Earlier this month, amendments to Federal legislation significantly expanded the protections of parties against unfair contract terms in commercial contracts. Put briefly, these amendments:

• introduced substantial financial penalties for persons or corporations who propose, rely upon, or seek to apply ‘unfair’ contract terms;
• enlarged the veil of protection to parties not previously protected under the previous unfair contract provisions;
• expanded the Court’s powers to deal with unfair contractual terms; and
• clarified the considerations to which the Court must have regard in considering whether a term is unfair.

Anyone who enters into contracts for goods or services, whether as the supplier or the purchaser, should be aware of these updated provisions.

What are Unfair Contract Terms?

An unfair contract term (“UCT”) is a term that:

• would cause significant imbalance in the parties’ rights and obligations arising under the contract;
• is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
• would cause detriment (whether financial or otherwise) to a party if it were to be relied upon.

The Court assesses whether a term in a contract is “unfair” by considering a range of factors, such as the nature of the contract as a whole, the “transparency” of the term, and the relative bargaining power of the parties (along with other mandatory and non-mandatory considerations).

To Whom do the New UCT Provisions Apply?

The UCT provisions are designed to protect parties to standard form “consumer contracts” and standard form “small business contracts”. These kinds of contracts entered into on or after 9 November 2023 (i.e. new contracts and contract renewals), and specific terms of existing contracts of this nature amended on or after this date, are subject to the new regime.

However, the UCT provisions will not apply to the following:

• Terms specifically required/permitted by law to be included in contracts;
• Terms setting out the upfront price payable under the contract;
• Terms defining the main subject matter of the contract; or
• Various types of excluded arrangements (corporate constitutions, managed investment schemes and other excluded arrangements).

For school-based institutions in particular, school enrolment contracts have been held to be “standard form” contracts. Therefore, schools should pay particular attention to the UCT reforms.

What do the new UCT Provisions do?

1. New financial penalties

The new UCT provisions take a giant stride in escalating the protections granted to parties with respect to standard form “consumer contracts” and standard form “small business contracts”, making it illegal for a party to such a contract to:

• propose an unfair term into a contract which they have made; or
• apply or rely on, or purport to apply or rely on, an unfair term of a contract.

A party who engages in either of the above courses of conduct may be liable for a maximum penalty of:

• Where the contravening party is an individual – up to $2.5 million;
• Where the contravening party is a corporation – the greater of:
  • $50 million;
  • Where the value of the benefit to the contravening party arising from the conduct is ascertainable – 3 times the value of the benefit obtained; and
  • Where the value of the benefit is unascertainable – 30% of the corporation’s adjusted turnover during the breach turnover period.

It should be noted that the above penalties are the maximum penalties per breach. This means that if a contract contains multiple UCTs, proposing or relying upon each one would be considered separate contraventions of the law.

2. Expanded catchments of the Australian Consumer Law and ASIC Act

The amendments also significantly expand the number of businesses protected under UCT provisions. This is because of the redefined meaning of “small business contract” within the ACL and ASIC Act. Accordingly, many businesses not previously able to rely on the UCT provisions may now fall under their protective veil.

Under the new definition, a contract is considered a “small business contract” where that contract:

• is a contract for a supply of goods or services, or a sale or grant of an interest in land (for ACL contracts); and
• at least one party to the contract:

1. 1. makes the contract in the course of carrying on a business and at a time when that party employs fewer than 100 persons; and/or
   2. the party’s turnover for the last income year ending at or before the time when the contract is made is less than $10 million.

• Where the contract is one to which the ASIC Act applies, the upfront price payable does not exceed $5 million (there is also now no equivalent upfront price threshold required by the ACL).

The catchments of these pieces of legislation are also extended by reference to changes to the Court’s mandatory considerations in determining whether a contract is (or is not) “standard form”. Accordingly, a contract can now still be classified as a “standard form contract” if:

• a party had an opportunity to negotiate changes, to the contract’s terms, that are minor or insubstantial in effect;
• a party had an opportunity to select a term from a range of options determined by the other party; and/or
• there was an opportunity for a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract.

Courts, in making such a determination, will also consider whether one of the parties has prepared and made other contracts in the same or substantially similar terms, and how many times they have done so.

3. Expansion of Court Powers

In addition to their current powers, the Courts will also have the ability to order a wider variety of relief mechanisms upon a term being declared to be unfair. Such relief might include:

• Voiding, varying or refusing to enforce the whole or part of the contract, or of a collateral arrangement relating to the contract, that contains the unfair term;
• Requiring the contravening party to make whole or partial redress of the loss suffered by the other party which was caused by the unfair term;
• Making orders to prevent/reduce loss or damage likely to arise to a person from the unfair term.

In cases where the term has been declared as being “unfair”, the relevant regulator (the Australian Competition and Consumer Commission (under the ACL) or the Australian Securities and Investments Commission (under the ASIC Act)) can make an application for the Court to make orders against the contravening party, such as:

• the making of orders/injunctions preventing a party from using a term with the same or substantially similar effect in future contracts that are protected under the unfair terms regime;
• the making of orders/injunctions requiring the contravening party to wholly or partially redress, prevent, or reduce loss or damage actually or likely to be caused to a party by the inclusion of a similar term in any existing contract covered by the unfair terms regime.

(Injunctions/redress would apply only to contracts that are standard form contracts protected by the UCT provisions.)

Notably, the expansion of powers means that Courts can call into question any contracts in which the contravening party may have used the unfair term being challenged or a similar term, regardless of whether that particular contract was actually brought before the Court. The orders made which resulted from the regulator’s application will bind anyone affected by the order – despite that person not being a party to the particular proceedings during which the order was made.

Why are the changes to the UCT Regime important to me?

The new penalties and increased applicability of the Unfair Contract Term regime highlights the importance of ensuring that the terms of any standard form contracts used by an organisation or individual remain fair and compliant with the law. Complacency in failing to regularly review and update standard form contracts to ensure compliance may expose a party to significant legal risk.

The amendments may of particular importance to schools using enrolment contracts – especially as they may relate to forfeiture of fees where proper notice of intention to withdraw has not been provided or to wide-reaching anti-disparagement clauses (such as restricting parents from creating social media pages about a school).

If you operate using standard form contracts and suspect that some of your contracts’ terms may be potentially “unfair”, we highly recommend you seek specialised legal advice. The friendly team at Corney & Lind Lawyers can work with you to review your contracts and help ensure they remain legally compliant. Contact our friendly team today on (07) 3252 0011 or send your enquiry to enquiry@corneyandlind.com.au – we are always happy to assist.

This article was written by Eustacia Yates and Jackson Litzow

Commercialising intellectual property – Assignment and Licensing options for copyright

Are your literary or musical works getting republished or reproduced? Do you need to commercialise your intellectual property? How can you keep your original works safe?

Licensing and Commercialising your Copyright

Choosing the right method of intellectual property commercialisation can often be tricky to navigate, and will wholly depend on a copyright owner’s preference about control and continual ownership.

Under section 196(1) of the Copyright Act 1968 (Cth), copyright is personal property, and under this section can either be assigned or licensed to another person to use in a specific way.

These are the two primary ways copyright can be exploited for financial gain.

Copyright Assignments

Copyright assignments relinquish ownership of the copyright to the other person (the ‘assignee’), often in exchange for a sum of money.

Assignments may not be forever. Instead, they might only be partial (where copyright is assigned only for a limited time, on specific terms).

How do I assign my Copyright?

There are certain formalities that you must comply with should you wish to assign copyright. Under the Act[1] the assignment of copyright (whether full or partial) will not be valid unless the assignment is contained in writing. The Act also provides that the assignment can be limited to a specific region in Australia or for a specific time period.

It is also essential that if you intend to make a partial assignment, the assignment is expressed without unlimited terms or absolutely.

If this happens there will be right to have the copyright reverted to you.[2] If the partial assignment is expressed in unlimited and absolute terms, however, whether or not you intended for the copyright to revert to you after a particular period of time may not matter, and there may be no right of reversion.

In these circumstances it is important to engage a lawyer familiar with drafting.

Copyright Licensing

Copyright licensing is only temporary, and differs from assignments in that copyright owners are allowed some form of control over the intellectual property rights throughout the duration of the license. Licensing does not transfer copyright ownership to the other person (the ‘licensee’), rather it provides the licensee permission to use your intellectual property in a way outlined in its copyright rights.

In this circumstance, you can still sue a third party for copyright infringement as you are still its owner under the Copyright Act.

Normally, permission to use the copyright owner’s work is acquired in exchange for royalties or a lump sum payment. However, the license may exist as a bare license, authorisation or permission where no consideration (money) is exchanged.

Generally, as a copyright owner, you may choose to grant either an exclusive or non-exclusive license.

Exclusive Licenses

An “exclusive licence” is an agreement whereby a copyright owner entitles a licensee to use the owner’s copyright to the exclusion of all others (including the copyright owner him or herself).

Under an exclusive licence agreement, the right of exploitation may be limited to particular timeframes, geographical locations and may only be used for specific purposes. Ownership ultimately remains with the original owner.

Under the Copyright Act 1968 (Cth), licensees under exclusive licence agreements have greater rights than licensees under a non-exclusive licence Agreement. This includes the opportunity to sue a third party for copyright infringement (along with the owner who also retains this right against a third party). In Australia, a licensee of an exclusive license can also sue a copyright owner for copyright infringement should the copyright owner breach the terms of the exclusive licence.

Exclusive licencing arrangements are more suitable for licensees who wish to pay for exclusive exploitation of the copyright of the owner, and do not wish to share it with others.

Non-Exclusive Licenses

Under a “non-exclusive licence” a copyright owner does not have to limit the use of the copyright to one person. That is, under this type of arrangement, the copyright owner can extend the licence to multiple parties at one time. This can be a more effective method of commercialisation of a copyright owner’s intellectual property.

Non-exclusive licence arrangements are more appropriate for copyright owners who wish to retain control over the commercialization of their products and copyright. In this arrangement, distinguishable from the exclusive licence, the copyright owner can continue to use his or her copyright concurrently to use by the licensee.

How do I licence my copyright out to others?

Under section 10 of the Copyright Act, to be valid an exclusive licence must be reduced to writing. Other types of licences should also be reduced to writing in the form of a licensing agreement. Generally, the terms of a licence will be set out in a formal Copyright Licence Agreement.

Have questions about copyright assignment or licence?

We’ve put together more information about the types of copyright licences in our resource centre. For more information on how to commercialise your intellectual property, please contact our Intellectual Property team on (07) 3252 0011.

Additionally, if you are an employee and are unsure of whether you own the work you have created during the course of your working relationship with your employer, contact a member of our Intellectual Property team on the number above. Or, to read about whether you own your copyright as an employee, click here.

Written by Eduardo Cruz, edited by Jackson Litzow (student placement).

Footnotes

[1] Copyright Act 1968 (Cth) s 196(3).

[2] Sumner v Beyond Properties (2003) 59 IPR 268.

Do I have to mitigate loss if my lessee defaults and breaches? Case Study:  Kiddle v Yajm [2022] QDC 82

This case study highlights the onus of landlords to mitigate loss and the courts. If a lessee acts improperly and breaches the lease, it is still the responsibility of the lessor to mitigate loss.

The case of KIDDLE INVESTMENTS PTY LTD V YAJM VEGAN PANTRY PTY LTD & ORS [2022] QDC 82 considered the actions of a landlord, following a lease dispute.

The court examined whether the lessor was obligated to mitigate loss prior to termination and the available damages. In this case, the court held that the landlord had appropriately mitigated their loss and awarded damages accordingly.

Facts

The lessee had entered a five (5) year lease with the lessor on 16 December 2016. As early as 16 May 2017, the lessor received the first of four (4) notices to remedy breach. Up until 1 December 2017, the lessor indicated an intention to fit out the premises, sublet the premises and settle the areas. The lessee had the keys to the premises and had left furniture, rubbish and damage to the premises upon vacating it. However, the lessee never traded on the premises or fitted out the premises.

No rent or outgoings were paid from 1 December 2017 up until the Lessor terminated the lease on 2 April 2018. Prior to 1 December 2017, the Lessee had made various part-payments pursuant to a payment plan, often drawing upon a bank guarantee. It was unclear which payments were made by the lessor or the bank guarantee. At all times, the Lessee was in breach of two essential terms of the lease; the requirement to pay rent and outgoings, and the requirement to trade during core hours.

The two issues in dispute concerned whether the lessor was under an obligation to mitigate their losses prior to the termination of the lease and what costs the lessor could claim under the lease.

Mitigating the Lessor’s Loss

Issue & Arguments

The question of concern was whether a reasonable person in the position of the lessor could have been aware the lessee was unable to perform its obligations under the lease, and thus obliged to mitigate their losses. It was agreed the lessor had complied with their obligation to mitigate their loss onwards from 3 April 2018. However, the lessee argued the lessor could not claim any loss of bargain damages on account of their failure to mitigate their loss prior to the termination of the lease, pursuant to observations in Vickers v Stichtenoth Investments Pty Ltd (1989) 52 SASR 90, 100.

Decision

Generally, where a claim is for damages, a plaintiff has to mitigate those losses. However, this obligation typically arises upon termination or repudiation of the lease or contract. DCJ Byrne argued that if the lessor is aware the lessee is unable to perform its responsibilities under the lease, the obligation to mitigate loss prior to termination is more likely to arise. However, since the Courts do not readily find that conduct amounts to repudiation, courts should not readily find the lessor aware the lessee is unable to perform its obligations. Further, his honour accepted that the duty in Vickers to mitigate the accrual of losses prior to the termination of the lease only applies where the lease has been abandoned in fact.

His honour held that the conduct of the Lessee was so ambiguous as to exclude a finding that a reasonable person in the lessor’s position was aware the lessee was unable to continue the lease. Relevantly, the lessee never accepted the option to terminate the lease upon receipt of any of the notices to remedy breach, instead, the lessee continued to convey an intention to keep the lease on foot. This conduct did not amount to abandonment or repudiation of the lease. Therefore, in conjunction with clause 9.3(2) of the lease which imposed a contractual obligation to mitigate loss following termination of the lease, the duty to mitigate arose only on and from the date of termination.

Costs Under the Lease

Issue & Arguments

There were two clauses under the lease that the lessor could rely upon when claiming legal costs. Clause 2.1(f) provided that the lessor could recover reasonable costs and expenses incurred in relation to proceedings brought to enforce the lessee’s obligations under the lease. Whereas clause 8.3 was an indemnity clause covering loss following the lessee’s default. The issue in dispute was whether the lessor could rely upon clause 8.3, permitting recovery of indemnity costs.

The lessor argued that the discretion to award costs will usually be exercised consistent with contractual agreements, thereby authorising a claim for costs as part of the judgement debt. The lessee argued that clause 8.3 could not be relied upon as it is a general indemnity clause which does not extend to legal costs. They further argued that though clause 2.1(f) would be preferrable, it also could not be relied upon. Although as it concerned the recovery of reasonable costs and expenses, it is up to the discretion of the Court how to award costs, particularly where the contractual provision is not plain and ambiguous.

Decision

DCJ Byrne held that the lessor was entitled to claim monies owing under the lease to and including 2 April 2018, pursuant to clause 8.3 of the lease, in addition to the loss of bargain damages thereafter. It is not relevant that there was another, less onerous provision that could have been relied upon to recover costs. His honour noted that a plain and unambiguous contractual provision for payment of costs on an indemnity basis is relevant but not binding on the court. Clause 8.3 was not intended to oust the jurisdiction of the Court and was voluntarily entered into by the parties to provide an indemnity for losses and costs arising from a breach of the lease.  However, since clause 8.3 is sought to be applied as part of the judgment amount and not as a separate costs order, the principle does not apply. The claim need not be deferred to a costs order.

Key Take-Aways

The duty to mitigate loss arises upon termination, repudiation or abandonment of the lease. The duty to mitigate may only arise prior to termination if the lessee conveys a clear intention not to continue with the lease, however, this conduct would likely be construed as repudiation or abandonment of the lease anyway.

Costs claimed under an indemnity clause in the lease does not seek to oust the jurisdiction of the court and will be relevant to determining costs, especially where the clause is voluntarily entered into and plain and unambiguous in its interpretation. Further, costs claimed under an indemnity clause can be considered part of the judgment amount, not deferred as an issue for a costs order.

Related Articles

https://corneyandlind.com.au/business-law/covid-19-commercial-lease-regulations-qld/

https://corneyandlind.com.au/commercial-law/exit-lease-early/

https://corneyandlind.com.au/litigation/lease-dispute-rent-qcat/

This article was written by a Corney & Lind law clerk

Trust Resettlements

A trust is a relationship whereby a person (the trustee) holds property on trust for the benefit of another person (the beneficiary). A trust deed outlines the terms of the trust including the duties of the trustee in holding the trust property. Whilst these terms are binding, some trusts include a power to amend the terms of the trust. This is known as a power of amendment. There are many reasons why a person would want to make amendments to a trust deed. For example a person may wish to add a new beneficiary, appoint a new trustee, or extend the vesting date of the trust. The difficulty arises in determining what kinds of amendments can be made to a trust deed without causing a resettlement. In other words, when will amendments to a trust deed cause a new trust to be created?

What is a trust resettlement? 

A trust resettlement occurs when a trust is varied or amended to the extent that it becomes a new trust. A trust resettlement can also occur when the trust property is transferred to a new trust.

How is a resettlement triggered? 

The law relating to what constitutes a resettlement has evolved substantially over the last few years. In 2001 following the decision in FCT v Commercial Nominees of Australia Ltd,[1] the ATO released a Statement of Principles which stipulated that a resettlement would occur when:

‘there was a ‘fundamental change’ to the trust relationship and that a change in the ‘essential nature and character’ of the trust relationship can result in the creation of a new trust.’

The Statement indicated that even some relatively minor changes might trigger a resettlement in certain circumstances. However following the 2011 decision in Commission of Taxation v Clark,[2] the ATO retracted this Statement of Principles stating that the approach was no longer sustainable. In Clark, significant changes were made to the members of the trust and the trust property yet these changes were held to have not constituted a resettlement. The ATO thus amended its report and confirmed that the decision in Clark was now the correct test. It is now accepted pursuant to Clark, that a trust will be resettled where the variation to the trust disrupts the continuity of the essential features of a trust. These being:

• • the terms of the trust deed
  • the trust property
  • the members of the trust

The ATO’s amended report Taxation Determination 2012/21 further notes that provided there has been a valid exercise of the power of amendment or prior court approval, then changes to the trust deed will not result in a resettlement unless the change:

• • terminates the existing trust; or
  • leads to a particular asset being subject to a separate charter of rights and obligations such as to give rise to the conclusion that that asset has been settled on terms of a different trust.

The powers of amendment in the trust deed are very important to ascertaining what variations to the trust can be made. A trust deed cannot be amended without an express power to do so. Where a trust deed contemplates a change and the correct procedures in making the change are followed then it is unlikely that a trust will be resettled. Clark appears to confirm that there are now few amendments to a trust that will cause a resettlement.

What is the effect of resettlement? 

There are significant taxation implications which flow from a resettlement. The disposal of the trust property into a new trust triggers a number of provisions of the Income Tax Assessment Act 1997 (Cth) including a capital gains tax event which the trustee would be liable to pay. In addition, the disruption of continuity of the trust estate means that any losses or gains from the old trust cannot be transferred to the new trust.

How to avoid trust resettlements?

It is very important to obtain legal advice before amending a trust deed in any way. Even where the trust deed includes a power of amendment it is important to read the trust deed and check that the power specifically authorises the proposed amendment. Remember one cannot rely on all of the amendments listed in the different state Trusts Acts where the power of amendment in a trust deed stipulates otherwise. It is also very important that amendments made pursuant to a power are done so in accordance with any process outlined in the deed.

For more information regarding trust resettlements 

Please do not hesitate to contact our Business Development Team on (07) 3252 0011 to arrange an appointment with one of our experienced commercial lawyers.

Footnotes 

[1] [1999] FCA 1455.

[2] [2011] FCAFC 5.

Can you contract out of proportionate liability in a commercial contract?

What is proportionate liability? 

Proportionate liability is a concept that legal responsibility for loss should be allocated to the defendant according to their contribution to the loss.

When was the proportionate liability scheme introduced in Australia? 

Following the 2002 Review of the Law of Negligence, the Ipp Report suggested various negligence reforms. This report was initiated following the rising costs of liability insurance from 1999 to 2002.(1)  One of the changes saw the introduction of proportionate liability legislative schemes.

While most Australian states will allow parties to contract out of proportionate liability in commercial contracts where loss results from a ‘failure to take care’, Queensland, under section 7(3) of the Civil Liability Act 2003 (Qld), is the only state which expressly prohibits this.

What is Queensland’s legislative approach to proportionate liability? 

In Queensland, a defendant cannot escape proportionate liability for a breach of contract that results in economic loss or property damage if the defendant owed a duty to take care to the plaintiff (usually an implied term of the contract).

It is important for parties in commercial contracts to be aware that they may still be liable for a plaintiff’s loss due to a breach of contract pursuant to the proportionate liability provisions in the Civil Liability Act 2003 (Qld). This may apply even if a party can rely on an indemnity clause and an exclusion of proportionate liability has been drafted into the agreement to relinquish responsibility.

Who can be held proportionately liable?

Under section 31 of the Civil Liability Act 2003 (Qld) a defendant who is a ‘concurrent wrongdoer’ must only be held proportionately liable for a plaintiff’s loss. This means that a plaintiff cannot sue and claim 100% of the damages from one individual party when numerous parties have been responsible for ‘multiple causes’ of the loss.

How did plaintiffs bring action prior to the Civil Liability Act? 

Prior to the commencement of the Civil Liability Act, it was commonplace for plaintiffs to bring actions against one of multiple wrongdoers, usually insurance companies or the party with the ‘deepest pockets’. It was then up to the defendant to sue the other parties who contributed to the loss.

The Civil Liability Act, however, changed this and instead placed an onus on plaintiffs under s32 to bring an action for economic loss or property damage against all ‘concurrent wrongdoers’ in the same action.  This was to reduce litigation and to avoid multiple proceedings in respect of the same loss.

What is a concurrent wrongdoer? 

A concurrent wrongdoer is defined in s 30 of the Civil Liability Act as:

a person who is 1 of 2 or more persons whose acts or omissions caused, independently of each other, the loss or damage that is the subject of the claim.

What if a concurrent wrongdoer is insolvent? 

The Civil Liability Act also provides that it does not matter that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died.

Concurrent wrongdoers and proportionate liability is discussed further in the 2013 High Court of Australia case of Hunt & Hunt v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10.

S 7(3) of the Civil Liability Act 2003 (Qld)

While most states allow parties to contract out of the statutory proportionate liability regime, Queensland’s Civil Liability Act prohibits parties from making “express provision for their rights, obligations and liabilities under the contract” in relation to proportionate liability.

It has been suggested that it may still be possible to exclude proportionate liability in Queensland by drafting an exclusion clause whereby the parties agree that the person being indemnified owes no duty of care to the plaintiff in an attempt to circumvent s28 and 29, Chapter 2 of the Civil Liability Act which only applies when an action is brought that is concurrent and coextensive in contract and tort (negligence).

Have a question on interpreting contracts? 

Contact our client engagement team to make an appointment with one of our commercial litigation team today. Call (07) 3252 0011.

Helpful Links 

• How online contracts may contravene the Australia Consumer Law
• SAAS Contracts – A Plain Language Explanation of what they are and what they do
• Could contract frustration save your business from coronavirus? 
• I’ve received a contract. Do I need an employment contract lawyer? 

Footnotes

[1] Tort Law Reform, Law Council of Australia

Recovering land tax under commercial leases or retail shop leases

If you are a landlord or a tenant, and currently hold a commercial lease in Queensland, you may be impacted by the recent Queensland Court of Appeal decision in Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225 (“Vikpro”).

The current state of the law is as follows:

• • If the lease was entered into before 1 January 1992, or after 30 June 2009, (or leases arising from an option to renew, an assignment or transfer of a pre-existing lease), the landlord can recover land tax from the tenant.
  • If the lease was entered into between 1 January 1992 and 30 June 2009, the landlord cannot generally recover land tax from the tenant. However, per section 100 of the Land Tax Act 2010 (Qld) (which was inserted following the enactment of the Revenue Legislation Amendment Act 2017), if tenants have already paid land tax, they cannot be refunded. Additionally, if a court has already granted an order for tenants to pay land tax, the order is still enforceable.
  • If the lease was entered into after 30 June 2009, landlords can recover tax from the tenant.
  • Residential Leases are unaffected by any of these changes, as a landlord cannot recover land tax from a tenant, per the Residential Tenancies and Rooming Accommodation Act 2008 (Qld).
  • Retail Shop Leases are unaffected by any of these changes, as a landlord cannot recover land tax from a tenant, per the Retail Shop Leases Act 1994 (Qld).

The crucial statutory provision in the Vikpro decision was section 44A of the Land Tax Act 1915 (Qld) (the “1915 Act”) [which has been repealed and replaced by a largely equivalent provision in s 83A of the Land Tax Act 2010 (Qld)]. It provided as follows:

 44A               Provision to pay land tax etc. unenforcable

(1)                  A provision in a lease entered into after 1 January 1992 requiring a lessee to –

                     (a) pay tax; or

                     (b) reimburse the lessor for land tax;

                     is unenforceable.

In summary, the Queensland Court of Appeal in Vikpro determined that landlords could claim land tax from their tenants before 30 June 2010 (although this has now been reversed as of 22 June 2017, when the Revenue Legislation Amendment Act 2017 came into force, inserting a new s 83A into the Land Tax Act 2010 (Qld)).

This decision was based on an extensive consideration of the 1915 Act and how the subsequent amendments to that Act should be interpreted.

Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225

Facts of the case

The appellant (Vikpro) was a tenant and the respondent (Wyuna) was a landlord. In August 2006, the tenant had entered into a sub-lease of a property for a period of 70 years. There was a clause in the lease that required the tenant to “pay all taxes and rates in respect of the demised land”.[1] However, at the point in time when the lease was entered into, section 44A of the 1915 Act did not permit the recovery of the land tax.

Section 44A of the 1915 Act was repealed in 2009 by the Revenue and Other Legislation Amendment Act 2009. The following transitional provision inserted in the 1915 Act purported to continue to maintain the effect of section 44A:

“76                Application of previous s 44A

                      ‘(1) This section applies to—

(a) a lease (the pre-existing lease) to which previous section 44A applied immediately before the commencement; and

                             (b) a lease that arises from—

(i) a renewal under an option to renew contained in the pre-existing lease; or

(ii) an assignment or transfer of the pre-existing lease.

‘(2) Previous section 44A applies to the pre-existing lease and a lease mentioned in subsection (1)(b) despite its repeal by the amending Act, section 19.”

In 2010, the 1915 Act was repealed, and the Land Tax Act 2010 (Qld) (the “2010 Act”) came into effect. The 2010 Act contained transitional provisions, including:

“88                Application of this Act

                     (1) This Act applies to—

                        (a) a post-commencement liability; and

                        (b) an act or omission done or omitted to be done for this Act on or after 30 June 2010.

                     (2) This section applies subject to section 93.”

(Section 93 stated that references to unpaid land tax in part 7 of the 2010 Act, which deals with land tax recovery, would include the relevant pre-commencement liabilities.)

“89                Continued application of repealed Act

Despite its repeal, the repealed Act continues to apply to—

(a) a pre-commencement liability; and

(b) an act or omission done or omitted to be done for the repealed Act before 30 June 2010.”

“Post-commencement liability” was defined in section 86 as “a liability for land tax arising on or after 30 June 2010”. “Pre-commencement liability” was defined in section 86 as “a liability for land tax, within the meaning of the repealed Act, arising before 30 June 2010”.

The question the courts needed to answer was whether the transitional provisions in the 2010 Act “continued to preserve the operation of section 44A”.[2]

The Courts’ Decision

In the first instance, the primary judge concluded that the transitional provision did not preserve section 44A and the tenant was thus liable to pay land tax to the landlord.

The primary judge’s decision

The primary judge considered submissions by the tenant, who claimed that, per section 89(b) of the Land Tax Act 2010, the landlord’s entry into the lease was an “act…done…for the repealed Act before 30 June 2010”, so the 1915 Act continued to apply. The tenant also argued that they could, in the alternative, rely on sections 20(2)(b) and 20(2)(c) of the Acts Interpretation Act 1954 (Qld), which state:

“(2)                The repeal or amendment of an Act does not—

…

(b) affect the previous operation of the Act or anything suffered, done or begun under the Act; or

(c) affect a right, privilege or liability acquired, accrued or incurred under the Act…”

The primary judge rejected the argument relating to section 89(b) of the 2010 Act on the following basis:

1. On the assumption that the provision was meant to read “an act done for the purposes of the repealed Act,” which Her Honour felt was “less precise than, say ‘an act done pursuant to the repealed Act’”, the landlord’s entry into the lease could not be considered an act done for the purposes of the 1915 Act.[3]
2. In the 2010 Act, the legislature had not drafted any specific provision to preserve section 44A, indicating that there was “legislative intent that section 44A had no further application”.[4] Section 4 of the Acts Interpretation Act 1954 (Qld) allows the application of the Act to be revoked if there is evidence of contrary intention appearing in an Act. Her Honour was of the view that “the repeal of the 1915 Act and the failure to re-enact a transitional provision equivalent to s 76 of the amended Act showed a clear legislative intention to end the prohibition imposed by s 44A, displacing the application of s 20(2)”.[5]

The tenant’s arguments on appeal

The tenant submitted that both of the primary judge’s conclusions were in error, and that “by virtue of s 89(b), s 76 remained in effect, in turn preserving the s 44A prohibition”. The tenant argued that the word ‘for’ should be read broadly and that in s 89(b), “for” should “be read as a compendious form of “for the purposes of”.[6]

The tenant also contended that the 2009 amendments to the 1915 Act were intended to change the law for new leases while keeping the prohibition for existing leases.

The tenant submitted that if there was a discontinuation of the prohibition on the collection of land tax from tenants who were previously protected, there would be “a change to an ‘exemption’ and a ‘significant policy change’”.[7]

The tenant also argued that the effect of sections 20(2)(b) and (c) of the Acts Interpretation Act 1954 (Qld), was to keep s 76 alive in spite of the repeal.

The tenant also submitted that “it could rely on the presumption against the alteration of rights, which had equal application to statutory rights”.[8] In particular, the tenant relied on the fact that the High Court had restated the presumption on multiple occasions, including in a passage from North Australian Aboriginal Justice Agency Ltd v Northern Territory (2015):[9]

“…the principle of legality favours a construction, if one be available, which avoids or minimises the statute’s encroachment upon fundamental principles, rights and freedoms at common law.”[10]

In addition, the tenant relied on the rule that words used in the same matter are to be construed together. As such, the tenant argued that the 1915 Act and the 2010 Act should be regarded as one system, so they should operate in the same way including reference to land tax.[11]

Appellate court’s decision

The appellate court rejected the tenant’s submission “as to the effect of s 89(b) in continuing the operation of s 76 and hence s 44A of the 1915 Act”.[12]

Holmes CJ rejected the proposition that the word “for” in s 89(b) was as broad as the tenant argued. Per Philip McMurdo JA, “A sufficient answer to each of the appellant’s arguments is that none could result in an extension of the scope of s 44A, such that it would apply not only to land tax under the 1915 Act but also to any similar tax imposed by a later enactment”.[13]

In a 2-1 split decision (Philippides JA dissenting), the appellate court upheld the primary judge’s conclusion.

The 2017 Amendments to the Land Tax Act 2010 (Qld)

On 22 June 2017, the Revenue Legislation Amendment Act 2017 came into force. It inserted a new s 83A into the Land Tax Act 2010 (Qld):

83A               Provision to pay land tax etc. on particular leases unenforceable

(1) This section applies to the following leases—

(a) a pre-existing lease;

(b) a lease that arises from a renewal under an option to renew contained in a pre-existing lease;

(c) a lease that arises from an assignment or transfer of a pre-existing lease.

(2) A provision in the lease requiring a lessee to pay land tax, or reimburse the lessor for  land tax, is unenforceable.

(3) In this section— pre-existing lease—

(a) means a lease entered into after 1 January 1992 and before 30 June 2009; and

(b) does not include a lease that arises from—

(i) a renewal under an option to renew contained in a lease entered into on or before 1 January 1992; or

(ii) an assignment or transfer of a lease entered into on or before 1 January 1992.

It also inserted a new pt 10, div 7, providing:

 Division 7      Transitional provision for Revenue Legislation Amendment Act 2017

100                Application of s 83A

(1) Section 83A is taken to have had effect on and from 30 June 2010.

(2) However, if a lessee of a lease to which section 83A applies has paid an amount of land tax, or paid an amount to the lessor for land tax, before the commencement, the lessee is not entitled, only because of the operation of section 83A, to recover the amount.

(3) Subsection (2) does not limit the grounds on which the lessee may otherwise recover an amount from the lessor for land tax paid in relation to the lease.

(4) Also, if a court has made an order requiring a lessee of a lease to which section 83A applies to pay land tax in relation to the lease—

(a) despite subsection (1), the lessor may enforce the order; and

(b) section 83A does not affect the enforceability of the order.

(5) In this section— land tax includes land tax levied under the repealed Land Tax Act 1915.

These changes had the effect of reversing the effect of the Court of Appeal’s judgment in Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225. The new provisions applied on a retrospective basis, from 30 June 2010.

The practical application of the changes means that despite what the Court of Appeal held in Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, landlords cannot claim land tax from their tenants in pre-existing leases before 30 June 2010, unless they have already done so in the timeframe between the Vikpro decision and the amendments to the Land Tax Act 2010 (Qld) on 22 June 2017, or if they have obtained a court order (in that same timeframe) which compels the tenants to pay land tax.

Legislative Background

A brief overview of the legislative changes and their flow-on effects can be found below:This date includes leases arising from an option to renew, an assignment or transfer of a pre-existing lease

How does this apply to me?

• • If you have a lease that was entered into before 1 January 1992, or after 30 June 2009, (or leases arising from an option to renew, an assignment or transfer of a pre-existing lease), the landlord can recover land tax from the tenant.
  • If you have a lease that was entered into between 1 January 1992 and 30 June 2009, the landlord cannot generally recover land tax from the tenant. However, per section 100 of the Land Tax Act 2010 (Qld) (which was inserted following the enactment of the Revenue Legislation Amendment Act 2017), if tenants have already paid land tax, they cannot be refunded. Additionally, if a court has already granted an order for tenants to pay land tax, the order is still enforceable.
  • If the lease was entered into after 30 June 2009, landlords can recover tax from the tenant.

However, land tax cannot be recovered in retail shop leases under the Retail Shop Leases Act 1994 (Qld), or in residential leases under the Residential Tenancies and Rooming Accommodation Act 2008 (Qld).

How Corney & Lind Lawyers can help

Our team of experienced commercial lawyers here at Corney & Lind Lawyers can assist you if you have questions relating to the recovery of land tax under commercial leases. Call our Client Engagement Team on 07 3252 0011 or email us today to make an appointment.

[1] Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, per Holmes CJ at [1].

[2] Ibid.

[3] Ibid, per Holmes CJ at [7].

[4] Ibid.

[5] Ibid.

[6] Ibid, per Holmes CJ at [8].

[7] Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, per Holmes CJ at [9].

[8] Ibid, per Holmes CJ at [13].

[9] [2015] HCA 41.

[10] Ibid, at [11].

[11]Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225, per Holmes CJ at [14].

[12] Ibid, per Holmes CJ at [19].

[13] Ibid, per Philip McMurdo JA at [41].

Other related articles

https://corneyandlind.com.au/resource-centre/is-your-commercial-lease-or-retail-shop-lease-incentive-inducement-subject-to-gst/

When Can a Buyer Terminate an Off-the-plan Contract?

When a buyer enters into an off-the-plan contract to purchase a particular lot in a community title scheme, years may pass before the development is completed, title created and able to be transferred into the buyer’s name.  During this time, market conditions may change, building schedules may be extended, or it may become apparent that the finished product will be something quite different from what a buyer had originally contracted for.  Generally it has proven very difficult for buyers who have changed their mind to get out of these contracts.

However, there are limited grounds upon which a buyer may be able to terminate an off-the-plan contract namely:

• • Misleading and deceptive conduct;
  • Failure to disclose;
  • Changes / Variations to the disclosure statements; and
  • Developers failing to complete construction before the sunset date.

When a buyer desires to terminate an off-the-plan contract, they should promptly seek legal advice as to their options.

Misleading and Deceptive Conduct

A buyer may be able to rely on the Australian Consumer Law and terminate a contract if they were induced to enter the Contract as a result of misleading or deceptive conduct on the part of the Seller. The difficulty for buyers in alleging such behaviour is that the situation can often turn into a “he said, she said” argument.

Nevertheless, it is not impossible for a buyer to be successful in terminating a contract on such grounds as seen in the case of Nifsan Developments Pty Ltd v Buskey.[1] The Buyers in this case had communicated to the developer’s agent that they were seeking to purchase a Gold Coast apartment with unrestricted views. The Buyers subsequently entered into a contract to purchase a penthouse apartment from the developer after its agent confirmed that the views from the penthouse would be uninterrupted. However, the Buyers later found out that the developer had sought approval to develop a separate building in close proximity to their apartment which would limit the Buyer’s view. Relying on s 52 and 53A of the Trade Practices Act 1974 (Cth) (since superseded by the Competition and Consumer Act 2010 (Cth)), the Buyers were successful in having the contract declared void and obtaining a refund of their deposit.

The court formed the view that the misleading representations made by the sales agent induced the Buyers to enter into a contract with they otherwise would not have entered. It is worth noting that this case seemed to turn on the issue of credibility, with the judge viewing the buyer’s recollections as “generally reliable” as opposed to those of the sales agent whose evidence was viewed as “not convincing”.

Failure to Disclose

A buyer has the right to terminate an off-the-plan contract prior to settlement (within certain prescribed time limits), if the seller has not provided the buyer with a disclosure statement in the prescribed form.

If a substantially complete disclosure statement is provided, a buyer may still be able to terminate the contract prior to Settlement if it is later revealed that the statement contains inaccuracies. In such circumstances the Body Corporate and Community Management Act 1997 (Qld) allows a buyer to terminate if they would be “materially prejudiced if compelled to complete the contract, given the extent to which the disclosure statement was, or has become, inaccurate”. Additionally, any buyer purporting to terminate must do so in writing, within the requisite time period.

When considering whether a “material prejudice” exists, the courts will consider the buyer’s specific circumstances from an objective point of view. In Gough v South Sky Investments Pty Ltd,[2] a group of buyers had each contracted to purchase a luxury Gold Coast apartment in a ‘residential tower’ called ‘The Oracle’. The contracts were entered into in 2005-2006, after which the value of luxury apartments in the area began to decline. In 2010, SSI advised the buyers that the ‘residential tower’ in which lots had been purchased would in fact function as a hotel/resort, and would be branded as ‘Peppers Broadbeach’. As a result, some buyers claimed that they would suffer material prejudice if they were forced to complete their contracts for a myriad of reasons, including:

• • That their lots would decrease in value because of the Peppers branding and the operation of a hotel/resort by Peppers;
  • That it would be more difficult for them to rent their lots, or appoint an off-site letting agent because of the hotel/resort being operated;
  • That the operation of a hotel/resort that focused upon short-stay tenants was likely to accelerate the deterioration of common property.

Ultimately, the court found that the buyers did not provide evidence to prove that the branding of the tower as ‘Peppers Broadbeach’ had an adverse effect upon the value of their apartments.  As a result, they were unable to prove that they would be materially prejudiced if forced to complete the Contract.

Sunset Dates

The sunset date in an off-the-plan contract is a date in the future (usually between 12 and 36 months from the date of contract) within which the Developer must complete the construction of the property and have the Community Titles Scheme established (and title to the lot to be purchased created).

Section 217B of the Body Corporate and Community Management Act 1997 (Qld) also provides buyer’s with a right to terminate an off the plan contract if the Seller does not settle the contract by the statutory sunset date. When a contract does not specify a sunset date, the seller must settle the contract within 3.5 years after the day the contract was entered into by the buyer (unless otherwise agreed by the parties). Importantly, a buyer will only be able to terminate after the expiry of the sunset period if they are not in default under the Contract. This means for example, that where a vendor is ready, willing and able to provide a registrable instrument of transfer, a buyer cannot simply refuse to attend at settlement, wait for the sunset period to expire, and then terminate their contract without consequence.

Contact us

If you have any questions relating to off-the-plan contracts, contact our Client Engagement Team and they will book you an appointment with one of our property lawyers. Call us today on (07) 3252 0011.

[1] [2011] QSC 314.

[2] Gough v South Sky Investments Pty Ltd (recs and mgrs apptd) (in liq) [2011] QSC 361

Other related articles

https://corneyandlind.com.au/resource-centre/failing-to-settle-off-the-plan-contracts/

https://corneyandlind.com.au/resource-centre/buying-and-selling-units-off-the-plan/

https://corneyandlind.com.au/resource-centre/off-the-plan-contracts/

What is the difference between a warranty and an indemnity?

Warranties and indemnities are considered to be a staple feature of many contracts (especially in the case of mergers and acquisitions transactions), so much so that they are often given very little consideration by the parties. Broadly speaking, warranties and indemnities are intended to provide the parties with peace of mind, and protect specific parties’ interests.

Warranties provide assurances about the status of a party’s affairs (such as profitability and the existence of liabilities) and indemnities provide protection from specific risks coming to fruition (such as a law suit being initiated).

You may hear the terms “warranty” and “indemnity” used interchangeably. However, there are differences between these two concepts and they serve distinctly different purposes. Where a warranty or indemnity is used incorrectly, it may be unenforceable.

Warranties

A warranty is a contractual statement of a fact by one party to another, asserting that a specific state of affairs is true.

The purpose of a warranty is to allocate risk. The warranting party gives an assurance that the information set out in the warranty is true, and verifies this by assuming responsibility for the damages if that warranty is (or becomes) untrue.

Because not all statements of fact can be substantiated through due diligence investigations prior to a transaction being completed, warranties are useful for providing protection against these unsubstantiated aspects. Some parties also choose to include warranties about specific affairs that they have already conducted due diligence on, in case more information about that state of affairs comes to light later in a way that disadvantages them.

A breach of warranty is a breach of contract. If a warranty is breached (that is, if it is discovered to be untrue), then the injured party can claim damages from the warranting party. The aim of these damages is to place the injured party back in the same position that they would be in, had the breach of warranty not occurred. The specific calculation of damages and the factors taken into consideration will vary depending on the nature of the contract and the nature of the warranty that has been breached.

A breach of a warranty entitles an injured party to claim damages only. Unless specifically agreed, it does not entitle a party to terminate a contract. In this way a warranty is to distinguished from a condition, but that is the subject of another article.

The types of damages that are generally claimed are the losses flowing directly from the breach of warranty (direct losses) and losses that could reasonably be contemplated by the parties as being the probable result of the breach of warranty (indirect losses) but common law limitations of the damage not being too remote apply. Parties often seek to limit the type or extent of damages that can be claimed (for example, limiting damages to direct losses only) by including specific clauses in their contracts.

The injured party has a common law obligation to mitigate their damages. If they fail to do so, the damages that they can claim may be limited by the extent that they failed to mitigate their loss.

In the context of a business sale by way of share sale (as opposed to asset sale), an example of a breach of a warranty could be as follows:

• • a seller provides a warranty to a buyer that the business has no liabilities other than the liabilities that the seller has disclosed to the buyer;
  • after settlement, a liability of the business is discovered that the seller did not disclose to the buyer;
  • the business is responsible to pay that liability, even though it was not disclosed to the buyer;
  • assuming that the parties did not limit the warranty, the buyer will have a right to claim against the seller for that liability and any other indirect damage suffered by the buyer as a result of that liability (subject to mitigation and the the damage being not too remote).

In addition to the consequences under a contract for a breach of warranty, there may also be consequences under the Australian Consumer Law for a false or misleading warranty.

It is also worth considering whether a proposed warranty can be “closed out” during a due diligence period, to avoid the need to include it as a warranty. However, warranties do not replace the need to conduct thorough due diligence on the party that you are contracting with. They are simply there to serve as a safety net.

Indemnities

An indemnity is a “legal protection against liabilities arising from one’s actions”[1]. That is, one party (Party 1) promises to another party (Party 2) to accept the risk of the loss that Party 2 might suffer in a particular situation.

Indemnities are generally used by buyers to protect themselves against matters that are outside of their control. They are also commonly used to cover known risks (to be distinguished from warranties, which are commonly used to protect against unknown risks).

There are many different types of indemnities. Some include:

• • Bare indemnity – Party 1 indemnifies Party 2 against all loss that Party 2 might suffer, without limitation (but unusually limited to loss arising out of specified circumstances);

• • “Hold harmless” indemnity – Party 1 indemnifies Party 2 against the loss that Party 2 might suffer as a result of Party 1’s actions[2];

• • Proportionate indemnity – Party 1 indemnifies Party 2, with specific limitations (for example, the indemnity might exclude loss suffered by party 2 as a result of Party 2’s omission);

• • Third party indemnity – Party 1 indemnifies Party 2 against claims made against Party 2 by a third party;

• • Party/party indemnity – Each party indemnifies the other against loss caused to the other by the indemnifying party.

An indemnity provides compensation for a specific demonstrated loss. If an indemnified event occurs, the indemnified party is reimbursed for all loss suffered by them as a result of that event.

If the indemnified party invokes the indemnity, they are able to recover the value of their loss as a debt (rather than damages under breach of contract). This often simplifies the recovery process and makes it easier to obtain payment.

Unlike a warranty, there is no automatic common law obligation for the indemnified party to mitigate its loss, as long as the loss suffered by it is a loss that comes within the terms of the indemnity. Because of this, indemnifying parties often insert a specific clause in their contracts requiring indemnified parties to mitigate their loss.

The loss caused by a breach of an indemnity can often be easier to quantify than a loss caused by a breach of warranty as the counter arguments of mitigation and remoteness do not apply. The indemnified party can simply claim all of the loss actually suffered by it due to the indemnified event occurring.

Parties commonly misuse or over-use indemnities. Many indemnities are unnecessary, inequitable or drafted heavily in favour of the party with the greater negotiating power.

To avoid disputes regarding the application or scope of an indemnity clause, it is important to be very clear in the drafting of indemnities. Indemnities should not be boilerplate clauses as they need to be drafted to cater specifically to the matter being indemnified and the circumstances of the respective parties to the indemnity. Case law suggests that where an indemnity is unclear, it will be construed against the party seeking to reply upon it. Indemnities should include specifications of (without limitation):

• • who is protected;
  • who is liable for a breach of the indemnity;
  • the extent of the loss that is covered (consider using deliberate causative nexuses, for example “arising out of”, “caused by” or “in connection with” – noting that each of these nexuses would be used in different circumstances);
  • the event which triggers the activation of the indemnity (such as a breach of the agreement, or destruction of the asset in question);
  • any specific exclusions or limitations; and
  • whether the indemnity is in addition to or in replacement of other remedies that may be available to the injured party.

If you are the indemnifying party, you may also wish to consider:

• • specifying that you are not providing indemnities for events outside of your control;
  • carving out loss attributable to the actions or omissions of the indemnified party;
  • inserting an obligation for the injured party to mitigate their loss; and
  • including a limitation period in the indemnity.

It is also possible to take out insurance to respond to the cost of a breached warranty or indemnity. The cost of such insurance will of course depend on which party is being insured, the nature of the warranty or indemnity, the damage caused by a breach, the remoteness of the loss or damage suffered, and the calculated probability of such a breach coming to fruition.

Summary of Some Basic Differences Between Warranties and Indemnities

Conclusion

Warranties and indemnities can provide good peace of mind and a substantial safety net when utilised correctly. If you require assistance in drafting or reviewing warranties and indemnities, please contact one of our experienced commercial lawyers.

Footnotes

[1] Butterworths Concise Australian Legal Dictionary, definition of “indemnity”.

[2] Business Law textbook, page 904 at 13-365.

Difference Between Lease And Licence: Why It Matters

As William Shakespeare pondered centuries ago, “What’s in a name?”

Shakespeare may have been prophetic – in a modern legal context, the name given to a document or agreement may not reflect its true nature. If you have permission to use someone else’s land for a particular purpose, you may have entered into a written agreement with the landowner which sets out the terms and conditions of your occupation. The agreement may be called a licence or licensing agreement suggesting that you have a personal right to enter and use the premises.

However, on closer inspection, your so-called licence could turn out to be a lease giving you an interest in the land itself together with the rights and responsibilities of a tenant.

In these circumstances, the judicial view is that substance takes precedence over terminology with courts examining the true nature of the agreement rather than its language to ascertain the genuine intentions of the parties.

Clarifying the practical difference between a lease and a licence could help you to determine your rights and obligations and avoid costly litigation in the long term.

Lease vs. Licence – the Practical Difference

The key distinction in the difference between a lease and a licence is that a lease affords the tenant or lessee an interest in the leased premises which is manifested in the right to exclusive possession (see the case of Radich v Smith [1959] HCA 45 discussed further down).

Exclusive possession entitles the tenant to remove unwanted visitors (potentially including the landlord) during the term of the Lease.

By contrast, a licensee merely has a licence agreement to occupy the property and has no right to exclude others during the licensee’s period of occupation.

To highlight the difference between a lease and a licence, we have provided a selection of the rights and responsibilities of a tenant under a lease contrasted with those of a mere licensee who does not have the same interest in the land:

Common Law Right to Sue an Intruder in Trespass

Tenant under a lease: As discussed, a lease entitles the tenant to ‘exclusive possession’ of the Premises, which includes the right to expel an unauthorised visitor. This means that the tenant may have an action in trespass against the landlord if s/he enters the land without the tenant’s consent and without authorisation under the terms of the lease.

Licensee under a license: No such right of exclusion is available – the owner / licensor of the land may be free to enter the land at will.

Registration of Lease – Protection Against Competing Interests

Tenant under a lease: A long-term lease (for a term exceeding 3 years) in Queensland must be registered on the title in order to “transfer or create an interest in the lot”. See Section 181 and 182 of the Land Title Act 1994 (Qld). In the Queensland context, registration is optional for short-term leases of 3 years or less. Once registered, it will enjoy the protections of indefeasibility, meaning that the tenant’s interest in the land will take priority over other, unregistered instruments.

Licensee under a license: A licence cannot be registered and therefore it does not vest the licensee with an interest in the land.

Obligation to Pay Rent and to Keep in Repair

Tenant under a lease: Section 105 of the Property Law Act 1974 (PLA) provides that the tenant is obliged to pay the agreed amount of rent and keep the premises in good repair (except in the case of fire, flood or similar event rendering the premises unfit for the purpose). This provision can be excluded or modified by the express words of the lease.

Licensee under a license: The licensee’s repair and maintenance obligations, and the amount of rent payable, will depend upon the terms of the licence.

Breach of the Obligation to Keep the Premises in Good Repair

Tenant under a lease: If the tenant breaches this repair obligation, under Section 112 of the PLA, any damages recovered by the landlord must be proportionate to the resulting decrease in the value of the premises. The landlord cannot forfeit the lease for a failure to repair without complying with the Section 124 notice requirements (see below).

Licensee under a license: The licensee’s repair and maintenance obligations, and the amount of rent payable, will depend upon the terms of the licence.

Repair Obligations Will Depend Upon the Terms of the Licence

Tenant under a lease: Section 107 of the PLA allows the landlord a limited right of entry to view and make repairs to the leased premises (representing an exception to the tenant’s right of exclusive possession). However, this can be excluded by the express terms of the lease.

Licensee under a license: The licencor can generally enter the premises at any time and for any purpose (whether to make repairs, view the premises or otherwise). If the licensing agreement limits the licensor’s capacity to enter the premises, the license may constitute a lease.

Right to Assign or Sublease to a Third Party

Tenant under a lease: Per section 121 of the PLA, the landlord cannot ‘unreasonably’ refuse to consent to the proposed assignment or sublease. This section cannot be excluded by the express provisions of the lease, but will only operate in circumstances where the landlord’s consent is expressly required.

Licensee under a license: The licensee has a mere personal right to use and occupy the property, and is not able to enter into an assignment or sublease unless the express terms of the licence agreement allow it.

Right of Forfeiture / Re-entry

Tenant under a lease: Section 124 of the PLA provides that if the tenant is in breach, the landlord cannot forfeit the lease and retake possession of the premises without first giving the tenant notice of the forfeiture and a reasonable time to rectify the breach or pay any ‘reasonable compensation’ for the damage. (However, this protection is not available for leases / tenancies of 1 year or less.)

Licensee under a license: A licensee enjoys no such protection. In theory, a licence may be terminated at the will of the landowner / licensee even though contractual damages may apply.

Subdivision Approval Requirements Under the Sustainable Planning Act 2009 (Qld)

Tenant under a lease: A lease of part of a lot (that is not part of a building) for a term exceeding 10 years (including options to renew) will constitute a ‘reconfiguration of a lot’ requiring subdivision approval from the local authority.

Licensee under a license: Not so for licences.

Shared Occupancy

Tenant under a lease: A lease affords the tenant an exclusive right of possession and is therefore unsuited to shared use / occupancy.

Licensee under a license: A licence is suitable to shared use (making it appropriate for a number of arrangements our church clients enter into).

Case Law: Radich v Smith – Lease or Licence?

In the case of Radich v Smith [1959] HCA 45 (“Radich’s case”), a small business owner, Maria Radich, entered into a deed of agreement to operate her milk bar out of a lock-up shop in Sydney’s Mossman area.

Under the terms of the agreement, Ms Radich was granted the “sole and exclusive license and privilege to supply refreshment to the public…and to carry on the business of a milk bar.”

However, despite the use of the term licence, the High Court ultimately found that Ms Radich had been granted a lease of the premises for the agreed period.

Justice Windeyer held that, “I imagine all concerned would have been astounded if they had been told that the appellant [Ms Radich] had no right to exclude persons”, especially given that the premises was a lock-up shop and therefore not readily accessible to others outside Ms Radich’s business hours.

His Honour further noted that it would be equally astonishing if the owners of the shop were able to “licence other people to carry on any activity there” provided only that this did not interfere with Ms Radich’s business operations.

Clearly, Ms Radich was implicitly entitled to remove unwanted visitors and to conduct her milk bar business without unauthorised entry or interference. This gave her a right to ‘exclusive possession’ of the premises for the term of her occupation, an arrangement more consistent with a leasehold interest. She was therefore entitled to have her rent determined by the Fair Rents Boards (one of the protections afforded to tenants in New South Wales at that time).

Determining the Parties’ Intentions

Justice Windeyer noted that the difference “between a lease and a licence” is ultimately “a question of intention.”

But, His Honour proceeded to say:

Intention to do what? Not to give the transaction one label or another. Not to escape the legal consequences of one relationship by professing that it is another. Whether the transaction creates a lease or a licence…depends upon the nature of the right which the parties intend the person entering upon the land shall have in relation that land.

His Honour therefore acknowledged that language has the potential to mislead – certain terms may be adopted, sometimes unconsciously, sometimes with the deliberate intention of concealing the true nature of the parties’ agreement and evading the attendant legal ramifications.

Therefore, even if your agreement is called a lease (or a licence), this is not necessary conclusive. It is essential to consider the entire agreement (not just isolated terms) in order to determine the rights and interests the parties intended to create.