AND SUBLEASE - ASSIGNMENT OF LEASE - Where the lessee of a Crown Lease used as a private resort refused its consent to the assignment of a sub-lease due to the refusal of the assignee to execute a deed providing covenants not contained in the original sub-lease - Whether the refusal to execute the deed meant that the assignee was not "respectable" within the meaning of clause 1(g).1 of the sub-lease - Whether the refusal to assign was unreasonable under s 121 of the Property Law Act1974 (Qld)
Mr P Morrison QC with Mr G Sheahan for the First Respondent
[21]
Mr D Fraser QC with Mr W Cochrane for the Second Respondent
[22]
[1] This case concerns the largest house on Hamilton Island. It was built for and from time to time occupied by George Harrison, the former Beatle, until his death in 2001. It has been vacant since and is still owned by the trustees of his estate, who are the applicants.
[23]
[2] They have contracted to sell the house to the second respondent, which I will call Northaust, for a price of $8,500,000. It is a company controlled by Mr George Adams, and he wishes to renovate and extend the house for the use of his family.
[24]
[3] The whole of Hamilton Island is the subject of a Perpetual Country Lease from the Crown to the first respondent, which I will call HIE. Houses, apartments and other buildings on Hamilton Island are held under sub-leases from HIE, or under sub sub-leases. This house is held by the applicants pursuant to a sub-lease granted in November 2007. It replaced the sub-lease granted to Mr Harrison in 1984 as a result of a small adjustment to the boundaries.
[25]
[4] The applicants have sought the consent of HIE to the assignment of the sublease. HIE has consented but upon conditions. It requires Northaust to execute a deed, covenanting to comply with HIE's so-called Building and Tree Preservation Guidelines and its published Rules and Regulations for behaviour on the island. Many of the proprietors of houses and apartments have given such covenants, and it is HIE's policy to require such a deed whenever its consent to an assignment is sought.
[26]
[5] Northaust has refused to execute the deed, and the applicants and Northaust contend that HIE has unreasonably refused its consent. By these proceedings the applicants seek a declaration to that effect and that they are now entitled to assign without HIE's consent.
[27]
[6] On 30 July 1984 HIE and Mr Harrison made a written agreement for sub-lease of what was then a parcel of vacant land sloping down to the sea at the northern end of the island, and having an area of 2.26 hectares. The agreement provided for the construction of a house upon the land by the sub-lessee. He was first to obtain HIE's approval to the plans and specifications, which HIE was not to withhold if satisfied if that the building would be "a substantial structure of a design appropriate to the island development", and that its cost would be at least a certain amount. It was further agreed that any dispute as to approval for the proposed house should be decided by an independent architect, acting as an arbitrator.
[28]
[7] The proposed sub-lease was attached to the agreement, and in substance, the
[29]
sub-lease was granted according to that document. It was granted on 12 September 1984, for a term commencing that day and expiring on 31 March 2078, with an option to the sublessee to renew for a further 99 years.
[30]
[8] The sub-lease provided that the land could be used only for the purpose of a single private residence, with a proviso that there could be a separate building to accommodate household staff.
[31]
[9] Clause 1(g).1 of the sub-lease was as follows:
[32]
"The Sub-Lessee hereby covenants and agrees with the Sub-Lessor:
[33]
(g).1 not to assign this Sub-Lease to any person or corporation whatever without first obtaining the written consents of both the Minister for Lands and the Sub-Lessor PROVIDED THAT the
[34]
Sub-Lessor's approval shall not be arbitrarily or capriciously withheld in the case of an assignment to a person or persons or corporation who is or are acceptable to the Minister for Lands and entitled to hold the sub-lease and who is or are financially sound and respectable (the onus of proving which shall be upon the Sub-Lessee) and who shall execute a Power of Attorney in the terms of Clause 7 hereof and a covenant to be prepared by the Sub-Lessor's Solicitors to be bound by the terms of this sub-lease as if he were the
[35]
Sub-Lessee herein named but no premium or fine shall be payable in respect of any such assignment." [emphasis in original]
[36]
[10] There was a further covenant by the sub-lessee not to sub-let or part with the possession of the land "except in the case of lettings for holiday purposes for periods not exceeding three months".[1]
[37]
[11] Clause 4 contained a number of covenants by HIE including this:
[38]
"4. The Sub-Lessor hereby covenants and agrees with the
[39]
(b) ...
(c) ...
(d) any permitted fixtures and fittings erected and supplied by the Sub-Lessee in the Building during the said term or during the term of any further
Sub-Lease granted in renewal thereof shall belong to and be removable from the Building by the
Sub-Lessee at any time during the continuance or at the expiration or sooner determination of the Term or of any further Sub-Lease granted in renewal thereof provided however that the Sub-Lessee shall make good all damage to the Building or any part thereof occasioned by any such removal."
[40]
The sub-lease did not define "the Building". HIE submits that this should be understood as the house built by Mr Harrison so that this covenant did not entitle him to demolish all or part of his house, but he was entitled to remove other things which he had affixed to it. That accords with the meaning of the expression in the Agreement for Lease, where it is defined. None of the arguments placed any significance on whether the sub-lessees may now demolish the house. This is probably because Northaust does not wish to demolish the house but wishes to renovate and extend it, and is concerned that it would be subject to the control of HIE in that work if it executed the deed. The sub-lease contains no covenant to repair the house, so that the sub-lessee could alter the house as long as the alterations did not amount to waste.[2]
[41]
[12] A slight adjustment to the boundaries of this land required a new sub-lease to be granted by HIE to the present applicants. Dated 29 November 2007, the sub-lease has the same expiry date, the same option to renew and in substance, the same covenants as the original sub-lease.
[42]
[13] This sub-lease contains a further covenant by HIE as follows:
[43]
"4. The Sub-Lessor hereby covenants and agrees with the
[44]
(e) The improvements on the Demised Land that are the property of the Sub-Lessee under [the Sub-Lease granted to Mr Harrison] immediately prior to this sub-lease remain the property of the Sub-Lessee. The Sub-Lessee's rights under Clause 4(d) of [that Sub-Lease] remain for the term of this Sub-Lease."
[45]
[14] So the position as to alterations to the improvements is the same as that under the original sub-lease. It contains an equivalent provision for assignment, which again is clause 1.1(g).
[46]
[15] The contract of sale was made on 11 January 2008. A few days later the applicants' solicitors wrote to the solicitor employed by HIE, requesting its consent to the assignment of the sub-lease. On 14 February, HIE's solicitor replied that "our consent to the above transfer is subject to the conditions of the sub-lease and the following [conditions]". The first of those was that there be executed a deed in the form which was enclosed. The parties to that deed were to be HIE, the applicants and Northaust.
[47]
[16] By cl 3 of that deed HIE would consent to the assignment. By cl 4 Northaust would covenant with HIE to perform and observe the terms, covenants and conditions contained in or implied by the sub-lease as if named in the sub-lease as the sub-lessee, and it would further covenant to:
[48]
"(i) Comply with Hamilton Island's Building and Siting Guidelines for any works undertaken on the premises;
[49]
(iv) Ensure that any Installation of services that includes but is not limited to garbage and green waste is in accordance with the Hamilton Islands Building and Siting Guidelines;
[50]
(v) Ensure that any installation of an appropriate sewer pump station including the application to the Whitsunday Shire Council is in accordance with the Hamilton Islands Building and Siting Guidelines and the Plumbing and Drainage Act 2002 and further to this, any existing septic system is removed from the sub-leased land;
[51]
(viii) Replace external fencing in accordance with the Hamilton Islands Building and Siting Guidelines. Fencing to be replaced includes, fences that are not on the boundary lines as per the survey and fences that are no longer operable. For clarity purposes the subleased land is to be fenced in its entirety as per the survey; and
[52]
(ix) Comply with Hamilton Island's Building and Siting Guidelines and Tree Preservation Policy for any clearing of trees on the sub-leased land."
[53]
On 22 February, HIE's solicitor sent a further deed, which relevantly amended
[54]
the proposed covenant in cl 4(ix) to add that Northaust was to comply with "Hamilton Island Rules and Regulations".
[55]
[17] On the same day, the applicants' solicitors asked to be informed of what constituted the Hamilton Island Rules and Regulations (which I will call "the Rules"), and the Hamilton Island Building and Siting Guidelines (which I will call "the Building Guidelines"), as they were not referred to in the sub-lease. He also asked for an explanation as to how these requirements represented reasonable conditions for the granting of consent.
[56]
[18] On 26 February, HIE's solicitor sent copies of the Rules and the Building Guidelines to the applicants' solicitor and wrote:
[57]
"This sublease is in a very old format and when leases of this nature are assigned, which is only a very few, HIE feel that it is opportune to insert the standard covenants upon time of assignment...
[58]
As all sublessees universally abide by these documents which are in place for the betterment of Hamilton Island, we believe that they are perfectly reasonable conditions for this assignment and confirm that there will be no exceptions made."
[59]
[19] On 3 March, HIE's solicitor again wrote that consent would be given only on the terms set out in the deed, adding that "the Board [of HIE] will not vary from this approach." On 10 March, he wrote to the solicitors acting for Northaust, saying that consent would not be provided until the deed was executed. HIE also objected to building work which Northaust was then undertaking, or proposing to undertake, upon the land, on the basis that this should not occur until HIE had consented to the assignment and had given its approval for any works. There was no complaint that Northaust or Mr Adams had performed building work without any necessary statutory approval, a matter now raised by HIE and to which I will return.
[60]
[20] On 31 March, the applicants' solicitors sent to HIE's solicitor an amended form of the proposed deed, advising that the applicants and Northaust would execute it. In this draft, many of the covenants were deleted, including each of those set out above, so that Northaust would simply covenant to observe the present terms of the sub-lease.
[61]
[21] On 10 April, HIE's solicitor wrote to reject that amended deed and added this:
[62]
"The Board of HIE has considered the matter closely and will not abdicate its responsibilities to act in the public interest for the benefit of all stakeholders. In so doing, the Board considers that it is acting fairly, reasonably and responsibly and not for any ulterior purpose and is thus fully within its rights to withhold consent. Furthermore, the Board is concerned that Northaust's refusal to accept a Deed of Consent in the terms proposed, indicates a possible refusal by Northaust to abide by some or all of the Island's Rules and Regulations to the possible future detriment of the interest and enjoyment of other stakeholders on the Island, without HIE being in a position to remedy such a situation.
[63]
If Northaust persists with its refusal to accept such a Deed of Consent, HIE reserves the right to refuse to approve the assignment on the further grounds that Northaust is not 'respectable'. This word is defined to mean, inter alia, 'of fair social standing' and any person who deliberately refuses to abide by the rules which govern the conduct of the rest of the community, cannot be so regarded."
[64]
[22] In essence, the applicants and Northaust contend that HIE has arbitrarily or capriciously[3] , and unreasonably[4] withheld its consent by insisting upon a covenant whereby Northaust would be bound to do anything more than is now required of the sub-lessee according to the sub-lease. HIE continues to insist that Northaust should covenant to comply with the Rules and, the Building Guidelines and its Tree Preservation Policy, to which I now turn.
[65]
[23] Because all of Hamilton Island has been leased by the Crown to HIE, there is no public space such as public roads. And subject to HIE's obligations to its sub-lessees and others with whom it has contracted, HIE has possession of the island and is able to impose the terms upon which anyone may come to the island or remain there. A further consideration, according to the evidence for HIE, is that the island, which houses thousands of people, has no police station. No doubt from a concern to maintain a standard of behaviour on the island which is likely to promote its attraction to residents, visitors and investors, HIE has seen fit to formulate and publish the Rules and most sub-lessees have covenanted to comply with them.
[66]
[24] HIE tendered affidavits from some residents of the island, including some who carry on business there, to the effect that they welcome the imposition and application of the Rules. I accept that many sub-lessees would share that view. But given the content of the Rules, it is unlikely that this would be a universal view. Many of the Rules, such as those prohibiting littering or the use of illegal drugs, would be uncontroversial. But there are other terms which are difficult to reconcile with the rights of a sub-lessee.
[67]
[25] Clause 1.3, under the heading "Effect of Rules and Regulations", provides:
[68]
"Without limiting HIE's rights, these Regulations outline the basis upon which persons may visit and remain on the Island. HIE may remove any persons who breach these Rules and Regulations, and not allow them to return to the Island. HIE reserves its right to seek recompense and other action applicable for breaches of these rules and regulations."
[69]
[26] Under the heading "Authorisation and Enforcement", there are clauses including the following:
[70]
If a person breaches these Regulations, HIE may direct that the person leave the Island, and in the case of refusal to leave, may remove the person using such force as is reasonably necessary.
[71]
The right to reside on Hamilton Island is a privilege granted by HIE as it sees fit and can be rescinded for whatsoever reason it sees fit.
[72]
As Hamilton Island is private property, HIE reserves the right to refuse admission on to the Island to any person at any time for any reason and for any duration it sees fit.
[73]
A person must pay HIE for any damage caused by his or her breach of the Regulations. A person must also pay HIE for the cost of transport from the Island, if the person is forcibly removed.
[74]
If a person has been directed by HIE or the COO [HIE's Chief Operating Officer] to leave the Island, that person is no longer permitted to move about the Island except for the purposes of leaving the Island. A person who has been directed to leave the Island must, if directed by HIE or the COO, wait for transport off the Island in the Island Security area or other designated area."
[75]
[27] On their face, these provisions purport to give HIE the right to exclude any person, including a sub-lessee. Counsel for HIE submitted that the Rules could not have that operation and that they would have to be read subject to the provisions of a
[76]
sub-lease. But then there is the position of a person who is not a sub-lessee, but who is on the island at a sub-lessee's invitation. At one point at least, counsel seemed to say that such a person could be excluded under the Rules. Then there is the case of a sub-lessee which is a corporation, as is proposed here. In that case, which natural persons would be immune from the Rules which permit exclusion from the island, and according to what level of association with the company which is a sub-lessee would they be immune? Perhaps HIE did not intend these Rules to apply to sub-lessees or their invitees, but if so, the Rules do not express that intention. There are many other provisions within the Rules which are expressed to apply only to employees of HIE, yet the Rules I have extracted are expressed in general terms.
[77]
[28] Then there is cl 10, by which HIE reserves the right to amend the Rules from time to time. So Northaust was being asked to covenant to comply not only with the Rules, but any others which HIE or its successor might think fit to impose.
[78]
[29] The Rules have extensive provisions to regulate the use of motor vehicles on the island. They provide for "traffic infringement penalties" and for a system of demerit points by which the right to drive could be suspended or permanently cancelled "by HIE security and HIE management". This appears to be inconsistent with cl 1.1(d) of the Sub-lease, which provides that the sub-lessee is:
[79]
"not to use or permit the use of any motor vehicle on the Demised Land or on any other part of the land comprised in the said Perpetual Country Lease without the previous written consent of the Sub-Lessor PROVIDED that the Sub-Lessee may without the consent of the Sub-Lessee have normal road use of such small motor vehicles the nature of which the Sub-Lessor may from time to time approve." [emphasis in original]
[80]
(Where the word "sub-lessee" appears for the second time in that proviso it is clearly an intended reference to the sub-lessor.)
[81]
[30] The Building Guidelines are again a set of rules formulated and published by HIE and the subject of agreement by many sub-lessees. The expressed purposes of the guidelines are as follows:
[82]
(i) These guidelines are intended to provide appropriate development controls and design criteria to assist Sub-lessees, architects and designers, builders and owner operators in achieving a high quality building development while minimising negative environmental impact on the natural environment.
[83]
(ii) The guidelines are intended to ensure that all new development and renovations respects the existing natural qualities of each site and the Island from the fringing reef to visually prominent ridges and hillsides aimed at maintaining a balance between environmental constraints, aesthetic qualities and development practices.
[84]
(iii) The guidelines aim to ensure that the spectacular views and vistas of the surrounding waterways and islands remain unobstructed from most existing roads and tourist lookouts around the island, while views to the Island from the surrounding waterways maintain a high scenic quality within the Whitsunday Islands environment and Great Barrier Reef World Heritage area."
[85]
[31] Clause 1.4 would require that any building plans must be approved by the so-called HIE Design Review Service and that HIE would submit the appropriate applications to "Whitsunday Council and/or private certifier on behalf of the proponent for all approvals including Building Plan Approval."
[86]
[32] Hamilton Island is governed by the Whitsunday Regional Council. Its planning laws apply to the island and the current planning scheme came into force in 2000 as a transitional planning scheme because its preparation had commenced prior to the Integrated Planning Act 1997 (Qld). There is a draft of a new planning scheme which has progressed past the stage of public notification. Both under the transitional scheme and the proposed scheme, the development of this land, for example by the construction or extension of a house, would be subject to the scheme. In broad terms the requirements of the draft scheme would be more demanding than those of the transitional scheme. But the Building Guidelines would impose some requirements not contained within either the transitional scheme or the draft scheme. Mr Vann, a town planner, gave evidence mainly by his report, which extensively compared the respective requirements of the Council's schemes and the Building Guidelines. In his opinion:
[87]
"The range of controls in the HIE documents are appropriate and reasonable from a town planning perspective to ensure that this visual character and environmental values [of Hamilton Island] are protected into the future [and] specific, more detailed controls on such matters as [for example] fencing, colours, building design, protection, and sensitive development on sloping and vegetated land make a significant contribution to the relationship between development and its setting and are necessary to ensure the types of outcomes the HIE documents seek."
[88]
"In any event, there are certainly intentions within both planning schemes to address the types of issues which the HIE documents are designed to address; and the most recently advised proposed amendments to the draft IPA scheme reflect the logic expressed above, in that they seek to incorporate into the final version of the IPA planning scheme both requirements drawn from the HIE documents and the need to refer to those documents in the assessment of development proposals at Hamilton Island."
[89]
[33] Mr Vann's evidence was not seriously challenged and I accept it. It is unnecessary to detail the respects in which the Building Guidelines would impose requirements which go further than those under the present or proposed planning schemes. Clearly in some respects the guidelines are more demanding, but they appear to be related to their expressed purposes, and in that way could be described, as Mr Vann described them, as reasonable from a town planning perspective. Undoubtedly HIE has reached the considered view that the built and unbuilt environment of Hamilton Island would be enhanced by the operation and enforcement of its Building Guidelines.
[90]
[34] Clause 7.2 of the guidelines provides for the Design Review Service, as a committee comprising three representatives of HIE, an architect and a landscape architect nominated by HIE and such other persons as the committee nominates from time to time "to assist with its functions". The guidelines would require any proposed development to have the approval of the Design Review Service and they make detailed provision for a process by which plans and other information is to be provided for that committee's consideration. There is further provision for the supervision of construction by the Service. Clause 7.5 provides that HIE may dispense with or modify any of the guidelines if it considers that to be justified in a particular case.
[91]
[35] Clause 7.6 would require any maintenance of existing buildings to be in accordance with the guidelines.
[92]
[36] Under this regime then, HIE would have extensive control of any further building on this land or of regular maintenance of the present house such as repainting. Yet the guidelines make no provision for dispute resolution in this process and in particular for some independent person to review a decision of the Design Review Service not to dispense with or modify the guidelines in a particular case. From the
[93]
sub-lessee's perspective, the operation of the Building Guidelines could significantly affect the use of the land by disallowing what is not precluded by the sub-lease, by the Council's planning scheme or any other law. That potential effect of the guidelines is no doubt a substantial explanation for Northaust's refusal to be bound by them.
[94]
[37] This provides for HIE to control the pruning and removal of trees on the island largely by what the policy describes as a Tree Preservation Order. It provides for the imposition of bonds on developers to ensure that trees are protected. It also provides for tree planting to be carried out by HIE, not only for the foreshore and the "gateways of Hamilton Island", but also to "enhance the local character of distinct areas by introducing a precinct planning approach". This is not expressly limited to areas which are not sub-leased by HIE, although that might be implied. The policy provides for HIE to recover the cost of the replacement or restoration of a removed or damaged tree or the planting or re-planting of a replacement, in the event of removal or damage contrary to the guidelines.
[95]
[38] It provides that "HIE will provide opportunities for appeals and
[96]
re-inspections of tree removal proposals to ensure validity of decision making" and it proposes that a "TPO appeals procedure" will be prepared, although apparently this has not yet occurred. It provides that HIE has the right to amend the policy from time to time as it sees fit.
[97]
[39] Again, the policy is reasonable from a planning perspective, but the sub-lessee's agreement to be bound by this document, and any amendment to it made by HIE, could substantially affect the use which it could make of the land.
[98]
[40] The principal argument for HIE is that its withholding of consent, absent the execution of its proposed deed, is reasonable and not arbitrary and capricious. Before going to that question, it is convenient to discuss its alternative case which is that Northaust is not "respectable" in the sense of cl 1.1(g) of the sub-lease. As noted already, that is in the terms of the equivalent clause in the original sub-lease which is set out above at [9], and provides that HIE's approval is not to be arbitrarily or capriciously withheld in the case of a person or corporation who is acceptable to the Minster for Lands and entitled to hold the sub-lease and who is financially sound and respectable. Northaust has satisfied those requirements save that HIE pleads upon certain grounds that Northaust is not respectable.
[99]
[41] According to cl 1.1(g), there can be a complaint of the withholding of approval as arbitrary or capricious only if the proposed assignee is respectable. So considering only that clause, without the impact of s 121(1) of the Property Law Act 1974, what would be considered in this respect is simply the behaviour of the assignee,[5] rather than why the consent was withheld. In this case, although HIE pleads that Northaust is not respectable, it has not led evidence that it withheld its consent because it believes Northaust not to be respectable. Instead, its attitude has been, and remains, that consent will be given if Northaust executes the proposed deed.
[100]
[42] The question of whether HIE's withholding of consent has been arbitrary or capricious, or (if it be different) unreasonable, requires the ascertainment of HIE's actual reasons.[6] In its solicitor's correspondence, HIE suggested that Northaust was not respectable, but only because it has refused to be bound by the Rules, the Building Guidelines and the Tree Policy. That correspondence made no complaint of another basis upon which HIE now pleads that Northaust is not respectable, which arises from building work Mr Adams caused to be performed on this house in the few months following the contract of sale. Nor has HIE led evidence that, upon what is now known of that matter, it has influenced HIE's attitude to the assignment.
[101]
[43] But as I have said, when considered alone, cl 1.1(g) would have the result that a lack of respectability would disqualify Northaust from being a permitted assignee, although this was not a reason for the withholding of consent.
[102]
[44] The effect of cl 1.1(g) is qualified by s 121(1) of the Property Law Act which relevantly provides that:
[103]
"121 Provisions as to covenants not to assign etc. without licence or consent
[104]
(1) In all leases whether made before or after the commencement of this Act, containing a covenant, condition, or agreement against assigning, underletting, charging or parting with the possession of premises leased or any part of the premises, without licence or consent, such covenant, condition, or agreement shall -
[105]
(a) despite any express provision to the contrary, be deemed to be subject -
[106]
(i) to a proviso to the effect that the licence or consent is not to be unreasonably withheld, but this proviso does not preclude the right of the lessor to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with the licence or consent."
[107]
[45] The effect of s 121(1) is to entitle the lessee to assign without consent unless the withholding of consent has been reasonable. The respectability or otherwise of the assignee could be relevant to the question of reasonableness (if it did influence the lessor), but it is not an essential qualification for a valid assignment[7] as it would have been without the effect of s 121(1) on cl 1.1(g). It follows that this question of respectability, although pleaded, is ultimately irrelevant. But in case I am wrong about that, I will discuss the facts which are pleaded by HIE in that respect.
[108]
[46] The contract of sale has not yet settled, but Mr Adams was allowed into possession by a written licence agreement made between him and the applicants, immediately after the making of the contract of sale. The sub-lease permits the sub-lessee to part with possession only in the case of a letting for holiday purposes and for a period not exceeding three months. By this licence agreement, Mr Adams was permitted to occupy the property for three months from 18 January 2008 and for the purpose of "holiday residential purposes". This was expressed to be a "non-exclusive licence ... for occupation by him and members of his family and their guests" until 17 April 2008 or settlement of the contract of sale, whichever first occurred. A licence fee of $4,000 per week, payable weekly in advance, was agreed. It was further provided that Mr Adams was to maintain the property at his cost and "keep it in good condition and state of repair".
[109]
[47] As it happened, no person lived in the house during the period of this licence. Mr and Mrs Adams were on the island, but living in their apartment. Mr Adams said that it was his intention to allow his daughters to stay in the house, but because the house became damaged by a storm in January, it became uninhabitable. However, the circumstances strongly indicate that it was never his intention to use the house for holiday purposes. Rather, it was his intention to use this period to perform some building works, as the first stage of his proposed renovation and extension of the house. Despite the provision for a weekly licence fee, he has paid nothing to the applicants. In evidence, he said that he believed that they had waived the fee, although he could point to nothing done by them in that respect. He spent about $30,000 on building work within this period. He claimed, and for Northaust it is argued, that this was done to comply with his obligation as a licencee to keep the house in "good condition and state of repair". However, the extent of the work goes far beyond what could be sensibly required of someone renting a house for a holiday. He undertook repairs for things which had long been defective, such as beginning work for the removal of timber damaged by termites. He had some trees felled and he changed the locks of the house. And from the commencement of this licence period, the house was unfurnished so that quite apart from the suggested storm damage, it was hardly fit for a holiday.
[110]
[48] I find that Mr Adams did not intend to use it for holiday purposes. HIE does not allege that the applicants knew that. Indeed there is correspondence on their behalf which complains of the work which was begun, but not finished, on various parts of the house and the state in which it was left at the end of the licence period.
[111]
[49] The fact that Mr Adams was prepared to use the house not for a holiday but for preliminary building works, and contrary to what he must have known was the permitted use under the sub-lease, does not reflect favourably upon him or Northaust. But that would have to be considered with everything else in assessing its respectability.
[112]
[50] The principal argument as to respectability is that, so it is alleged, some of this building work undertaken by Mr Adams or at his instruction was work for which a building work development permit was required but not obtained. HIE says that some of this work was not "self-assessable" for the purposes of s 21 of the Building Act 1974 (Qld). This argument involves questions of mixed fact and law, the law being the proper interpretation of s 8 of the Building Regulation 2006 (Qld).
[113]
[51] Section 8 prescribes certain building work as exempt from the requirement for a permit if it is for or affects only "a minor structural component of the building" (and if certain other conditions are met). Relevantly here, s 8(3)(b) provides that a structural component is minor only if "were it not present in the building, the building's general safety and structural integrity would not be at risk". Amongst the work performed at Mr Adams' request, was the repair of a certain wall, from which the builder removed the sheeting and several of the studs. That wall is a load bearing wall, so HIE says that it is a structural component but not a minor structural component, so that the repairs to that wall required a permit. In response, Northaust argues that the relevant component was not the wall, but each stud, and that it was a minor component because the absence of an individual stud would not put the building at risk. There was another argument apparently to the effect that the wall was not critical because at the time that this work was done, the ceilings which it had been supporting had been removed.
[114]
[52] Then there was an argument about the flooring, HIE's contention being that the floorboards in this house were a structural component because they would support someone standing upon them. Northaust's argument, which seems correct, was that they were not a structural component because they did not support any other part of the building.
[115]
[53] As these arguments were extensively developed, they became further remote from the question for which they were said to be relevant, which is the respectability of Northaust. Accepting for the moment that HIE's arguments are correct, and that the repair of this wall and the floorboards required a permit, there is no basis for a finding that Mr Adams deliberately flouted the building laws or that he caused the builder to do something which was unduly dangerous. He asked his builder to do certain things because of the appearance of water damage, and what seems to have occurred is that as some things were uncovered, other problems were discovered. There was no pre-determined plan to go into the house and perform work known to require a permit which he did not have.
[116]
[54] Accordingly, the suggested illegality of the building work does not provide a substantial basis for impugning the character of Mr Adams or the respectability of his company. Nor does Northaust's refusal to execute the deed provide such a basis. Its attitude in that respect does not indicate that Northaust or those who control it will misconduct themselves; rather it is that they do not wish to be bound to these various rules and regimes, especially when the content of them is able to be changed unilaterally by HIE.
[117]
[55] It is of some importance that Mr and Mrs Adams have been sub-lessees of various apartments on Hamilton Island since 1991, and HIE offers no suggestion of any misconduct during that period. In the light of that, the matters advanced by HIE against the respectability of Northaust are not persuasive. Accepting that the applicants would bear the onus in this respect, I am persuaded that Northaust is a respectable company in the required sense.
[118]
[56] In terms of cl 1.1(g) of the sub-lease the question would then be whether HIE's approval has been arbitrarily or capriciously withheld. In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd[8], Mason J said that the meaning of the word "arbitrarily", in the context of refusal of consent to an assignment of a lease, connotes "unreasonably" in the sense that what was done was done "without reasonable cause". He doubted "whether capriciously adds anything, except perhaps to direct attention to the motivation of the [lessor]".[9] In any case, as already discussed, cl 1.1(g) is now qualified by s 121(1), under which the question is whether HIE's withholding of consent is unreasonable.
[119]
[57] Section 121(1) has many equivalents in other jurisdictions and those provisions, and the criterion of reasonableness in this context have been the subject of many judgments and commentaries. It has been said that the law is different between England and Australia in this respect,[10] and that there are three different tests which can be discerned from the cases, although those tests are not mutually exclusive and often overlap.[11]
[120]
[58] However, on any view, it is necessary first to identify the reason or reasons for the lessor's withholding of consent, and it is then necessary to assess the connection, if any, between those reasons and the purpose for which the parties have agreed that an assignment should have the lessor's consent. The nature and extent of that connection was discussed by Walsh J in Colvin v Bowen[12] in this passage, which was approved by Mason J in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd:[13]
[121]
"According to the view thus preferred the grounds upon which a refusal may be based must be concerned either with the character and personality of the proposed assignee, or with matters affecting the use or occupation of the premises which may result from the proposed assignment. The somewhat less narrow view, to which reference is made by Sargant L.J. in Houlder's Case[1925] Ch 587, requires that the reason for refusal must be something affecting the subject matter of the contract which forms the relationship between the landlord and the tenant, and not something extraneous and dissociated from the subject matter of the contract.
[122]
It appears to me to be clear from the judgments in the cases mentioned that the principles contained in those cases would exclude from consideration, as a ground for refusal of consent, the circumstance that the lessor desires to resume possession of the property in order to occupy it. Despite the critical remarks and the expressions of doubt to which those principles were subjected in Tredegar v Harwood[1929] AC 72, at pp 78, 82, the authority of Houlder's Case has been affirmed subsequently, and it must be regarded by me as binding in cases to which the principles it contains are applicable."
[123]
[59] In Daventry Holdings Pty Ltd v Bacalakis Hotels Pty Ltd,[14] Thomas J said of the required connection that the refusal must be:
[124]
"based upon some quality or personality of the assignee or ... relevant to the future conduct of the lease, such as, for example, the use to which the premises will be put."[15]
[125]
[60] In Ashworth Frazer Ltd v Gloucester City Council,[16] Lord Bingham of Cornhill said that there were three overriding principles to be applied in deciding whether a landlord's withholding of consent to an assignment was reasonable. The first was concerned with this required connection between the landlord's reasons and the relevant subject matter. His Lordship said that the necessary nexus was expressed by Balcombe LJ in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd,[17] which is that:
[126]
"The landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease..."
[127]
Lord Bingham added that this was the same principle expressed by Sargant LJ in Houlder Bros & Co Ltd v Gibbs,[18] which was that:
[128]
"In a case of this kind the reason must be something affecting the subject matter of the contract which forms the relationship between the landlord and the tenant, and ... it must not be something wholly extraneous and completely dissociated from the subject matter of the contract."
[129]
[61] This requirement of a sufficient nexus is the basis for the proposition, often discussed in these cases, that the landlord must not withhold consent to obtain what is called a collateral advantage. In Woodfall,[19] it is said that:
[130]
"It would usually be unreasonable for the landlord to refuse consent to a transaction where his reason for doing so is to obtain a collateral or uncovenanted advantage, even though a reasonable person in his position might wish to secure the same advantage."
[131]
However, as Young CJ in Eq said in Tamsco Ltd v Franklins Limited,[20] the real principle must be identified and "there is, indeed, no independent rule that a collateral purpose necessarily makes the refusal of the consent unreasonable". His Honour referred to the judgment of Kearney J in the Supreme Court of New South Wales in Noyes v Klein[21] and that of Williams J in this Court in Chalcedony Investments Pty Ltd v Faroud No 9 Pty Ltd[22] as emphasising that the collateral purpose, to be unreasonable, must be "wholly unconnected with the terms of the lease".
[132]
[62] An example of where a landlord's reason lacked the required connection with the subject matter of the lease is Bromley Park Garden Estates Ltd v Moss,[23] where the landlord refused consent to the assignment of a lease of part of a building, because the landlord wished to obtain possession of the premises so that they could be let as one parcel with another part of the building. The landlord's concern was not at all with the apprehended use of the subject premises: its refusal was in order to regain possession and put an end to the lease, which Cumming-Bruce LJ described as "wholly extraneous to the intention of the parties to the contract when the covenant was granted and accepted".[24]
[133]
[63] Although this required connection has been expressed in different ways, it is established that a reason for withholding consent may be reasonable although it goes beyond an apprehension that the assignee would not observe the terms of the lease. In particular it may be reasonable for the landlord to consider the impact of the proposed assignment upon the landlord's proprietary or financial interest apart from his interest as the landlord under that lease. In Sargeant v Maispa Whittlebury Ltd,[25] Lewison J said:[26]
[134]
"In my judgment there is no rule of law which precludes the landlord from relying under any circumstances on perceived damage to his trading interests in adjoining or neighbouring property as a ground for refusing consent to an assignment or change of use. Whether the particular perception is reasonable and where, if reasonable, it justifies a refusal of consent or the imposition of a condition, is a question of fact in each case."
[135]
[64] A landlord may withhold consent on the basis of the use for which a proposed assignee intends to make of the premises, although that use is not forbidden by the terms of the lease or by any rule of law.[27] For example, in Tamsco Ltd v Franklins Ltd,[28] Young CJ in Eq held that the landlord was reasonable to consider the effect of the proposed assignee not being an "anchor tenant" upon "the good of the [landlord's] shopping centre and [its] tenants."[29]
[136]
[65] In the present case there is a sufficient connection with the subject matter of the lease. HIE's concern is largely with the potential for the demised premises to be used in a way which it regards as disadvantageous to its interests. In particular, it is concerned that the land could be built upon or cleared in ways which could detract from the enjoyment of other land of which HIE is either a landlord or is in possession. To some extent the same applies to HIE's concern to have the lessee bound by the Rules. That connection exists although the landlord's concern is with the impact of a use of the demised premises upon other property.
[137]
[66] But that, of course, is not the end of the matter. The reasonableness or otherwise of HIE's stance must be assessed. In International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd,[30] Balcombe LJ, with whom Mustill and Fox LJJ agreed, set out seven propositions to be applied in this context. The first two of them have already been discussed, because they involve the required nexus with the subject matter of the lease. The third is that the tenant bears the onus of proving that consent has been unreasonably withheld. The fourth is that it is unnecessary for the landlord to prove that the conclusions which led to the refusal were justified, if they were conclusions which might be reached reasonably in the circumstances. Fifthly, it may be reasonable for the landlord to refuse consent on the ground of the purpose for which the proposed assignee intends to use the premises, even though that purpose is not forbidden by the lease. The next proposition, which Balcombe LJ observed was the subject of a divergence of authority, was that there may be such a:
[138]
"disproportion between the benefit to the landlord and the detriment to the tenant if the landlord withholds his consent to an assignment that it is unreasonable for the landlord to refuse consent."
[139]
The last proposition is that, subject to the others:
[140]
"it is in each case a question of fact, depending upon all the circumstances, whether the landlord's consent to an assignment is being unreasonably withheld..."[31]
[141]
These propositions have been applied in Australia.[32]
[142]
[67] In Ashworth Frazer Ltd v Gloucester City Council,[33] Lord Bingham of Cornhill distilled those propositions to three overriding principles, the first of which has been discussed already. The second and third principles were as follows:[34]
[143]
"Secondly, in any case where the requirements of the first principle are met, the question whether the landlord's conduct was reasonable or unreasonable will be one of fact to be decided by the tribunal of fact. There are many reported cases. In some the landlord's withholding of consent has been held to be reasonable (as, for example, in Pimms Ltd v Tallow Chandlers Company [1964]
[144]
2 QB 547 and Bickel v Duke of Westminster[1977] QB 517), in others unreasonable (as, for example, in Bates v Donaldson[1896] 2 QB 241, Houlder Bros[1925] Ch 575 and International Drilling [1986] Ch 513). These cases are of illustrative value. But in each the decision rested on the facts of the particular case and care must be taken not to elevate a decision made on the facts of a particular case into a principle of law. The correct approach was very clearly laid down by Lord Denning MR in Bickel v Duke of Westminster[1977] QB 517, 524.
[145]
Thirdly, the landlord's obligation is to show that his conduct was reasonable, not that it was right or justifiable. As Danckwerts LJ held in Pimms Ltd v Tallow Chandlers company[1964] 2 QB 547, 64: "it is not necessary for the landlords to prove that the conclusions which led them to refuse consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances..." Subject always to the first principle outlined above, I would respectfully endorse the observation of Viscount Dunedin in Viscount Tredegar v Harwood[1929] AC 72, 78 that one "should read reasonableness in the general sense". There are few expressions more routinely used by British lawyers than "reasonable", and the expression should be given a broad, common sense meaning in this context as in others."
[146]
[68] In the passage in Bickel v Duke of Westminster to which his Lordship referred, Lord Denning MR said:[35]
[147]
"The words of the contract are perfectly clear English words: 'such licence shall not be unreasonably withheld.' When those words come to be applied in any particular case, I do not think the court can, or should, determine by strict rules the grounds on which a landlord may, or may not, reasonably refuse his consent. He is not limited by the contract to any particular grounds. Nor should the courts limit him. Not even under the guise of construing the words. The landlord has to exercise his judgment in all sorts of circumstances. It is impossible for him, or for the courts, to envisage them all. ... Seeing that the circumstances are infinitely various, it is impossible to formulate strict rules as to how a landlord should exercise his power of refusal. The utmost that the courts can do is to give guidance to those who have to consider the problem. As one decision follows another, people will get to know the likely result in any given set of circumstances. But no one decision will be a binding precedent as a strict rule of law. The reasons given by the judges are to be treated as propositions of good sense - in relation to the particular case - rather than propositions of law applicable to all cases. It is rather like the cases where a statute gives the court a discretion. It has always been held that this discretion is not to be fettered by strict rules: and that all that can be properly done is to indicate the chief considerations which help to arrive at a just conclusion: see Blunt v Blunt[1943] AC 517; Ward v James[1966] 1 QB 273."
[148]
[69] In JA McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd,[36] Kelly SPJ referred with apparent approval to that passage, and held that:
[149]
"landlords are entitled to consider the effect which transactions might have upon their ability in the future to let satisfactorily the different parts of their property."[37]
[150]
[70] HIE undoubtedly believes that its requirements are reasonable and are in the interest of all occupants, and in particular sub-lessees, on Hamilton Island. The Building Guidelines may not be much different from those which affect many developments, in which individual proprietors have covenanted not to build in certain ways or with certain materials or colours or finishes and so forth. The Tree Preservation Policy, considered outside the present context and from the wider perspective of the interests of those who live on or come to the island, appears to be a reasonable initiative. For the most part the Rules could be described as reasonable in the same way, in that a person in HIE's position having regard to its interests and those of the community upon Hamilton Island, might regard them as reasonable.
[151]
[71] Undoubtedly there are many sub-lessees who have agreed to be bound by the Rules and Guidelines or at least some of them. The parties are unable to agree on the precise number who have done so. HIE says that over 500 of 860 residences have sub-leases expressly incorporating the Rules and Guidelines and of the remaining 337 residences, 323 are apartments for which only the Building Guidelines applicable to apartments are incorporated. That leaves sub-leases of 14 lots, of which this is one, which have no terms requiring the sub-lessee to comply with the Rules and the Building Guidelines. There is evidence that Northaust is the only party who has so far refused to be bound in these terms as a condition of consent to an assignment. Those figures, however, do not determine the present issue.
[152]
[72] The applicants have property which is assignable, which is a
[153]
sub-lease presently subject to certain terms. In effect, the intention of HIE is that this property should not be assigned unless any assignee at the same time becomes bound by further terms. HIE seeks to obtain a more advantageous contractual position upon which, for whatever reason, it did not insist at the time of the grant. In Bromley Park Garden Estates Ltd v Moss, Dunn LJ said that:[38]
[154]
"...there is nothing in the cases to indicate that a landlord is entitled to refuse his consent in order to acquire a commercial benefit for himself by putting into effect proposals outside the contemplation of the lease under consideration, and to replace the contractual relations created by the lease by some alternative arrangements more advantageous to the landlord, even though this would be in accordance with good estate management."
[155]
[73] In Mills v Cannon Brewery Company Ltd,[39] PO Lawrence J said that a landlord was not entitled to insist upon the assignee's agreement to further terms which would change "the character" of the lease. HIE argues that the further terms it wishes to add would not have that effect. Nevertheless, these further terms are not simply matters of administration or process: they have the potential to substantially affect what is done with the land. The Building Guidelines and Tree Policy would impose obligations upon the sub-lessee which would require any building or further development to be only as HIE permitted. The present sub-lessees are not so restricted. The agreement for the sub-lease to Mr Harrison contained a term whereby HIE was to approve his house, although subject to an independent review by an architect. But that does not apply to an extension or replacement of this house or to other building or development work. At present the applicants are restricted only by the permitted use, which is for a single residence, and by the relevant statutes and planning laws. To subject the sub-lessee to that control by HIE is to introduce terms which are well outside the contract within this sub-lease. And the same applies to the Rules. As already discussed, they are in terms which would permit HIE to very seriously erode the sub-lessee's right of quiet enjoyment, by permitting HIE to refuse entry to persons or to have them removed from the island. It is no answer for HIE to say that the Rules would be read down so as to avoid that. HIE has required that an assignee agree to be bound in terms of the Rules, and moreover, any amendment of them. HIE has not required a covenant to comply with the Rules only to the extent that the sub-lessee's rights of quiet enjoyment would not be affected.
[156]
[74] No case was cited where a landlord was upheld in requiring the addition of further covenants as to the use which could be made of the demised premises, and in particular a covenant which allowed the landlord to control what was built upon the demised premises. It may be that in a particular case, a landlord would be reasonable in refusing consent except on such a condition.
[157]
[75] But in a case where the proposed new terms would or could affect the substance of the tenant's position, and where those new terms are not sought to be imposed for reasons personal to a particular assignee, the landlord's refusal to consent except upon those terms, would rarely be reasonable. In this case, HIE seeks to deprive this sub-lease of its assignability, by saying that whoever is to be the assignee, that person must agree to vary the terms, and with substantial effect for the enjoyment of the land. I am persuaded that HIE's refusal to consent except upon these terms is unreasonable. It follows that the applicants are entitled to assign the lease without HIE's consent.[40]
[158]
[76] There will be declarations that HIE's withholding of its consent to the assignment of the sub-lease by the applicants to the second respondent has been, and is unreasonable within the meaning of s 121(1) of the Property Law Act 1974, and that the applicants are now entitled to assign the sub-lease to the second respondent without the consent of HIE. I will hear the parties as to costs.
[159]
[2] Woodfall, Landlord and Tenant (2008) Thomson, London, at 11.254.
[27]Woodfall at 11.148 citing Premier Confectionary (London) Company Ltd v London Commercial Sale Rooms Ltd[1933] Ch 904; Wilson v Fynn[1948] 2 All ER 40; Creery v Summersell & Flowerdew & Co Ltd[1949] Ch 751; Packaging Centre Ltd v Poland Street Estate Ltd (1961) 178 EG 189; Coopers & Lybrand Ltd v William Schwartz Construction Co Ltd(1980) 116 DLR (3d) 450 and Moss Bros Group plc v CSC Properties Ltd[1999] EGCS 47; see also Bromley Park Garden Estates Ltd v Moss[1982] 1 WLR 1019 at 1030 per Cumming-Bruce LJ.