Permanent Mortgages Pty Limited v Fadale Pty Limited

Supreme Court of NSW|2011-08-24

Judgment 1HER HONOUR: There are two notices of motion before the Court. By notice of motion filed 2 June 2011, the applicants Michael Joseph O'Connell and Vicki Ann O'Connell (the O'Connells") seek an order that they be joined as defendants to these proceedings. The O'Connells relied on the affidavit of their solicitor John Edwin Cox sworn 2 June 2011. 2By notice of motion filed 1 July 2011, the plaintiff Permanent Mortgages Pty Limited ("Permanent Mortgages") seeks an order pursuant to s 74MA(2) of the Real Property Act 1900 that the O'Connells withdraw caveat AF700079 within seven days of this order. Permanent Mortgages relied on the affidavit of its solicitor Cameron Lake sworn 30 June 2011.

Background 3On 19 July 2007, the O'Connells entered into a 99 year lease ("the lease) in respect of the property known as X/XX XXXXX XXXXX, Kingswood ("the property"). The lessor in respect of this transaction was Fadale Pty Limited, the defendant in these proceedings ("Fadale"). In completing this transaction the O'Connells paid Fadale an amount of approximately $262,500 by way of bank cheque representing the term payment in respect of the 99 year lease. On completion of the transaction the O'Connells moved into the property where they continue to reside. 4The property is known as "Penrith Apartments". The O'Connells reside is one of four units in the complex that are the subject of these proceedings and for which Permanent Mortgages is seeking judgment for possession and leave to issue a writ of possession. 5The O'Connells were represented in the lease transaction by solicitors. The executed lease was never registered under the Real Property Act 1900. The consent of the first registered mortgagee Permanent Mortgages was not obtained. The result is that the O'Connells' interest in the property has never been registered.

The lease 6The lease is between Fadale Pty Limited as lessor and Michael O'Connell and Vick O'Connell as lessees (the lease). The lease is for a term of 99 years. The copy of the lease in evidence is undated. 7Clauses 3, 4 and 31 of the lease relevantly read: "3 RETIREMENT VILLAGES ACT 1999 3.1 The Lessee's attention is drawn to the Act, and is subject to its provisions. 3.2 In accordance with sections of the Act the Lessee will be classified as an owner. ... 4 COMMENCEMENT AND TERM OF LEASE 4.1 This Lease is for a term of 99 years, subject to earlier termination conditions provided under clauses 6 and 7 and the Retirement Villages Act 1999. 4.2 This lease commences on the date specified. ... 31 DISPUTE RESOLUTION 31.1 The Lessee may enforce any provision of this Lease with the Owners Corporation. The Lessee may apply to the tenancy tribunal in the event that any condition within this Lease is deemed unjust. The Lease is governed by the Retirement Villages Act 1999." 8On 30 September 2010, Horton Rhodes, the solicitors for Permanent Mortgages, wrote to the O'Connells confirming that it did not consent, and has never consented, to the lease. On 11 October 2010, Horton Rhodes again wrote to the O'Connells advising that Permanent Mortgages intended to take steps in order to take possession and exercise its power of sale in respect of the property. 9Permanent Mortgages is the registered first mortgagee of Lots 1, 2, 4 and 5 in Strata Plan XXXXX, being four of six units at the property. Fadale owns those lots. Lot 1 had been sold with the proceeds to be applied in partial reduction by Fadale of its indebtedness to Permanent Mortgages. 10On 14 July 2011, judgment was entered for Permanent Mortgages for possession of lots 1, 2 and 4 and judgment for Permanent Mortgages against Fadale in the sum of $929,244.97. Permanent Mortgages now seeks to proceed to obtain default judgment for possession of lot 5. 11Counsel for the O'Connells does not dispute that Permanent Mortgages is entitled to exercise its rights under its mortgage so far as the mortgagor is concerned but he submitted that the provisions the Retirement Villages Act 1999 applies. 12The O'Connells seek to be joined as parties pursuant to UCPR 6.24 and 6.27 and submitted that the Retirement Villages Act is applicable. They say it is arguable that Permanent Mortgages cannot evict the O'Connells without an order of the Consumer, Trader and Tenancy Tribunal ("CTTT"); or alternatively, if Permanent Mortgages takes possession of the lot, it may become an operator and is then bound by the statutory obligations of the operator under the Retirement Villages Act . Permanent Mortgages contended that neither point is arguable. 13Counsel of Permanent Mortgages does not concede that Penrith Apartments is a retirement village. The O'Connells are a retired couple and are not working. For the purposes of this application, I accept that they fall within the definition of "retired person". I also accept that the premises described as Penrith Apartments falls within the definition of "retirement village" and that the lease refers to obligations as between the lessee and lessor under the Retirement Villages Act .

The Retirement Villages Act 1999 14It is necessary to reproduce the relevant provisions of the Retirement Villages Act . They are as follows. 15Section 3 sets out the objects of the Act. It reads: "3 Objects of Act The objects of this Act are: (a) to set out particular rights and obligations of residents and operators of retirement villages, and (b) to facilitate the disclosure of information to prospective residents of retirement villages, and (c) to enquire contracts between residents and operators of retirement villages to contain full details of the rights and obligations of the parties, and (d) to facilitate resident input, where desired by residents, into the management of retirement villages, and (e) to establish appropriate mechanisms for the resolution of certain disputes between residents and operators of retirement villages, and (f) to encourage the retirement village industry to adopt best practice management standards." 16Section 4 defines "operator" of a retirement village as a person who manages or controls the retirement village, and includes: "(a) a person (other than a resident or other person referred to in subsection (2)) who owns land in the village, and (b) any other person or class of persons prescribed by the regulations for the purposes of this definition, but does not include: (c) the relevant association of a community land scheme or the owners corporation of a strata scheme, or (d) the managing agent of such a scheme, or (e) any person or class of persons excluded from this definition by the regulations." 17Section 5(1) defines a "retirement village". It reads: "5 Meaning of "retirement village" (1) For the purposes of this Act, a retirement village is a complex containing residential premises that are: (a) predominantly or exclusively occupied, or intended to be predominantly or exclusively occupied, by retired persons who have entered into village contracts with an operator of the complex, or (b) prescribed by the regulations for the purposes of this definition." 18Section 11 reads: "11 Application of Act (1) This Act applies to all retirement villages (whether established before or after the commencement of this section) and so applies despite the terms of any contract, agreement, scheme or arrangement (whether made or entered into before or after the commencement of this section). (2) This Act extends to apply to and in respect of: (a) a retired person who continues to occupy residential premises in a former retirement village that was a retirement village when the retired person took up residence in the premises, and (b) a retired person who has a right to occupy residential premises in a former retirement village that was a retirement village when the right was obtained, and (c) a former resident of a former retirement village who continues to have rights or liabilities under the contract, agreement or arrangement under which he or she occupied (or had the right to occupy) the residential premises in the former retirement village when it was a retirement village, and (d) the person who is the other party to the contract, agreement or arrangement under which the retired person occupies or occupied (or has or had the right to occupy) the residential premises in the former retirement village, even though the former retirement village is no longer a retirement village. (3) However, this Act does not so apply in respect of any place or part of a place referred to in section 5 (3). (4) The regulations may prescribe other modifications to the application of this Act for the purposes of this section. (5) For the purposes of this Act: (a) a reference in this Act to a resident of a retirement village includes a reference to a person described in subsection (2) (a), (b) or (c), and (b) a reference in this Act to the operator of a retirement village includes a reference to the person referred to in subsection (2) (d). (6) In this section, former retirement village means a complex that was previously, but is no longer, a retirement village within the meaning of this Act (even if it ceased to be such a retirement village before the commencement of this Act)." 19Section 13 reads: "13 Effect of Act on other legislation (1) This Act is to be construed as being in addition to, and not in derogation of, any other law of the State, except as otherwise provided by this Act. (2) The Landlord and Tenant Act 1899 , the Landlord and Tenant (Amendment) Act 1948 and Part 8 of the Residential Tenancies Act 2010 do not apply to or in respect of residential premises the subject of a residence contract under this Act." 20Part 9 of the Real Property Act is headed "Termination of Residence Contract". Part 9, Division 5 is headed "Recovery of possession of premises" and comprises of ss 138 to 141. 21Sections 138 to 140 are relevant. They read: "138 Prohibition on certain recovery proceedings in courts An operator of a retirement village does not have standing to commence proceedings in the Supreme Court, the District Court or the Local Court to obtain recovery of possession of residential premises in the village (except as mortgagee of the premises). 139 Operator not to recover possession of premises except by order (1) A person must not (whether acting on his or her own behalf or on behalf of another): (a) enter, or attempt to enter, residential premises within a retirement village, or (b) remove, or attempt to remove, a resident from residential premises within a retirement village, or (c) take any other action that is intended, or is likely, to cause a resident to vacate residential premises within a retirement village, for the purpose of recovering possession of the residential premises otherwise than in accordance with this or any other Act or law. (2) ... (3) A court before which proceedings for an offence under this section are brought may (in addition to any other penalty) order the person who committed the offence or any person on whose behalf that person acted to pay to the person entitled (or formerly entitled) to occupy the premises concerned such compensation as it thinks fit. 140 Enforcement of orders for possession (1) If the Tribunal makes an order fixing a date for vacation of residential premises in a retirement village and the order (or a condition of suspension of the order) is not complied with, the operator of the village may apply to the Tribunal for (and the Tribunal may issue) a warrant authorising a sheriff's officer to enter the residential premises and to give possession to the operator. (2) An order for possession of residential premises in a retirement village made by the Tribunal is not to be enforced otherwise than under the authority of a warrant issued under this section." 22The Retirement Villages Act is to be construed as being in addition to and not in derogation of any other law except as provided by the Act: see s 13 of the Act. That means that the provisions of the Real Property Act apply. 23As to the O'Connell's argument that they cannot be evicted without an order from the CTTT. Section 138 falls within Part 9, Division 5 of this Act entitled Recovery of possession of premises". Section 138 makes an exception where there is a mortgagee in possession. While s 138 prohibits an operator from commencing recovery proceedings in this court, the District Court and Local Court, it specifically exempts a mortgagee of the premises. That means that a mortgagee is permitted apply to this court for an order for possession. Further, s 139(1) is headed "Operator not to recover possession of premises except by order" and by its express language only makes it an offence to take certain action for the purpose of recovering possession that is "otherwise than in accordance with this or any other Act or law'" and s 140(1) is concerned with the operator applying to the CTTT for a warrant for possession. These sections are concerned with the rights of the operator, not the rights of a mortgagee exercising rights under the Real Property Act. The mortgagee's rights to possession are unaffected by the Retirement Villages Act . This submission is hopeless. [my emphasis added] 24The second argument is that if Permanent Mortgages takes possession it becomes the operator and bound by the provisions of the Retirement Villages Act . "Operator" means a person who manages or controls the retirement village (s 4 of the Retirement Villages Act ), and includes the person who owns the land in the village. Permanent Mortgages has not and does not intend to manage or control the retirement village. As such, it cannot be the operator. Further, it does not own land in the village. The owner of the land is the registered proprietor. The plaintiff is mortgagee seeking to exercise its right of possession. 25Counsel for the O'Connells referred to Elliot Tuthill v Boele [2010] NSWSC 103. In Elliot Tuthill v Boele the proceedings were brought by Mr Boele and his mother who were joint sublessees and of the apartment from the mortgagor, Woollcott Village Pty Ltd ("Woollcott Village"), which defaulted on its loan to Elliot Tuthill Nominees Pty Ltd, who went into liquidation and subsequently were deregistered. It was accepted by both parties that firstly, Elliot Tuthill stood in the shoes of the original sublessor and operator of the village, Woollcott Village, and has the same rights and obligations in relation to the sublease as Woollcott Village; secondly, that Elliot Tuthill was to be treated as lessor and Mr Boele treated as lessee in considering whether the lease was validly termination by Elliot Tuthill in 2004, as Elliot Tuthill maintained; and thirdly, that the lease was a "residence contract" within the meaning of the Retirement Villages Act , and the Retirement Villages Act and regulations made under the Act governed the lease. 26In Elliot Tuthill , Rein J discussed the circumstances under s 129 of the Retirement Villages Act where the residence contract might come to an end. His Honour stated at [15]: "[15] The degree of detail and specificity in the RVA is, in my view, inconsistent with the proposition that the legislature intended to permit termination to be dealt with outside of the Tribunal in any of the matters other than those specifically enumerated in s 129(a)-(e)." 27In Elliot Tuthill the mortgagee agreed to and took on responsibility for managing the village and thus became the operator. Further factual differences are that it appears the lease was consented by Elliot Tuthill and it was registered. Elliot Tuthill does not address the situation where the mortgagee does not become the operator. As in Elliot Tuthill there was a registered mortgage and a registered lease meant that, on taking possession as mortgagee, the mortgagee took the property subject to the lease and therefore stood in the lessor's shoes. In these current proceedings, the mortgagee has not consented to the lease and its rights are unaffected by the lease. Hence, the mortgage in possession cannot fall within the definition of "operator" and the Retirement Villages Act cannot apply. If Parliament had intended that a mortgagee in possession was not entitled to vacant possession, the exemptions in ss 12 and 138 would not be in existence.

Application to withdraw caveat 28Permanent Mortgages seeks that the O'Connells withdraw caveat AF700079 within seven days of an order being made. 29Section 74MA of the Real Property Act reads: "74MA Application to Court for withdrawal of caveat (1) Any person who is or claims to be entitled to an estate or interest in the land described in a caveat lodged under section 74B or 74F may apply to the Supreme Court for an order that the caveat be withdrawn by the caveator or another person who by virtue of section 74M is authorised to withdraw the caveat. (2) After being satisfied that a copy of the application has been served on the person who would be required to withdraw the caveat if the order sought were made or after having made an order dispensing with service, the Supreme Court may: (a) order the caveator or another person, who by virtue of section 74M is authorised to withdraw the caveat to which the proceedings relate, to withdraw the caveat within a specified time, and (b) make such other or further orders as it thinks fit. (3) If an order for the withdrawal of a caveat is made under subsection (2) and a withdrawal of the caveat is not, within the time limited by the order, lodged with the Registrar-General, the caveat lapses when an office copy of the order is lodged with the Registrar-General after that time expires." 30Counsel for Permanent Mortgages referred to Perpetual Nominees Limited v Karamakis [2010] NSWSC 1041, where Schmidt J at [19] - [21] stated: "[19] The lease was entered without the plaintiff's consent and has not been registered. TAK is not entitled to have it registered. It has not established that it has any other rights against the plaintiff. TAK has not shown that its claim to an equitable interest in the property as against the plaintiff, has substance, relying as it does on the existence of the unregistered lease which the defendants granted in breach of their obligations under the mortgage (see Alliance Acceptance Co Ltd v Ellison (1986) 5 NSWLR 102 applied in Grey v Zaratell Pty Ltd [2004 WASC 129). [20] This conclusion is supported by s 53(4) of the Real Property Act, which provides relevantly that: 53 Land under the provisions of this Act - how leased (1) ... (2) ... (3) ... (4) A lease of land which is subject to a mortgage, charge or covenant charge is not valid or binding on the mortgagee, charge or covenant charge unless the mortgagee, charge or covenant charge has consented to the lease before it is registered. (5) ... [21] It must be concluded that TAK has not established a reasonably arguable case as to the matters it claims against the plaintiff. No basis for an extension of TAK's caveat has been shown. In those circumstances s 74K(2) of the Real Property Act requires that the application for extension of the caveat must be dismissed (see Chetcuti v Scarf [2000] NSWSC 637 at [11]-[12])." 31In these current proceedings, as previously stated, the lease as between Fadale and the O'Connells has not been registered in accordance with s 53(4) of the Real Property Act . Hence, they do not have a caveatable interest in the land. That being so, I make an order in accordance with s 74MA of the Real Property Act that the O'Connells withdraw caveat AF700079 within seven days.

Joinder of a party 32UCPR 6.24 and 6.27 provide: "6.24 Court may join party if joinder proper or necessary (1) If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party. (2) Without limiting subrule (1), in proceedings for the possession of land, the court may order that a person (not being a party to the proceedings) who is in possession of the whole or any part of the land (whether in person or by a tenant) be added as a defendant." 6.27 Joinder on application of third party A person who is not a party may apply to the court to be joined as a party, either as a plaintiff or defendant." 33While I am satisfied that the provisions of the Retirement Villages Act do not apply, as the O'Connells are currently in possession of the property they should be joined as defendants but only so far as they be given a right to be heard in relation as to whether, and if so when, a writ of possession should issue. 34Costs are reserved.

The Court orders: (1) That in accordance with s 74MA of the Real Property Act the O'Connells are to withdraw caveat AF700079 within seven days. (2) The O'Connells are to be joined as second and third defendants to the proceedings but only so far as to make submissions as to whether and if so when a writ of possession should issue. (3) Costs are reserved.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 September 2011

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