Manor House Group Pty Ltd v Owners Corporation Plan No 349506U

Manor House Group Pty Ltd v Owners Corporation Plan No 349506U - [2009] VCAT 2348 - VCAT 2009 case summary — Zoe

[19]

At the time that the lease was executed, Darling Street Developments Pty Ltd was the sole member of the body corporate, but, as stated in paragraph 6 above, clause 16 of the lease demonstrated that the parties to the lease had envisaged the sale of the lots and had stipulated that the purchasers of the lots would be entitled to the rent payable in accordance with their lot entitlements.
The responsibility, therefore, of determining how much each lot owner was entitled to out of the rent, and of seeing to it that each lot owner received the portion to which that lot owner was entitled, fell upon the Managing Agent, to whom that responsibility had been delegated. It did not fall upon the applicant tenant, whose responsibility was simply to pay a gross sum in respect of the whole of "the Building", and to pay it to the Managing Agent.
It is this feature of the 1996 lease - the obligation upon the tenant to pay only a gross sum as rent, not to pay portions of it to individual lot owners once the lots were sold - which to my mind is decisive on the issue of "single lease or multiple leases?". The respondents are asking the applicant to execute various leases which divide or fragment the gross sum and to pay a fragment as rent under each lease. By so doing, the respondents are attempting to throw onto the applicant burdens which, under the 1996 lease, it did not have: to satisfy itself that the amount of rent sought under the lease was the correct portion of the gross sum, to apportion the gross sum amongst the lot owners as rental payments, and to ensure that each lot owner was paid the proper amount when regard was had to that lot owner's lot entitlement. Under the 1996 lease, the Managing Agent bore these burdens. The attempted shifting of the burdens to the applicant flouts the scheme of management evident in the 1996 lease and means that the proposed multiple leases do not comply with the requirement, in clause 14.3 of the 1996 lease, that the "renewed Lease" be on the terms and conditions contained in the 1996 lease. The applicant is entitled to require the respondents to tender to it a single lease which, like the 1996 lease, provides for the payment of one rent, in gross, in respect of "the Building".
The respondents' primary submission against the "single lease" proposition was that that proposition offends the elementary principle that a person cannot make a grant of something which that person does not own or possess and therefore has no power to grant. There are 46 lots on the plan and in "the Building". If all the respondents were to execute a single lease of "the Building" to the applicant, as the applicant contends they should do, the respondents would be purporting to grant a lease jointly of all 46 lots. This they cannot do, for the owner of Lot 201 (for example) may grant a lease of Lot 201 but not of Lot 301 which is owned by someone else. The only way that the elementary principle can properly be observed, the argument went, was to have multiple leases with each being a grant of what the particular landlord named in it had the power to grant.
An immediate difficulty which the submission faces is that, looked at in the way that the submission invites one to look, the 1996 lease likewise offended the elementary principle. There were joint landlords, one of which was the body corporate. Those joint landlords granted a lease of "the Building" which consisted of the 46 lots and the common property. Yet the body corporate had no power to grant a lease over any of the lots. It could lease the common property, because it was the legal owner of it, but was not an owner of any of the lots and so could not lease them.
In truth the 1996 lease did not offend the elementary principle. Looking at the lease in the way that the submission invites is the wrong way of looking at it. The proper construction of the 1996 lease is that each of the joint landlords was granting a lease of what it was entitled to make a grant of, and was not purporting to grant a lease of what it was not entitled to make a grant of. The recitals to the lease, which emphasised that the body corporate was empowered to grant a lease of "the Common Areas" (the common property) only, point to that construction, as does the lease regarded as a whole, in my opinion.
In the same way, a single renewed lease, properly drawn, ought to be construed so that, although all the respondents are named in it as landlords, each respondent is granting a lease of what that respondent is entitled to make a grant of, and of nothing else. I say "properly drawn" because the task of drawing recitals to the renewed lease in aid of that construction may become more elaborate than the task that the drafter of the 1996 lease had in that regard.
That a potential offending of the elementary principle can readily be avoided by use of appropriate drafting technique was noted by Hansen J in Amanatidis v Syed and Mirza [2009] VSC 350, a decision handed down on 20 August 2009, three days after this proceeding was heard. Two vendors had entered into a contract to sell all 12 lots (6 residential units and 6 car parking units) on a plan of subdivision for a price of $910,000.00. One vendor was registered as the proprietor of two residential units and two car park units and the other vendor was registered as the proprietor of all the other lots. Before the stipulated settlement date the purchaser demanded that the vendors prepare and tender for execution six separate contracts, one for each residential unit and associated car park, amongst which the purchase price was apportioned. The vendors refused, and served a notice of intention to rescind when the purchaser did not settle. The purchaser sued for specific performance of the contract but alleged that there was a term of the contract, oral or implied, that there be six separate contracts with an apportioned purchase price, and claimed that the contract should be ordered to be performed accordingly. At paragraph [8] of the judgement Hansen J observed:

[21]

The claim for specific performance was dismissed, Hansen J having decided that the vendors had been entitled to terminate the contract and had effectively done so. The allegation of an oral term, that there be six contracts, failed on the evidence, and the allegation that there was an implied term was unsustainable as a matter of law. His Honour recognised that while there had been one contract there could not have been one registrable instrument of transfer, but considered (at paragraph [130]) that the purchaser could have tendered two instruments of transfer, one for each vendor, in which the consideration was left to be inserted, and could have asked the vendors to apportion the purchase price between the two instruments.
A secondary submission by counsel for the respondents was that an order for specific performance of an agreement for a lease, created by the exercise of the option for renewal, requiring the respondents to enter into a single lease, could not be enforced because it is impossible for the respondents to perform it by granting what they have no power to grant. Accordingly, it was submitted, the agreement for lease has to be regarded as an agreement for multiple new leases because it is enforceable as such whereas an agreement for a new single lease is not enforceable.
The secondary submission is, I think, really an elaboration of the primary one. It depends on one accepting the argument that the putative single lease offends the elementary principle referred to above. Once that argument is rejected, the secondary submission falls away.
Counsel for the applicants relied upon the use of the expression "the Building", throughout the 1996 lease, to describe the demised premises and to describe the subject matter of the various rights and obligations of the parties. The lease was of one undivided whole. The argument was that a new demise would not properly be of that undivided whole unless it took form of one lease; none of the putative multiple leases could effect another demise of "the Building". Moreover, counsel submitted that the way that the plan identified the boundaries of the lots created potential difficulty if there were to be individual leases for the various lots and pointed towards the desirability of there being a single lease. I quote from paragraph 30 of counsel's written submission on this point.

[45]

Counsel for the applicant pointed to the fact that the 1996 lease used the expression "Managing Agent" in the singular throughout. Clause 2.1 defined "Managing Agent" as follows: "Managing Agent means the Managing Agent to be appointed pursuant to clause 9.5." (There was no dispute that in that definition "clause 9.5" was a mistake for "clause 9.4".) Clause 9.4(1), quoted in paragraph 26 above, recorded the agreement of "the Landlord" to appoint "a Managing Agent". All other references to "Managing Agent" in the lease were to the Managing Agent. The use of the singular, however, is not conclusive, because clause 2.2 provides that in the lease, unless the context otherwise requires, the singular includes the plural and vice versa.
In my view the context does otherwise require: it requires "Managing Agent" to be read in the singular only. By the context, I mean two things. First, there is the wide context of the lease read as a whole. Secondly, there is the narrower context of Appendix C, the Appointment, in particular.
The wide context of the lease read as a whole includes the scheme of management referred to above with its distinguishing feature of the tenant's obligation to pay a gross rent to the Managing Agent without the tenant having to be concerned with the way in which the gross sum was apportioned amongst the various lot owners; apportionment was the Managing Agent's responsibility. If there were to be multiple managing agents, the scheme would be subverted, for the tenant would be required to apportion.
The narrower context of Appendix C also compels the conclusion that there can be only one Managing Agent, fulfilling each of the dual roles that the appointment created. The appointee was to be the manager of the body corporate as well as the agent for the lot owner or owners. The roles matched: as agent for the lot owner or owners, the agent collected the rent; as manager of the body corporate, it discharged such financial and other obligations that were imposed upon it by law. There could be only one "manager" of the body corporate. The dual roles would no longer match if the lot owner or owners were to appoint more than one "Managing Agent". The effective performance of the eight delegated functions, powers and duties identified in Appendix C depended upon the "Managing Agent" and the body corporate manager being one and the same person.
Counsel for the applicant drew upon the principle of the "duty to co-operate" expressed in authorities such as Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 597 at 607. The submission was that the application of that principle in the present case resulted in there being an implied obligation upon the respondents to maintain the appointment of a single Managing Agent. I do not think that there is a need to resort to that principle. Clause 9.4(1) itself created the obligation. By virtue of section 142(1) of the Property Law Act 1958 the respondents are bound by the covenant contained in clause 9.4 and the applicant may enforce it against them. On the view I have taken of the case, the respondents can be compelled to execute a single lease, including Appendix C modified in the ways I have suggested in paragraph 56 above; once the lease is executed, the appointment of the single Managing Agent has occurred simultaneously.
So I propose to answer those questions, formulated for the Tribunal's determination, that relate to the Managing Agent by saying that the lot owners for the time being are required to appoint and maintain the appointment of a single Managing Agent.
At present the 55th, 56th and 57th respondents have engaged a real estate agent other than Network Pacific Real Estate Pty Ltd to act for them. There is no reason why they cannot continue to engage that other estate agent, so long as they do not attempt to require the applicant to pay rent to that other estate agent as if it were the Managing Agent. The applicant's obligation is to pay a gross rent to Network Pacific Real Estate Pty Ltd as Managing Agent. That will be its obligation under the renewed lease, and under the second renewed lease if there is one. The Managing Agent has an obligation to pay to the 55th, 56th and 57th respondents their apportioned share of the rent. If those respondents choose to have another real estate agent as intermediary to receive their share of the rent from the Managing Agent, that is their affair.

[54]

As counsel for the respondents correctly pointed out, nothing in Appendix B had the force of a landlord's covenant or contractual obligation. Appendix B merely reproduced the rules of the body corporate. Nowhere in the lease was there a covenant by "the Landlord" to comply with all or any of the rules set out in Appendix B. Indeed the only references to the rules in the body of the lease itself were in the definition clause, in clause 5.8 (which was a tenant's covenant only, a covenant to comply with the rules), and in clause 9.2, whereby "the Landlord" covenanted not to introduce any variation amendment or addition to the rules which was to the tenant's detriment without the tenant's consent. (Clause 9.2 is the subject of another question that has been formulated for the Tribunal's determination, with which I shall deal below).
The rules set out in Appendix B have remained in force by virtue of Schedule 2 clause 5 of the Owners Corporations Act 2006 and are deemed to be the rules of the owners corporation to the extent that they are not inconsistent with the 2006 Act or with the regulations made under it. Counsel for the applicant submitted that there is no inconsistency. I agree. Counsel for the respondents did not submit otherwise.
Some of the verbiage of rule 3 is now inapt. By virtue of Schedule 2 clause 4 of the 2006 Act (another transitional provision) "Body Corporate" in rule 3 must now be read as a reference to the owners corporation. Nothing in any transitional provision, however, now enables "Subdivision (Body Corporate) Regulations 1989" to be read as anything else, even though it is now section 90 of the 2006 Act which empowers members of an owners corporation to make resolutions at meetings, not the 1989 regulations which were repealed long ago. The rule, nevertheless, makes perfect sense and operates effectively if its concluding words "in accordance with the Subdivision (Body Corporate) Rules 1989" are treated as otiose and are disregarded, for the fact is that members can only legally make a resolution at a meeting in accordance with section 90 of the 2006 Act. For the purposes of the drafting of a renewed lease, Appendix B will have to remain in its present form. The transitional provision can operate upon the words "Body Corporate" in rule 3 so that they mean the owners corporation. The phrase "in accordance with the Subdivision (Body Corporate) Rules 1989" has to remain, otiose though it is, unless in the meantime the owners corporation has amended rule 3 to substitute "in accordance with the Owners Corporations Act 2006" instead.
Rule 3, like all the rules of the owners corporation, is binding upon the lot owners (section 141 of the 2006 Act) and the lot owners are required to comply with it (section 128 of the 2006 Act). So the respondents are legally entitled to make or exercise any non-delegated decision or discretion under the lease only after having made an ordinary resolution at a meeting of members of the owners corporation to that effect, and may be restrained from making or exercising any non-delegated decision or discretion under the lease unless there has first been such an ordinary resolution made, not because of any provision in the lease itself but because of their statutory obligation to comply with rule 3. The obligation could be enforced, or the restraint achieved, by order of VCAT pursuant to Part 11 of the Owners Corporations Act 2006 which confers upon VCAT the power to hear and determine a dispute between (for example) lot owners and an occupier of lots relating to an alleged breach of rules.
What I have said so far has been said on the footing that rule 3 is a valid rule. No question as to its validity has been raised in this proceeding, save that the applicant correctly submitted that rule 3 is not inconsistent with anything in the 2006 Act or in the regulations made under it. The powers of a body corporate to make rules were not limitless in 1996 and the powers of an owners corporation to make rules are not limitless now. But as no issue of validity has been raised for my determination, I say nothing more about the matter.
The specific questions for determination about how non-delegated rights and discretions may be exercised relate to the following acts which would amount to the exercise of one of those non-delegated rights or discretions which are identified - in item (8) of the Appointment (Appendix C), as exceptions to the delegation:

[66]

The power to amend or revoke rules is unfettered. Clause 9.2 of the lease purported to restrict the power by making it subject to the tenant's consent. So, the submission went, clause 9.2 was void by reason of section 202.
A partial answer to the submission is that section 202, which came into operation on 31 December 2007 when the 2006 Act came into operation, cannot retrospectively invalidate clause 9.2 as a provision of the lease created in 1996 nor as a term of an agreement for a new lease created upon the exercise in 2006 of the first option to renew. Nothing in the 2006 Act states or implies that any part of it is to have a retrospective operation. So far as I am aware, there was no provision corresponding to section 202 of the 2006 Act in the Subdivision Act 1988 or in any of the regulations made under it.
The submission is more formidable, however, when one considers how it might affect the validity of clause 9.2 when reproduced in a future lease following the exercise in 2011 of the second option to renew. A possible answer to the submission is that the rules in Appendix B are not "rules made under sub-section (1)" for the purposes of section 138(2) but rather are rules which, by virtue of the transitional provision (Schedule 2 clause 5) are deemed to be the rules under the 2006 Act; thus the restriction upon the power to amend or revoke those rules is not a restriction upon the power to amend or revoke rules "made under sub-section (1)" and does not offend section 202. The difficulty with that answer, which draws a distinction between rules made after 31 December 2007 and deemed rules, is that if that distinction is made neither section 138 nor any other provision of the 2006 Act would expressly confer any power to amend or revoke deemed rules.
However, question 17 in the list of questions submitted for determination does not require me to consider the state of affairs which might come about in 2011 if the second option to renew is exercised. The question relates to the present state of affairs only. It asks whether the applicant is entitled to withhold consent to a deletion of rule 3 or to an amendment of it in the way proposed.
Next, counsel for the respondents submitted that the proposed amendment was not detrimental to the applicant and so clause 9.2 had no operation. I cannot accept that submission. It seems plain that the deletion or proposed amendment would be detrimental to the applicant because the result would expose the applicant to the very risk that rule 3, as part of the overall scheme of management, seemed to be designed to avoid: the risk of one lot owner capriciously and unreasonably taking action to enforce a provision of the lease against the tenant when the majority of lot owners had not approved the taking of that action.
Counsel for the applicant submitted that a deletion of rule 3 or an amendment of it in the way proposed would create a conflict between the rules and the Appointment instrument, Appendix C, and that the applicant is entitled to withhold consent for that reason, if for no other reason. I do not see that there would be any conflict. It may be that the convening of a meeting of member of the owners corporation, which item (8) of the Appointment would require the Managing Agent to do, would no longer have a purpose if the lot owners became free to make a decision or exercise a discretion without first having resolved at a meeting of members of the owners corporation to do so, but that would not amount to a conflict. Counsel did make the point, with which I agree, that the lot owners cannot resolve to amend Appendix C or in any other way unilaterally alter Appendix C. By clause 9.4 their predecessor in title, together with the body corporate, covenanted to appoint a Managing Agent on the terms set out in Appendix C. By virtue of section 142(1) of the Property Law Act 1958 the respondents are bound by that covenant and the applicant may enforce it against them. Any amendment to the Appendix C now without the consent of the tenant would be a breach of covenant by the lot owners and by the owners corporation.
My answer to the question is that the applicant is entitled to withhold consent to an amendment of the rules which is effected either by deleting rule 3 or by amending rule 3 in the manner proposed.

At a glance

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Judgment (129 paragraphs)

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Legislation Cited (7)

Cases Cited (2)

Manor House Group Pty Ltd v Owners Corporation Plan No 349506U (Retail Tenancies) [2009] VCAT 2348 (29 October 2009)