Ashington's case
27 In Ashington No 2, Young J examined specifically what happens when the property is converted to strata pursuant to the registration of a strata plan. He said:
There is surprisingly little legal analysis in the textbooks or reported cases as to what happens when land is affected by registration of the strata plan. In my view, the proper analysis is that to speak of "land" is to mislead oneself. What is popularly "land" is in legal analysis a right against the Crown being an estate in fee simple held in the Crown in free and common socage. The socage rent was redeemed somewhere in the 19th century by a quit rent. An estate in fee simple was a congerie of rights with respect to the property which passed so each was inheritable and free from conditions.
It follows that when a strata plan is registered the congerie of rights that constituted the grant of a fee simple over the whole parcel is now re subdivided so that various rights are created in different groups of cubic meterages of air space. The sum total of the whole of those rights will equal the sum total of the congerie of rights in the original certificate of title, but they will be completely redistributed. Alternatively, the old rights in land have been cancelled and new rights whose totality is the same quantum are created. It matters little for present purposes which it is. Because of the redistribution of rights, or because of other legislation, the rights of the freeholder in a strata will be different to the rights of the freeholder who was say a tenant in common of the whole property with a contractual right to use a particular part of the building.
28 Young J then undertook an examination of the changes to the relationship between the landlord and the tenant with reference to the various obligations of each under the lease as a consequence of registration of the strata plan. In summary Young J touched on the following:
(a) cleaning services was supplied by the landlord for the building, but now was the responsibility of the owners corporation
(b) services to the building such as the lifts and air conditioning again promised by the landlord under the lease, were now controlled by the owners corporation, not the landlord; and
(c) the landlord had covenanted with the lessee that there would be twenty four hour access to the premises and again this was now in the control of the owner's corporation.
29 His Honour after analysis came to the view that the rights and obligations of parties were different under strata to that which had previously prevailed when the property was not strata and in conclusion he said:
In my view, looking at all those matters that I have just discussed as a whole, the new lease proffered by the landlord cannot be said to be one which is in accordance with its promise under clause 20 of the former lease.
30 Importantly, he added the following coda:
I should add that it will not be every case where a strata plan is registered after the initial lease that it will be impossible for the option to be performed. When the lessor seeks to argue along these lines, its own act of registering the plan may operate to defeat that argument. In any event, each lease needs to be considered on its own facts and circumstances.
31 The decision of Young J was overturned by the Court of Appeal in Ashington Holdings Pty Limited v Wipema Services Pty Limited (1999) BC 9908429 (Ashington CA). It was overturned specifically on the basis of conventional estoppel in that the tenant had consented to registration of the strata plan. The court, consisting of Mason P and Handley JA upheld the appeal and Fitzgerald JA dismissed the appeal.
32 In the leading judgment Mason P said [at 32 33] the following:
[32] Young J regarded the changes as significant and practical effect in the lessee's submissions sought to emphasise their significance.
[33] I shall indicate below why I consider it unnecessary to detail the extent of those changes. I content myself with the following observations as to the materiality of the changes:
I am not persuaded that the physical area of the demised premises has changed. The alterations to the lessor's rights over the building as a whole are not relevant to the position as between lessor and lessee. It is true that the strata scheme clearly excludes from Lot 8 the space occupied by boundary walls and the slab of the ceiling above and the floor below level 7. But this involved no reduction in the area of exclusive occupation previously enjoyed by the lessee. It is not self evident that the original lease gave rights to occupy any of the solid spaces forming the physical boundaries to the interior of level 7, even the exterior walls and windows.
· The original lease itself apparently "excluded the common areas".
· The lessor's covenants with respect to use of lifts and air conditioning and the cleaning of the premises were always expressed in terms of its (best) endeavours. Those obligations remained in identical terms in the new lease proffered by the lessor. The fact that the lessor could be put into breach through the conduct of the owners corporation did not alter the substantive or formal operation of the covenants any more than would be the position if the lessor had subcontracted its obligations to cleaning and maintenance firms after.
· The commencement of a strata scheme undoubtedly altered the quantum of the lessor's outgoings referable to level 7, if only because Lot 8 became separately rateable… Furthermore, the amount payable by the lessee would have changed because the unit entitlement of Lot 8 under the Strata Scheme of 7.2% compared with 8.09% being the lessee's share of total incorrect outgoings for the building under the original lease….
· The lessee, adopting the reasoning of Young J submits that these matters gave substantially different effect to (the clause) which obliged the lessee to pay a share of the outgoings. Again, I would doubt this. After all, (the clause) was never intended to deal with a position fixed in concrete in 1992. Outgoings necessarily vary with needs and with obligations as they apply from time to time. A new tax might be a proper outgoing. Care should be taken not to confuse the constant substantive effect of the relevant covenant and its varying impact from time to time.
33 Another case on point is Lawrom Nominees Pty Limited v Kingsmede Pty Ltd & Anor (2000) NSWSC 1048. In relation to a commercial city building the owner wished to lodge a strata plan and the lessee of the whole of level 6 objected and sought injunctive relief on the basis that by procuring the registration of a strata plan the lessor would be in breach of the terms of the lease or give rise to a threat of breach. His Honour Hodgson CJ in Equity after examining the issues and in particular the obligations of the landlord regarding services to the tenant decided that subject to the owner/lessor providing a deed poll to the lessee to contract that it would uphold its obligations under the lease, upon registration of a strata plan and incorporation of an owners corporation, no injunctive relief would be granted. That is registration of a strata plan would not mean a fundamental change to the lease and the contractual arrangements between the parties.
34 The Tribunal notes the coda of Young J in Ashington No.2 that "in any event, each lease needs to be considered on its own facts and circumstances". In this regard, on the front page of the Lease reference is specifically to Shop 1, 82 Queen Street, Woollahra and lock up garage and those are the premises that are being leased. As Young J noted in Ashington No.2 the actual title details should not be viewed as predominant. Rather, the more substantive fact is that what area is being leased. Is the area actually being leased by Alexander James (which was the physical space comprising the shop) the same after registration of the strata plan (other than a minor alteration through the definition of cubic space in the Strata Title legislation which is of no relevant effect to the occupation of the shop). The evidence, of which there was only passing reference suggests no change, and certainly Mr Southwick made no submission that the physical aspect of the premises changed.
35 Following Mason P in Ashington CA and the decision in Lawrom, it is important to examine the obligations of Pozetu under the Lease. The relevant provisions are found in clauses 3.4 and 11.3 which state:
3.4 If the property has facilities and services shared in common with other persons in the same building as the property, clause 11.3.2 applies to those common facilities. The tenant shares the common facilities with the landlord, and other tenants of the landlord. The landlord can set reasonable rules for sharing these common facilities.
11.3 If the property is part of the building owned or controlled by the landlord-
11.3.1 the landlord must maintain in reasonable structural condition all parts of the building that the tenant can use under this lease; and
11.3.2 if the property has the facilities and service connections shared in common with other persons, the landlord must -
11.3.2.1 allow reasonable use of the facilities and service connections including:
• the right for the tenant and other persons to come and go to and from the property over the areas provided for access;
• access by the tenant to service connections;
36 Clauses 3.4 and 11.3.2 regulate the delivery of services to the building for the benefit of the lessee where the premises are situated and which are shared with other occupiers, not dissimilar to a strata arrangement. The Tribunal understands that Pozetu owned all the units in the strata plan at the time of exercise the option to renew, as noted from the copy Land Tax Return annexed to one of the affidavits of Mr Ballas. Consequently Clause 11.3 is relevant as Pozetu controlled the owners corporation. As Mason P in Ashington CA allowed the landlord there to be able to comply with its obligations by reference to outsourcing the supply and obligations regarding services but still maintain the contractual obligation for their supply, there is no real difference here in interposing the owner's corporation to do these things similar to the subcontracting of the supply of services to the building and tenancies.
37 It is worthwhile reviewing and the terms of the exercise of the option to renew submitted by Alexander James which were as follows.
"Alexander James Pty Ltd, the tenant from Pozetu Pty Ltd under the lease commencing on 1 September 2003 of the premises known as shop 1, 80-82 Queen Street, Woollahra (lease) being part Folio Identifier 1/109260 gives you notice of its exercises of its option of renewal of lease".
38 Mr Southwick submitted that it was significant that Alexander James, in its exercise of the option used the exact title reference from the Lease. Of course, that title was cancelled upon registration of the Strata Plan, and new titles issued. Mr Southwick says that the emphasis in the exercise should be on the title reference that was the subject of the exercise of option. However, the Tribunal sees the words in the exercise of option in a slightly different light. It is the use of the description of the shop premises that is of significance, as Alexander James sought a new lease over the premises, Shop 1, 80-82 Queen Street, Woollahra. As observed by Mason P, in Ashington CA where the physical shape and area of the premises do not change as a consequence of registration of a strata plan then the physical area (the subject of the lease) is basically the same. Alexander James was not directly interested in the title to the premises. It was the shop premises which was the focus and that did not change consequent upon conversion to Strata.
39 Further, it is the view of the Tribunal that there is too much emphasis placed on the exact title reference which was cancelled and that new titles were issued. Such emphasis does not take into account that titles are often cancelled caused for example by resumption of part of the land or in the past, where the use of manual titles system meant that there was no longer any room to note changes in the schedules on the manual title, the title was cancelled and a totally new title with different folio numbers was issued. Cancellation and reissue of titles does not change the underlying land and would not mean of itself that an Option Lease with new title references was not in conformity with the original Lease. As Young J observed in Ashington No. 2 the actual title details should not be viewed as predominant.
40 The other change in the proposed Option Lease as a consequence of registration of the Strata Plan was the share of outgoings and in some respects the change may have been overall beneficial to Alexander James. Again, as Mason P said in Ashington CA:
Outgoings necessarily vary with needs and obligations as they apply from time to time.
41 A significant amount of the evidence put forward by Alexander James and a major feature of the submissions of Mr Southwick went to the reasons why Mr Ballas apparently did not inform Alexander James about the proposed registration of the strata plan. The only relevance in assessing the conduct of Pozetu comes from the coda of Young J in Ashington No. 2 that "when the lessor seeks to argue along these lines its own act or registering the plan the plan may operate to defeat that argument". Mr Southwick did not make his submissions directly in that way but as a general submission concerning the conduct of Pozetu, that there was a purpose of cover up and non-disclosure for which Pozetu should be regarded as engaging in repudiatory conduct.
42 Mr Ballas in his evidence referred to discussions with Mr Hancock about plans to lodge a strata plan, but these discussions are refuted by Mr Hancock. Mr Ballas annexed copies to his affidavit of faxes of invoices issued to the accounts manager at Alexander James after registration of the strata plan noting new strata lot number for the premises and recalculation of the outgoings. Mr Ballas also sent a copy of the strata plan to the accounts manager. Notwithstanding the submissions made by Mr Southwick ascribing motive for keeping the strata plan a secret, the Tribunal notes from the evidence that Mr Ballas did not refrain from informing Alexander James of registration of the strata plan. Further, the comment by Young J as to conduct disentitling one party to make the case of inability to perform its obligations rests with that party and in this case, Pozetu is arguing that it can still perform its obligations, not the other way round that because of acts it caused it can no longer comply.
43 The Tribunal observes that the conversion to strata of this building was not such a fundamental change that meant that Pozetu could not provide a lease in conformity with its obligations. Pozetu controlled the building through the owners corporation. The terms of the lease, clause 3.4 and 11.3.2 in particular meant no change in the delivery of services to Alexander James because the premises were now in a strata building. The area of the premises for shop 2 did not change. The relevant title details changed but that is not unusual and does not disentitle a landlord to be able to provide an Option Lease. Pozetu could and did perform its obligation to provide an Option Lease. The only outstanding question is what is the new rent for the first year of the Option Lease?