REAL PROPERTY



REAL PROPERTY

GEOFF MOORE – SEMESTER 1 2000

Torrens and Old Systems Title

The 2 Systems

• Old System Title

• The English brought their system (Old System title) to Australia – tracing ownership back through previous owners until it reached the original Crown grant.

• The emphasis was placed on the idea that my title was no better than the person from which I purchased the item/land from. i.e if you purchase from a thief, your title is no better than the thief’s – that is, no title.

• Torrens Title

• The system developed in South Australia in C19th by Sir Torrens Title.

• Adapted in NSW by the Real Property Act 1900, which overrode previous legislation of 1862. The system has been embraced across Australia, NZ, Israel, Malaysia and Russia. 99% of land in Australia is governed by the TT system.

• TT is based on the idea that there is a register maintained in the Land Titles Office (which administers it, run by the Registrar General). Registration is the all-important factor.

• Under TT, if you pay for TT land and register it, you are able retain title, even if it subsequently transpires the person you purchased from didn’t have real ownership.

• The fundamental difference between the 2 systems is the principal of registration v real ownership.

Processing A Torrens Title Purchase

• Exchange of Contracts (C/S)

• An interest in land has to be created in writing. Verbal/handshake agreements don’t count.

• The process involved 2 identical contracts (1 signed by the vendor, the other by the purchaser) being exchanged. At that point BOTH parties are considered contractually bound.

• At exchange of contracts, a deposit is usually paid to the vendor.

• Specific performance is an equitable remedy to both the purchaser/vendor to compel either party to complete the sale/purchase.

• Completion (C) / Settlement (S)

• Usually takes 6-8 weeks to complete but can vary.

• Completion is where a transfer (tfr) is handed over by the vendor. It is the delivery of the signed transfer of land from the vendor to the purchaser – this constitutes the settlement.

• At this time the balance of the money owed should also be paid (not a strict rule, but usually part of good conveyancing practice.)

• Lodgement

• After settlement, transfer should be registered (usually ASAP).

• Registration

• Should occur 24 hours after the lodgment (unless complications arise)

• Complications may include – discrepancies with names or the spelling of names. In such as case, a requisition is needed to satisfy the registrar that the misspelt names belong to the persons named in the contracts.

• If the complications involved a registered lease or other technicalities (i.e. prior incumberances) then they need to be overcome before registration will take place.

• Every block of land governed by the Real Property Act in NSW has its own separate certificate of title (computer generated). Within it will be 2 schedules.

• The 1st Schedule contains the name of the purchaser (which replaces the name of the vendor).

• The 2nd Schedule contains all other interests of land (e.g. mortgages, leases, easements and restrictive covenants).

• Whoever is registered in the 1st schedule is subject to everyone registered in the 2nd.

• The notion of indefeasibility however states that the person in Sch 1 should not be liable to anyone outside of Sch 2.

• The order of subjectivity/priority in Sch 2 is established according to the order of registration (s 36(9) RPA).

• S 36(6) – if you want to register anything it has to be according to the certificate of title.

Ss 41, 42, 43 of the Real Property Act

• S41 – Title By Registration

• Cth v NSW (1918) - HC established that a purchaser only gets title of land by registering it, not simply because the vendor has been paid. Title is granted by way of registration.

• Reaffirmed in Frazer v Walker (1967).

• S42 – Title by Registration Has the Quality of Indefeasibility

• Indefeasible title s granted only by registration.

• Mayer v Coe (1968)

• M left land title with solicitor; C also client of solicitor. Solicitor told C that M wanted to borrow money. C handed money over to solicitor in return for M’s mortgage and land title (forged by the solicitor).

• C therefore listed in Sch 2 – getting also title of registration (s 41) and indefeasible title (s 42). M is now subject to C.

• WHAT IS THE JUDGEMENT??!

• When dealing with 2 equally innocent parties, the Court will find for the party that is registered over the unregistered party.

• Followed by PC in Frazer v Walker and in obiter in Breskvar v Wall.

• S43 – Registration Grants Title of Land

• I can deal with the registered party withou troubling myself as to whether they are entitled to be registered. (key of the TT system).

• State Bank v Berowra Waters (1986)

• BW registered in 1st Schedule;SB in the 2nd.

• BW pays off mortgage and bank hands over ‘discharge of mortgage’ which is then registered at LT office.

• SB realises weren’t paid enough and that they discharged the mortgage wrongfully.

• Court held that by having the mortgage discharged and registered, the bank effectively ended the mortgage and no longer had any claim under Sch 2.

• Kokeff v Bogdanovic (1988)

• K owned a property ansd registered under Sch 1. Told B if she looked after him, he would leave his house to her for the duration of her life and it would then revert back to his family. K died before the agreement was registered.

• The son (executor and sole beneficiary) became registered under Sc1.

• Ct held that B had no claim because the son had an indefeasible title – he was registered, she was not. Only those registered in Sch 2 can claim against those in Sch1.

• ***Bursill Enterprises v Beyer Bros (1971)

• 2 adjoining properties; an easement had gone through P1. P1 had rights over it, but 3.6m above the easement, P2 had the right to build and demolish (ie the airspace).

• P1 argued it should own the airspace over the easement.

• P2 argued when they were registered for the easement in Sch 2 they acquired indefeasibility and their rights therefore could not be overturned.

• HC agreed – on registration, that which could not be achieved was achievable. Registration is the key.

• Fels v Knowles (1906) – NZ Case

• Owner held property on trust for beneficiary. Trust said trustee had right to lease the house but no power to sell the property. Trustee leases the house and registers it (T in Sch1 and lesee in Sch 2).

• Fineprint of the lease though said that L had the option of purchasing it.

• Ct found that even though the trustee was not enpowered to sell the property, the registration of the lease made Sch2 powers override those of Sc1 – therefore the option of purchasing the land stood, despite other laws forbidding it.

• Registration overrides other laws.

Exceptions to Indefeasibility

Determining Priorities in Torrens Title Disputes

1. Registered v Registered

2. Registered v Unregistered – exceptions to indefeasiblity

3. Unregistered v Registered – exceptions to indefeasibility

4. Unregistered v Unregistered

• When dealing with scenario 1 – ask who is in the 1st/2nd schedules – it will affect priority. 1st Sch is subject to everyone registered in the 2nd. If there are 2 people registered under Sch 2, s36(9) RPA says it goes down to who was registered first.

• When dealing with scenarios 2 + 3 – the registeres person generally shall have priority unless there is an exception to indefeasiblity.

Exceptions

A) Fraud

• SS 42/43 both recognise fraud as an exception to indefeasiblity.

• “Fraud” can be committed by the person who is registered or by someone who acted for the benefit of the person who is registered.

• Where the dishonest party is registered, fraud will apply – if the dishonest person registers another on grounds of a gift, fraud will apply.

• Definition doesn’t cover situations like that of Mayer v Coe though because Coe was never aware of the fraudulence and was just as much a victim as Mayer. If Coe had been dishonest though then it would have amounted to fraud.

• Wicks v Bennett (1921)

• HC held that notice of itself is not fraud. ie – Just because there is notice of someone’s interest in land (and you knowing this continue to act as if it is irrelevant), it doesn’t amount to fraud.

• If the notice is dishonest enough, it might make the notifier fraudulent and therefore amount to fraud – eg knowing of a forged signature and taking advantage of it.

• Stuart v Kingston ( 1923)

• Fraud is a “personal dishonesty” or “moral turpitude”.

• Assets Co v Mere Koiki (1905) - NZ

• MR was bringing a class action on behalf of all Maoris. Land in dispute had been transferred to A under Torrens Title. A claimed indefeasibilty.

• MR argued A had been fraudulent because they’d acquired registration in contravention to land title legislation. Never proven A knew the transaction was in breach of land title law.

• PC – without showing a mental element, there can be no fraud. Constructive notice is not fraud.

• Loke Yew v Port Sweltenham (1913)

• Modern Malaysia.

• A significant piece of land in Salangor owned by Usopi who sold part of it to LY who farmed the land but didn’t register the title. Usopi sold the rest of the land to PS, including the land already owned by LY. PS evicted LY as soon as they registered their title.

• PC – it is fraud to take a transfer and register it in the LTO pretending all affairs are in order when 1 party knows at all times that the affairs are otherwise.

• Breskvar v Wall (1972)

• B was registered in 1st Sch, borrowed money from Petrie. Petrie persuaded B not to sign a mortgage ut a transfer stating the property had been sold. P’s grandson (Wall) became the registered owner.

• B however still had an equitable unregistered right to challenge it because B had never intended to sell, but conned into the transaction thinking it was something else.

• HC – if the dispute were between B and W – B would win because fraud on P’s behalf is imputed to W. (P acting for benefit of W).

• Because W had alter transferred the property to Alban though, B had no action.

• Note – under QLD not NSW legislation – QLD legislation doesn’t have an equivalent to s 43A RPA.

• Schultz v Corwill Properties (1969)

• Facts similar to Mayer v Coe

• CP owned a number of properties, solicitor was Galea. G had other client called Schultz (money lender). S sent money to G thinking a loan for CP; G pocketed the money, forged the mortgage and S got listed under Sch 2 of title.

• Cp unknowingly asks for title back, so G decides to dishcarge the mortgage fraudulently.

• Street J – was CP still under the mortgage?

• S argued when G fraudulently caused the discharge he was acting for the benefit od CP therefore CP should be imputed for dishonesty.

• If that were to be the case though, then the earlier transaction granting the actual mortgage would fall under the same category.

• Ct held G was acting for himself only; state of register determined the outcome – ie S not listed under Sch2. CP therefore won and was held to be liable to noone.

• NAB v Hedley (1984) – NSW Supreme Court

• Mr/Mrs H owned land, Mr H got loan from NAB for himself and wife, but Mrs H not aware of it.

• Mr H forged wife’s signature and did his signature at the bank – bank officer stating he had witnessed both signatures. Officer didn’t know Mrs H’s signature was forged, but by purporting to witness both signatures, he allowed registration to go ahead and the bank was enlisted in Sch 2.

• Sch 2 status challenged, the bank argued ground of Mayer v Coe.

• Ct said bank was ‘fraudulent’ in that they had passed off a document at registration as having been properly witnessed when the bank officer knew it wasn’t properly witnessed. The fact he didn’t know it was forged was irrelevant.

• Bahr v Nicolay (1988) - WA

• B is registered, transfers it to N. 2 other contracts are signed at the same time. N leased property back to B for 3 years with option to repurchase in favour of B.

• N now registered, but subseqently transfers title to Thompson (T). Even though N and T contracted, clause said T acknowledged the agreements between N and B ( no contract between T and B). B wants to repurchase as market fluctuated in his favour, T said no.

B transfers title to N

N agrees to 3 year lease with option to repurchase with B

N transfers title to T

• HC faced with dispute between B’s equitable right to repurchase and T’s interest in the land.

• Ct determined T’s “I acknowledge” mean T agreed to be subject to previous arrangements between B and N. Is it fraud to renege on that?

• Ct held 5-0 in favour of Bahr on 2 different grounds though.

1. - Mason/Dawson held there was fraud on T’s behalf – if you promise something and

intend it at the time of promise, when you renege on it within the scope of this law,

it amounts to equitable fraud. It is against conscience to allow T to renege on B.

– Intention to renege after registration s fraudulent and acts as exception to RPA

indefeasiblity.

2. - Wilson/Brennan/Toohey – defence not in fraud but in personal equity.

– once T had effectively agreed to be subject to B a trust was established – T holding

the property on trust for B. T was therefore bound in equity and subject to B.

• Snowlong v Choe (1991)

• Landlord subject to unregistered lease where LL sells to purchaser who agrees to be bound by the lease. P tries to evict tenant on grounds of indefeasiblity.

• Wood J – purchaser was bound by the lease. The decision to renege was pre-registration, so all 5 judgements in Bahr v Nicolay applied.

• Disrepancy in BvN in judgements was because decision to renege came after registration.

• Ceros v Tendra (1992)

• LL subject to a 6 year lease, almost expired, with an option to re-lease for another 7 years. Lease isn’t registered.

• Purchaser from LL is asked to be subject to the lease; P says no. Tenants lawyers say P is subject to the lease, P says no.

• P gets registered making it clear he does not intend to be subject to the lease.

• Tenant argues fraud (B v N). Ct distinguished it on facts because in this case the purchaser never agreed to be subject to the lease.

B) Personal Equities

• This exception is wholly and solely recognised in case law – there is no legislative authority dealing with it.

• Barry v Heider (1914)

• Affirmed by PC in Frazer v Walker.

• B registered and borrowed money from Schmidt, unknowingly signing a transfer instead of mortgage – making S the new owner. S then enters into a mortgage with H.

• H lends money on security of land; B discovers what happened and challenges it. B (registered) taking action against H (unregistered).

• Ct – who had priority? – B registered so technically winner, BUT ct took into account B’s stupidity in the entire transaction (ie – letting someone transfer the title in the first place).

• B’s actions armed S with the power to appear to others that he was the true owner. So even though B hadn’t sold his land and H had lent the money unknowingly, the blame fell in B’s conduct and gave rise to undermining indefeasiblity.

• Ct held in equity, B should be subject to H.

• Reasoning of Court:

1. It’s wrong to say B must win because he was registered – equity must be able to side step it somehow.

2. Not only should B be subject to H where B has created H, but also where B’s actions have contributed to the situation.

• MMI v Gosper (1991)

• Ct propounded that it is always possible for courts to be able to identify new fact scenarios giving rise to personal equities.

• Mrs G owned a property and owed $265 000 to MMI as well as them being registered under Sch 2.

• Mr G approached MMI (allegedly on behalf of his wife) asking for another $285 000, but wanted it under his business name. Said wife agreed to it. Mr G forged wife’s signature etc; MMI had no appreciation of the dishonesty.

• MR G dies, Mrs G finds out.

• Mahrney J (Kirby concurred) – development of new personal equity.

• Because MMI were the pre-exisitng first mortgagee they owed Mrs G a fiduciary obligation not to use her title deeds without her authority. MMI thereofre owed a duty of care and, in breaching it, was subject to liability.

• Gives rise to a 4th scenario where personal equity can exist – where there is a pre existing relationship, there is a duty owed to the mortgagee by the mortgagor and a breach of that amounts to a defeat of indefeasibility.

• Grgic v ANZ (1994)

• Mr G Snr owned a property; Mrs G and son negotiated with ANZ for loan on behalf of MR G Snr. Bank agreed but wants to meet Mr G Snr first; wife brings in an imposter.

• Mr G discovers this and argues on Gosper authority.

• Ct distinguished Gosper from this case because in this case the bank had no pre-exisitng relationship.

Summary – Situations giving rise to Personal Equity

• A person can use the personal equity as a defense to indefeasiblity where:

• The registered person created the unregistered person (Barry v Heider)

• The registered person so misconducts themselves that their misconduct gives rise to personal equity in favour of an unregistered person. (Barry v Heider)

• A registered party agrees with a 2nd party to be subject to a 3rd unregistered person. (Bahr v Nicolay)

• where there is a pre existing relationship, there is a duty owed to the mortgagee by the mortgagor and a breach of that amounts to a defeat of indefeasibility. (MMI v Gosper)

C) Other Exceptions – The Real Property Act

• S 41(1)(a)

• Where the land titles office issues 2 certificates of title – the 1st certificate issued is the one that counts. The 2nd one is treated as having been issued wrongly and therefore the claim of indefeasiblity is defeated.

• S 42(1)(a)(i)

• Where an easement is omitted or misdescribed in the register, the person who benefits from it can still enforce it. It is a defence to indefeasibility.

• The easement must have been created in writing (under TT). Under OS though, non-written easements are still acceptable – Beck n Auberach (1986) and Pobbie v Davidson (1991).

• James v Stevenson – if an easement under OS is created, the fact that it isn’t registered doesn’t detract from its indefeasibility.

• James v Registrar General – agreed with above case.

• S 42(1)(b)

• Omitted profit a prendre (harvests etc)

• If a profit a prendre is omitted from the register it remains enforceable.

• S 42(1)(c)

• Where the boundaries have been misdescribed by something like a conveyancing error, this section allows the register to redefine the boundaries so that they reflect the boundaries appropriately.

• S 42(1)(d) – Short Term Leases

• Applies to short term leases.

• A short term lease is where the actual lease and any option to extend it is equal to 3 years or less (De Alcover Holdings).

• Must show – the lease was short term and the person now registered took interest with notice.

• Notice can either be actual or constructive (I would know if I had made all the enquiries of a prudent person – Marsden v Campbell 1897)

• Also imputed notice – where your agent has actual/constructive notice, it is imputed to you (Miller v Kenwick).

• Clyne v Lowe (1968)

• C bought from vendor with protective tenancy (to keep prices low) policy. Court held that even though C didn’t know who exactly who the tenant was, C was stuck with him/her due to having constructive knowledge of the policy – ie the building was run down – suggesting it was policy protected.

D) Further Defences

• Inconsistent Legislation

• When 2 pieces of legislation are conflicting, the later released legislation prevails (Pratten v Warringah Shire Council 1969; South Australian Earth Drainage Board SA v Savings Bank SA).

• Cth legislation overrides State legislation to the extent of the inconsistency (s109).

• Possessory Title

• Pt VI of RPA – parliament has provided that where the person registered has ceased to be in possession for 12 continuous years, and the one in possession has been in adverse possession, he/she gains better title than the owner. Eg squatters.

• Mulcahy v Curramore Ltd (1974)

• Possessory title requires

– that possession is open (not in secret)

– it is peaceful (not by force)

– the possession is adverse and not with consent

• Acts of adverse possession include paying rates (Kirby v Cowdery 1912) and animals grazing.

• Bowen J – can have either independent or dependent possession, just as long as it is continuous possession for 12 years.

• Dependent possession – A is there, gives ot to B to take over in agreement (dependence). The person there in the 12th year will gain possession on ability to prove 12 years’ adverse possession.

• Independent possession – A comes home finding B has just moved in without consent. On 12th year, A would win, not just the person who moved in on the last day of the 11th year.

• NB – crown land is exempt from these claims.

• Limitation Act – ss 27 and 38 – you have 12 years to evict a trespasser or they get adverse possession.

• RP Amendement Act – after 12 years, the adverse possessor becomes the registered owner. S 45D of RPA also states he/she becomes registered owner of the whole block of land, not just parts of it.

Unregistered Interests and Caveats

• When the issue is between:

Reg v Reg parties – Sch1 is measured against Sch 2

- look at order of registration under 36(9)

Reg v Unreg - registered person will win unless exceptions (fraud, equity, short

or term leases etc) come into play

Unreg v Reg

Unreg v Unreg - will be discussed below.

Unregistrable and Unregistered Interests

• Many interests in land are unregistrable; and even if it is, people sometimes choose not to register their interests for differing reasons.

• Unregistrable interests – a purchaser who has exchanged contracts only has an unregistrable interest, but still has an equitable right to compel the vendor to complete the sale though.

• Many mortgages are also incapable of registration – eg mortgage where title deeds are handed over – bank has unregistered interest but still has a claim over the land – an equitable mortgage.

• Land on trust is also un registerable in terms of the beneficiary’s interest – trust deeds exist to supplement that but technically remain unregistered interests (s82).

• Leases also may not necessarily registered with the LTO though they are registered with other official bodies. Some leases aren’t even cited in writing. S 23D states can have oral leases provided:

- the period of the lease is 3 years or leass

– it is the best rent reasonably obtainable (ie market value).

– there is an immediate right to possession

Caveats

• Caveat (def) – “beware” – a warning to someone searching the register noting that another party has an interest in the land. It is a parliamentary creation whereby those with unregistered interests can protect themselves (s74H RPA) against claims being lodged. It freezes the register, preserving the status quo.

• S 74 F – idea that a caveat is a claiming of interest in land.

• The lodging of a caveat is accepted on the grounds of protecting proprietary interests regardless of whether they are registerable or not.

• A caveatable interest must exist at the time the caveat is lodged – it cannot protect a future interest (Townsend v Coyne).

• It can protect an interest that arises simultaneously though (Murphy v Wright).

• S 74 H (1) (b)

• A caveat can only prohibit a dealing to the extent that the recording of the dealing will affect the interest claimed in the caveat.

• Exceptions – executors or survivors of joint tenancies OR where a caveat is lodged after a registered dealing has been lodged (Re Rush).

• Palmer v Wiley (1906) and Kerribee Park v Daley (1978)

• Both the cases and legislation state that in order to make a caveat formally valid, must spell out:

- nature of interest (lease, mortgage etc)

– date of interest

– quantum of interest (sum/value of interest)

• Ie – what kind, what date, how much?

• LTO doesn’t vet caveats when lodged, so many of them can be formally invalid, but they aren’t picked up until formally challenged.

• S 74Q – it is not part of the Registrar General’s function to check whether caveats are genuine or valid. Left to time when they are challenged.

• When someone challenges a caveat, the caveator is given notice, giving him/her time to get the caveat up to scratch. (The usual thinking with caveats is get it in now, fix it up later).

• Sinclair v Hope Investments (1982)

• “Caveats against dealings”

• Such caveats can be lodged by a registered proprietor who, because of loss of the relevant certificate of title or some other reason, fears an improper dealing with his or her registered interest. EG where morgagor fears morgagee will improperly exercise power of sale.

• Owner of property in Sch 1 subject to mortgage under Sch 2 – owner fails to repay and mortgagee moves in to get money and sells the property. Owner thinks the bank will sell it for too low a price, so caveats under s 74F.

• Court grants owner has a right to do so.

• Re Rush (1963)

• Person lodged caveat at LTO; later a person lodged a mortgage; mortgage placer served lapsing notice on the caveator (a notice giving the caveator 21 days from notice to go to Sup Ct and justify the caveat) because the caveat was blocking the registration of the mortgage.

• Caveator ignored the lapsing notice, deciding to just lodge a new caveat – but was too slow. Caveat lapsed and in the period in between the mortgage got registered.

• Principle = must protect the interest within 21 days of notice or it will lapse. If want to fix the caveat in place, get the court to grant an injunction to stop it from lapsing. Setting a 2nd caveat after the 1st lapses is insufficient if registration of another party occurs in the meantime.

• Godfrey Constructions v Kanangra Park (1972)

• Vendor exchanges with P1, dispute arises and V terminates it. P1 says he didn’t breach their contract and therefore termination is void and still binding. V however proceeds to sell to P2 thinking he’s in the clear.

• P2 goes to complete sale with V but won’t settle contract until caveat lodged by P1 has been cleared.

• HC – held obligation on removing the caveat was on V and not on P2. P2 not obliged to settle until caveat removed. Once a caveat is lodged it is the vendor’s obligation to remove it.

Removal Of Caveats

• S 74 MA of RPA – allows a person who owns a property to commence proceedings themselves to challenge the caveat.

• S 74M of RPA – caveator can withdraw his/her caveat if h/she so wants.

• S 74 P of RPA – caveats lodged without reasonable cause – if a person lodges a caveat “knowingly and without reasonable cause” they are liable for damages.

• As in Bedford Properties v Surgo (1981).

• Caveats can be dissolved by

– lapsing notices

– under s 74 MA (1) – someone with an interest in the land covered by the caveat

can direclt apply to the court to have the caveat removed immediately. Faster than

lapsing notices especially when dealing with frivolous claims.

Injunctions

• S 74 R – can get an injunction to stop a caveator lodging another caveat unless it is for two separate interests of land.

Wrongful Lodgment

• A caveator who lodges a caveat “wrongfully and without reasonable cause” is liable to pay compensation to anyone suffering monetary loss because of it.

• Must show

– no caveatable interest

– no honest or reasonable belief on behalf of caveator that there was a right

– the caveat was lodged with intent of causing harm

Unregistered Interests

• S 41(1) RPA might be thought to deny any scope for unregistered interests in TT/ Courts have recognised this limitation, but only to an extent – they recognise that whilst the subsection denies effect to an instrument until registration, it does not touch the rights arising out of the transaction (Barry v Heider 1914).

• 41(1) ensures that the instrument itself is ineffective to create any interest inland, but the agreement or obligation which led to or accompanied the execution of the instrument remains effective by brining into existence an equitable interest in the land.

• Generally, interests are seen to be equitable. Some however, are seen to be legal – and if they are proven to be so, they enjoy the legal advantages that legal interests usually enjoy over competing equitable interests.

• In a scenario where all things are equal (ie there is no postponing conduct and no notice), the highlighted parties win:

L v L

L v E (ie legal interests override equitable ones, and earlier equitable

E v L overrides later equitable and earlier legal overrides later legal)

E v E

• Reynolds v Arthur

• A claimant whose interest is earlier in time can normally expect to suceed in an evaluation of relative merits, unless some conduct or inaction on his/her part has prejudiced the position of the later holder. (ie all things being equal earlier parties usually win).

A) What Constitutes a Legal Interest?

1) S 23D Conveyancing Act – Unregistered Leases

• S 23D says if a lease is

- of 3 years or less duration

– at the best rent reasonably obtainable

– and gives rise to immediate right of possession

then the interest is a legal one.

• Leitz Leeholme Stud v Robertson (1977)

• See Chan v Cresden

• Chan v Cresdon (1989) – HC

• Landlord enters into lease with T ( a company) which has no assets – directors give a personal guarantee that the rent would be met. The lease is not registered and is for more than 3 years. Company failed to make rent, LL took them to court.

• HC – affirmed Leitz Leeholme Stud

• Court held the tenant had an unregistered equitable (not legal because 3 more than 3 years) interest.

• The director’s guarantee however was of all oblligations “at law”, which the court interpreted as meaning at common law, and since common law doesn’t recognise equity the guarantee couldn’t be considered binding either.

2) S 43 A (1) Real Property Act

• Affords a purchaser who has, at or before the completion of the transaction (where the registrable dealing is received) no notice of outstanding unregistered interests “the same measure of protection as that given at common law to a person who has acquired a legal estate (in land in a similar position).” ( IAC v Courtenay 1963)

• Applies in the period following settlement and preceding registration, allowing those who come within 43A1 to proceed to registration unhindered.

• Grounds of application:

(I) Only applies to first mortgagees or purchasers who have transfers because it is essential that the certificate of title is in possession.

(II) Must be a dealing registrable

(III) Must be accompanied by a Certificate of Title (s 36(6))

(IV) Payment of stamp duty before registration

(V) No formal defects

(VI) Dealing cannot be void (Jonray)

(VII) Dealing must be the next dealing registrable (IAC v Courtenay)

(VIII) No notice prior to settlement

• “Dealing Registrable”

• Dealing registrable – applies to a dealing which, when signed, would be registrable.

• For a dealing registrable to come about

– the person receiving the dealing must be in possession of the certificate of title or be able to compel its production so the dealing can be lodged for registration (Courtenay v Austin 1961)

- the dealing must be immediately registrable – ie being registrable without any intermediate dealing having to be registered first (Courtenay v Austin; IAC v Courtenay). See also Jonray.

• Example:

• Registered Owner (R) sells to purchaser (P) and on completion gives P a properly executed transfer. (at this point is a dealing registrable)

• If P then grants a mortgage to M, M’s mortgage wouldn’t qualify because P’s transfer would have to be registered first (intermediate registration interferes).

• If P were to onsell to another purchaser Q, it wouldn’t qualify because the sale between R and P would have to be registered first.

• If however P were to onsell to Q and Q was to receive the direct transfer from R (P never being registered), that transfer would qualify as a dealing registrable (no intermediate transfer) and Q would be entitled to S 431 (A) protection, all things being equal (Jonray v Partridge Bros 1969).

• A person wanting to come under 43(A)(1) must also be “an interest…under the dealing”. Eg P buys from R who is under a mortgage with X; the mortgage is discharged upon sale and document given to P saying so. But P is not entitled to 43A1 protection against X because it is not P but R who was involved in the relationship with X.

• Successive Effect of 43(A)(1)

• Wilkes v Spooner (1911)

• If a party’s rights are directly related to a person with 43A1 protection prevailing over them, then they have successive effect and are protected by that 43A1 right.

• Example

• R (reg owner) transfers to P who (without registering) transfers to Q. If 43A! is granted to protect P, then Q (being aperson claiming through P) is also protected. P’s deemed legal estate under 43A! is a shield behind which persons claiming through P may shelter.

• Exceptions to 43(A)(1)

• Just as Q maintains protection through P’s protection, Q may lose protection through P’s loss of protection.

• Q maintain notice even if they had notice of earlier parties, just as long as P did not. However, if P is deemed to have had notice of earlier parties, then P’s protection under 43A1 is quashed – so to is Q’s.

• A void dealing (eg a forged one) is not considered a registrable one. In Jonray v Partridge Bros (1969) – C of A held that a registered proprietor whose title is threatened by a yet to be registered void dealing can probably prevent registration on these grounds.

• A void dealing passes no interest on completion of the transaction, even where the purchaser was unaware of the fraud (it can still be registered though). The purchaser therefore obtains no protection under 43A1; neither will those claiming under the Wilkes v Spooner doctrine.

• Conveyancing Consequences

• A person who enjoys the ‘successive’ protection of 43A1 in respect of a dealing cannot insist that the dealing be registered before being called upon to complete (Jonray and Meriton Apartments).

• R executes transfer to P who (before becoming registered) transfers to Q. Q cannot insist that the transfer from R to P be registered before Q can be called upon to complete. Must be satisfied with any protection that Wilkes v Spooner may provide.

• Q can insist of P though that R be present in person (or represented) at completion of sale so Q can be satisfied the transfer isn’t subject to any other equitable interests between P and R. If P refuses to do this then Q has the right to insist upon prior registration.

(B) “All Things Being Equal” – The Exceptions

• Postponing Conduct

• Postponing conduct – conduct or action of such a kind that it carries the consequence of depriving the earlier interest of the advantage that priority in time would have otherwise given it.

• Examples of Postponing Conduct

1. An owner (or first mortgagee) who fails to take possession of the certificate of title is guilty of postponing conduct. (Walker v Linom 1907)

2. An owner (or first mortgagee) who had possession of the CT, but lost it by an act of gross negligence is guilty of postponing conduct

• As in Northern Counties of England v Whipp 1884)

• Empee borrows money from insurance company which they work for. Empee steals title deed and undertakes conveyance.

• Ct held to lose the conveyance on its own is not enough to establish postponing conduct, there must be something more. Eg employing a convicted thief to guard the vault at the bank.

3. An owner (first mortgagee) which who prematurely deilivers to the other side title deeds will be guilty of postponing conduct. (Heid v Reliance Finance 1983)

4. Where a vendor acknowledges receipt of full proceeds of sale before he/she actually receives such funds, he/she will be guilty of postponing conduct. (Heid v Reliance Finance 1983).

• Heid v Reliance Finance 1983

• Mr H sold property to Connel Investments for $165 000 to be paid by a $15 000 deposit, $100 000 at settlement and the rest by investor finance (Mr H financing the purchaser).

• Deposit handed over and released to the vendor.

• Connell investments part of the Mackay group that Mr H had dealt with for years, Mr M suggests G (presented as a solicitor) deal with the sale.

• Mr H hands over CT to G and signs receipt of payment(even though hasn’t been paid) because leaving the country and was in a rush. C then has control and claims ownership and payment is complete.

• HC – Mr H is guilty of postponing conduct because he knew G was an employee of C. When Mr H gave the documents to G (G being the representative of C) he actually gave them to the other side. Sufficient to amount to postponing conduct.

5. Where a person signs a document holding out that something has happened where it has not he/she will be guilty of postponing conduct (Breskvar v Wall).

6. Failing to lodge a caveat can lead to postponing conduct if the failure to do so leads to an external third party unknowingly becoming involved in a situation where another unregistered party is involved.

• Heid v Reliance Finance Corporation (1983)

• Mere failure to caveat will not automatically amount to postponement. Postponement follows failure to caveat where (and only where) it is “reasonably forseeable” that a later interest will be created and that the holder of that later interest will assume the non existence of the earlier interest.

• Butler v Fairclough (1917) – HC

• Owner G is subject to a registered mortgage. G then enters into another mortgage with B who chooses to remain unregistered.

• 2 days later G transfers title to Fairclough who decides to buy subject to mortgage.

• F searches register and finds G has recently lodged a caveat.

• HC held that F could still caveat, even if B was there.

• Also held B was still guilty of postponement because had failed to caveat until just before F had caveated.

• Held that B had done something that contriubted to the development of the later interest and was therefore guilty of postponement.

• J+H Just (Holdings) v Bank of NSW (1973)

• Mr J had mortgaged with the bank, but the bank was neither registered or caveated. It did have possession of title deeds though.

• Mr J later wants to borrow more money and goes to J+H. J+H asks for title deeds and J says they are at the bank for safekeeping. J+H do mortgage and go to bank to retrieve the deeds. Bank said no.

• HC – J+H argied postponement on the bank’s behalf for failure to register.

• The court distinguished thiis from Butler saying in this case the bank was the first mortgagee and their holding of the title deeds was security enough because no negotiations could take place without them – therefore no postponement.

• If 1st mortgagee, all you have to do is take the title deeds. To achieve similar protection, the 2nd mortgagee however must register a caveat.

• Person to Person Financial Services v Sharari

• Affirmed J+H Just Holdings

• Jacobs v Platt Nominees (1990)

• Victorian Full Court – failure to lodge a caveat did not equal postponement where the earlier holder acquired unregistered interest through a family arrangement, having no reason to suspect that the registered proprietor would create interests in favour of third parties in fraud of her and had actually desisted from lodging a caveat at the registered properietor’s (her father’s) requests.

• Clark v Raynor (1982)

• If the later party doesn’t search the register and therefore is not misled by A’s failture to caveat, the failure to caveat on A’s part doesn’t equal postponement.

• Leros v Terara (1992)

• A caveat may be lodged to protect an interest derived from an unregistered ‘parent’ interest – eg where a sublease is granted out of a lease. By preventing postponement of the parent interest through caveating, the derivative interest is also protected.

7. Should a purchaser exchaning contracts be at the same level?

• Osmowski v Rose

• Accepts Butler and says it should be extended to cover all purchasing situations.

• The Victorian Court however, seems to have since retreated.

• Jacobs v Platt

• Avco Financial Services v Fishman

• The newer opinion of the court seems to be that caveats aren’t automatically necessary, but where there is something unusual about the conveyance, caveat it.

• For example:

- where there is an extensive delay between exchange and settlement

– wher the deposit is considerably more than 10% of the total price

– where the deposit money has already been released to the vendor (ie before settlement where it usually happens).

• Trusts

• The postponing conduct of a trustee won’t affect the beneficiary where the trustee has acted fraudulently (Shropshire Union Railway v Queen 1875).

• Where the trustee acts in breach of trust powers, the beneficary won’t be postponed (Cave v Cave 1880).

• Postponing conduct by a trustee on any other ground however, WILL affect the beneficiary eg Lloyd’s Bank v Bullock and Walker v Linom.

• Beneficiaries under a trust would also be likely to be covered by Butler. If the beneficiaries don’t take the measure of precaution, then they are leaving themselves exposed. Children beneficiaries would obviously be dealt with differently.

EASEMENTS

NATURE OF EASEMENTS

• Easements are things incoroporeal (ie things intangible)

• An easement may be defined as “a right annexed to the land to utilise other land of different owenership in a particular manner (not involving the taking of any part of the natural produce of that land or any part of its soil) or to prevent the owner of the other land from utilising his land in a particular manner.” (Halsbury’s)

• Positive easements give rights of entry upon another person’s land, to enable something to be done on that land.

• Negative easements consist essentially of rights to prevent something being done. They confer no right of entry.

• Re Ellensborough Park (1956) established easements have 4 essential characteristics

• Re Ellensborough Park

• A large block of land was subdivided into a large park and a number of building plots around it in 1855. Each plot (through conveyance) was granted full enjoyment of the park. During WW2, park was requisitioned by war office and the trustees of estate of original developer were paid compensation. Plot owners sought to determine whether they had a proprietary interest in the park, and therefore part of the compensation given to the trustees.

• Ct held the plot owners had a valid easement and therefore a propriety interest, on the basis of 4 grounds:

(i) there must be a dominant and servient tenement

(ii) the easement must accommodate the dominant tenement

(iii) the dominant and servient tenement must be owned by different people

(iv) the easement must be capable of forming the subject matter of the grant

A) Dominant and Servient Tenements

• An easement is exercised over land (serivent) for the benefit of other land (dominant) and binds both parties to its creation as well as their successors in title (it runs with the land).

• At common law, extrinsic evidence is admissible to identify the intended dominant tenement if the instrument creating the easement fails to adequately identify it.

• Easements created after 1931must comply with the requirements of s 88A Conveyancing Act which requires, inter alia, that the instrument clearly indicate the land to be benefited.

B) Accommodation of the Dominant Tenement

• An easement must accommodate the dominant tenement – ie it must benefit the dominant tenement and be connected to its enjoyment.

• In determining whether something ‘accommodates’ the land, the crucial matter is whether the privilege has a ‘necessary connection’ with the land in the sense of being reasonably necessary for its better enjoyment as a parcel of land (this is a question of fact).

• In Re Ellenborough Park for example, the owners of the houses near the park use to use the park for recreation and was held to be a right that accommodated the houses, since it was connected with the normal enjoyment of the houses.

• The DT and ST need not be contiguous, but they must be close enough for the right claimed over the ST to in fact accommodate the DT. Whether something is proximate enough or not is a question of fact.

• An easement that accommodates the DT is presumed to also accommodate each part of it in the event of subdivision. This presumption is rebuttable if

– as a question of fact, the easement does not accommodate the subdivided parts

– as a question of construction of the instrument creating the easement, the easement was intended to benefit only the DT as an entirety and not the parts into which it may be later subdivided.

• If the DT is consolidated with other land, the easement does not benefit the whole of the consolidated land, only that part that was the former DT.

• Bursill Enterprises v Berger Bros Trading (1971)

• An easement for right of way was registered – this right of way also gave right of way to airspace 3.6 m and above.

• Ct held – upon registration, the easement was indefeasible despite the fact that it was incapable of being created. Once registered it is enforceable, regardless.

C) Unity of Ownership and Occupation

• Because an easement connotes rights exercisable against the land of another, a person cannot exercise an easement over his or her own land.

• If someone grants an easement to someone else and later becomes owner of that land, it follows that the easement will also be extinguished.

• S88B Conveyancing Act – registration or recording of a plan of land, indicating that an easement intended to be created, creates the easement and vests it in the owner of the land benefited by the easement, even though the land benefited and the land burdened are in the same ownership. Nor is an easement created in this way extinguished by later common ownership or possession of the DT and ST.

• S 69 Convincing Act – applies to both TT and OS property.

• S 47(1) RPA – specific to TT – an easement recorded in the register is not extinguished solely because the same persona becomes proprietor of DT and ST.

D) Subject Matter of Grant

• For an easement to be effective, the grantor must be capable in law of granting it and the grantee capable of receiving it. Also requires that the right be capable of being granted by deed, it must also be not too vague or indefinite.

• The rights of easements are only limited – therefore the rights granted by the grantor must not be inconsistent with the proprietorship or possession of the servient owner.

• Examples of easements include – right of way, right of walkway, right of support, right to pump water from a well, easements of light (pre electricity).

• Grants not to be considered as easements – right to a view,an easement for privacy, easement for the passage of air otherwise than through a defined channel.

• Hill v Tupper (1863)

• Company owned a canal and land around it. Let one of the banks to P and granted him the right to let pleasure boats for hire around the canal. The dominant tenement had a similar business and was more successful, P brought an action against DT for interfering with his rights under the lease.

• Ct held P’s license was unenforceable against DT, because the right granted 9to P) did not accommodate the dominant tenement and was not an easement. The grant was simply a license between the lessors and P.

• It did not create a proprietary interest in P because the company could not create and confer rights unconnected to the use and enjoyment of its land upon him.

CREATION OF EASEMENTS

• In no case can an easement granted be more extensive than the grantor’s own interest in the land.

• Under TT, can only create an easement expressly

• Under OS an easement can be created impliedly or orally.

A) Express Easements

• Old System Title

• s 23B Conveyancing Act -The express grant of a legal easement over land under OS must be by deed

• s23C CA - TO create an equitable easement over land under OS, mere writing will suffice (a DT and ST however is required)

• To create an easement, the agreement must display an intention to impress qualities on the dominant and servient tenements of a permanent nature.

• S 88b Conveyancing Act – easement may be created by registration of a plan indicating an easement intended to be created (and vests it in the benefitor, even if DT and ST are one and the same). Available to both TT and OS.

• S 88(1) Conveyancing Act – an easement expressed to be created by an instrument (coming into effect post 1931) must clearly indicate the land benefited and burdened as well as the person whose consent it required to release, vary or modify the easement for it to be effective. Applicable to TT and OS land.

• Pratten v Warringah Shire Council (1969)

• Pratten bought land, over which the council had an easement but didn’t register. The provision was within a s88B instrument though, was this enough for it to remain enforceable?

• Ct held council’s interest prevailed over Pratten’s because the RPA was subject to overriding legislation such as Local Govt Acts etc. Even thought the easement wasn’t registered it was still enforceable.

• Situations where an equitable easement may be created

– a binding agreement to grant a legal easement creates an equitable easement

– an attempt to create a legal easement that fails for want of formality creates an equitable easement

– the grant of an option to acquire an easement creates an equitable easement.

– he who holds only an equitable interest in land can only grant an equitable easement.

• Torrens Title

• S 46 RPA – creation of easement created by executing (and registering) an approved form of transfer.

• S 47(1) – where an easement burdens land under TT, the Reg General must record the particulars of the dealing creating the easement.

• An easement may benefit the DT under TT even though the ST is under OS. Should be brought into TT system though, by way of transfer (s 14(5) RPA).

B) Implied Easements

• Wheeldon v Burrows (1897)

• Tetley had a vacant lot and some adjoining land holding some workshops. One of the workshops’ windows opened onto the vacant lot. Tetley conveyed the vacant lot to W and one of the workshops to B. W erected boardings which obstructed light to workshop windows. B removed the boardings claiming he had an easement to access light through the windows. W sought an injunction.

• Court held – where the owner of land only grants part of that land to another, then by implication all continuous and apparent easements pass onto the grantee (considered necessary for the reasonable enjoyment of the property granted).

• As a general rule, the grantor must expressly reserve any right over the land granted.

• Exception where the easement is one of necessity or where reciprocal agreements are required to give effect to the parties’ common intention (where the grantor may rely on implied reservation).

• In this case, Tetley never reserved a right to keep light from windows so B had no claim.

• Ct propounded 4 elements necessary to show an implied easement:

- there must be a grant of part of the owner’s land (a severance)

– at the time of the severance, exercise of the quasi easement must be continuous and apparent (discoverable on careful inspection)

– the quasi easement must be necessary for the reasonable enjoyment of the land granted (and more than mere convenience as per National Trustees Exec 1939)

– at the time of the severance, the quasi easement must have been used by the grantor for the benefit of the land granted.

• Corporation of London v Riggs (1880)

• A parcel of land was entirely encircled by land owned by another party – originally used as agricultural land, but then tea rooms were built on it. The corporation owning the surrounding land said R had unlawfully drawn building materials across their land. Potential customers were to also cross unlawfully.

• An easement granted on grounds of necessity is an exception to the ordinary rules pertaining to granting of easements. If an easement implied because of necessity, the easement is limited by the necessity at time of the grant.

• North Sydney Printing v Sabemo Investment (1971)

• Plaintiff owned several blocks of land and wanted to develop into carpark, buildings and a laneway. P subdivided the land with intention of selling carpark to council. First sold laneway and building to D without expressly reserving right of way over laneway. P sought a declaration that it was entitled to a right of way over D’s laneway (so carpark could be accessible and therefore useful).

• Court - A right of way of necessity will only be granted where it gives effect to the parties actual or implied intention, as existing at the time of conveyance. Works on assumption that easements of necessity arise from actual or presumed intention of the parties involved that an easement should exist.

• In this case, P’s intention wasn’t to keep the right of way himself, but to sell it off, so didn’t render as an intention, therefore wasn’t granted.

• Australian Hi Fi Publications v Gehl (1979)

• Lots 1 and 2 were adjacent and had an easement under general law ( implied form apparent and continuous use) as opposed to under RPA. Gehl later purchased lot 1; Australian Hi Fi later Purchased lot 2. They sought an injunction to prevent Gehl from using the ‘easement’ and trespassing on their land.

• Court held - To be enforceable against subsequent owners, easements can only be created by instruments .

• An exception of indefeasibility in the form of an omitted easement does not apply because the nature of the missing easement in such cases does not reflect the grounds on which s42 omitted easements are based. Here the easements have developed from custom; s 42 requires an ommission due to the failure of the Registrar general. They are clearly distinguishable.

• Dobbie v Davidson (1991)

• Australian Hi Fi Publication v Gehl (1979)

• Court held in both these cases that:

- an easement cannot be implied under TT

– if an easement had been created by implication when the land was under OS and the land subsequently converted to TT then the easement will remain enforceable (unless it comes under s 42(1)(a)(i) RPA where omitted or misdescribed easements are an exception to indefeasiblity).

C) Easements by Prescription

• Easements arising from prescription usually grounded on their existence for at least 20 years.

• Prescription is founded on idea that long-continued use of an apparent right equals an actual right.

• In NSW, prescriptive easements are of limited significance as they generally cannot be enforced over TT land.. They can be enforced though, if they have been created under OS land which has later been converted.

• Dalton v Angus and Co (1881)

• 2 houses were built so closely that they required lateral support from the soil beneath them to prevent collapse. One of the houses were converted into a coach factory meaning that more lateral support was needed from the neighboring block. The owner later decided to demolish his land and excavate the soil beneath it. Factory subsequently collapsed.

• Court held – right to lateral support could be classified as an easement by prescription because Angus had had more than 20 years of uninterrupted enjoyment of right of support (therefore giving rise to a legitimate claim of prescription).

• Delohery v Permanent Trustee (1904)

• D alleged the building on his land had enjoyed free and uninterrupted access to light for 45 years. PT began to build buildings which substantially reduced light to D’s property. D argued he has an easement over the light.

• Court held at the time an easement of prescription existed because over 20 years of enjoyment etc.

• S 179 Conveyancing Act – no right by prescription can exist to the access or use of light or air to or for any building.

• Legislative change however doesn’t affect the legal reasoning behind the case in terms of what constitutes a prescriptive easement.

• Dewhirst v Edwards (1983)

• Powell J suggested that simply having an alleged easement for over 20 years shouldn’t give automatic rise to a prescriptive right. There should be something more.

• Recognised however that if plaintiffs were entitled to rely on the doctrine of proprietary estoppel this would give rise to an equity (a right in personam rather than equitable) against the registered proprietor.

CHANGE OR EXTENSION OF USE OF EASEMENT: EXPRESS AND IMPLIED GRANTS

(A) Express Grants

• An easement created impliedly (ie under OS title), its use cannot be extended (Corporation of London v Riggs 1880).

• Because an express easement contains writing, the first question should ask is what does the document permit? If, for example, the easement expressly states it is of limited use, any extension has to remain within the scope of it.

• White v Grant Hotel Eastbourne (1913)

Easement

• Easement in favour of A over B was said to be “for all purposes”.

• A was a single family dwelling (a mansion) and servants etc were using the passage.

• Block A got converted into a hotel with every room becoming a hotel room – huge increase in amount of people using the easement.

• Question for court – does “for all purposes” permit such a change of use?

• Court held “for all purposes” did allow such a change because of the broad nature of the initial easement.

• Todrick v Western National Omnibus (1934)

• Dominant and servient tenements didn’t adjoin. A had to take a shortcut to town through B’s land.

• Ct said didn’t matter though because the easement accomodated this – in such a situation the question to be asked is “does the easement benefit the dominant tenement?”

to town

easement

• Easement was a shortcut for A to get to town through B’s land. At time A was a farm and the farmer and his family used trucks for deliveries, purchases etc.

• A bought by a bus company. Buses squeezed into easement. Constant weight and traffic of buses scuffed up the road and A had to put in a cement ramp (as obligated to keep the easement in good repair).

• The cement ramp severely restricted the use of land by B’s people because it was on a slope.

• A argued the easement was for all purposes and changes were therefore permissible (as per White).

• B argues the issues of clearance and negative impact on land were problems.

• C of A – changes were NOT permissible, emphasising the position of B.

• Ct recognised limits on “to all purposes” in areas including clearance limits and impact on servient tenement’s enjoyment of the land.

• The easement left the buses only 2cm clearance, ct said they couldn’t imagine when creators made the easement they intended vehicles with 2 cm clearance to use it (ie objective test – what did creators intend?)

• Jelbert v Davis (1968)

• Dominant tenement converts into a caravan park. Servient tenement was concerned re: the use of the easement because different people would be there all the time.

• Ct again held limitation of the easement. Asked questions like how big is the servient tenement and how much will the extension of the easement affect use and enjoyment etc?

• Bulstrode v Lambert (1953)

• Easement was a right of way at all times for all purposes.

• Question of court was the extent to which the dominant tenant (furniture shop) could park their truck in the right of way for the purpose of loading/unloading. Parking was usaully for 15-20 minutes. (A couldn’t do it on his land because the shop took all the space).

• Ct held it was permissible even though the servient tenement may have sometimes been limited in its use of the land b/c of the easement. (it was a generally reasonable easement).

• VT Engineering Engineering v Richard Barland

• Highlighted that each case turns on its own facts and they will determine the outcome.

B) Implied Grants

• Corporation of London v Riggs (1880) – where an easement is created by implication, one cannot extend or change the use of the easement.

• Lock v Abercaster Ltd (1939)

• Although you cannot change the use of the implied easement, you can update the vehicle used (eg updating permitted use of horsedrawn vehicles to cars).

C) Prescriptive Grants

• RPC Holdings v Rogers (1953) – Where an easement is created by prescription, cannot extendor change the use of the easement.

• British Railways Board v Glass (1965)

• Easement allowed people to take caravans to park over ST land. Over years, numbers dramatically increased – permissible?

• Ct said increase in use was permissible provided that it did not reflect a change in the character of the DT. If it meant the nature of the DT was affected, it would not be permissible.

GENERAL POINTS

• Todrick – not essential for the 2 tenants to join

• Selby v Nettlefold (1873)

• Where there is an obstruction across the right of way, the dominant tenant can remove the obstruction or they can deviate around the obstruction in the most convenient/reasonable route.

• Saint v Jenner (1974)

• Where a tenant wilfully obstructs an easement, they will be liable for damages.

• Newcomen v Coulsen (1877)

• There is an obligation on dominant tenement to keep the right of way in good repair.

EXTINGUISHING EASEMENTS

• Can be done in 4 ways:

1. Express Release

• As parties agree to an easement, they can agree to extinguish them, even if the owners have changed since creation. That is, A1 and B1 agree to create; Ax and Bx can agree (through a deed of release) to extinguish.

2. Implied Release

• Treweeke v 36 Wolesley Road (1973)

beach

servient tenement easement

dominant tenement

• Dominant tenement had right of way on servient tenement to walk to the beach. Easement remained registered but was not used – a fence and garden and pool even encroached upon it.

• Dominant tenement decides to start using easement again because the alternate route lost – but servient tenement doesn’t like it.

• Question before HC – does non use of passage for more than 30 years coupled with allowing garden etc encroaching on easement amount to an implied release?

• HC – 5:1 majority – held no implied release.

• Mason – non use alone is not enough to have warrant implied release. Must show abandonment.

• What constitutes abandonment? Very difficult to show, but must be equivocal – fact that 2 parties here are fighting over the land suggests there is no abandonment.

• Strata Plan Case (1979)

• 3 old fashioned blocks of units built so far across the block that the only way to make a driveway was to adjoin 1 metre of the servient and dominant tenements’ land. Easement was never used though.

• Validity of easement comes into dispute; servient tenement wants out saying the driveway has never been used and there is no other purpose for it.

• Ct held such issues were irrelevant – there was no evidence of abandonment; simply not using it at all is not evidence of that.

3. Operation of Law

• By operation of law (under OS), once the DT and ST come to be owned and occupied by the same person, the easement is destroyed. If it is still wanted, it must be recreated.

• S 47(7) RPA says expressly this is NOT the case for TT land.

• CHECK s 88B Conveyancing Act.

4. Extinguishing by Court Order – s89 Conveyancing Act

• Empowers the Sup Ct to extinguish/modify an easement or restrictive covenant in any one of three situations:

(i) s 89(1)(a) application – applies where there has been a change in the neighbourhood or change in use of the land

(iii) s 89(1)(b) application – per Pieper v Edwards.

S 89(1)(b) says where a person owning an easement agrees to extinguish it then the court must do so.

(iii) s 89(1)(c) application – the court will extinguish or modify an easement or covenant where to do so will not substantially injure.

– Per Re Mason - must be able to measure the loss in monetary terms. If can show loss of benefit of easement will lead to a substantial monetary loss then it will not be enforced by the court.

COVENANTS

• General Rule:

• Positive covenants do not run with the land (they are only between original contracting parties). Restrictive covenants however, do run with the land and any owners of the land bound by them can take action (Austerbury Corporation of Oldham 1885).

• Exception:

• Where a covenant is part of an easement there is an exception. In that situation, the burden of the covenant runs with the land regardless of whether it is positive or negative.

• 3 cases as authority – Frater v Finlay (1968); Rufa v Cross (1981); Halsall v Brizzell (1957).

• Frater v Finlay (1968)

• Adjoining blocks of land. X (dominant tenement) had the benefit of the easement – to draw water from pond - over Y’s land (servient tenement).Y was entitled to half the costs of replacing water pumps etc from X.

• Covenant was therefore positive; X said didn’t run with the land; court said covenant was part of the easement therefore Y won.

• Rufa v Cross (1987)

• Semi detached shops, separated by a common wall.

• Y extends the supporting wall, creating easement saying if X ever decides to also extend, can use the wall for a price. Deal was struck and agreement made.

• Full court said the covenant (to pay) was part of the easement and therefore enforceable.

LEASES

DISTINCTION BETWEEN LEASES AND LICENSES

• A lease – an interest in land giving rise to privity of estate (privity of estate establishes that the current landlord can sue the current tenant and vice versa)

• It is possible for the current LL to also sue any lesee or asignee of their tenants’. In that respect it is sometimes better for the lesee not to assign, but convince landlord to enter into a new lease with assignee – that way tenant is not liable for assignee’s actions as they are considered separate entities.

• A license – a contract only binding the original contracting parties (ie no privity of estate).

• Radaich v Smith (1959)

• Whether a relationship is to be considered a lease or a license turns on the existence of exclusive possession. What the parties described the relationship as is immaterial – exclusive possession is the key.

• In this case, parties described their relationship as a license; but the court deemed it irrelevant.

• Owners of property prefer to create licenses over leases so they maintain control over the property.

• Isaac v Hotel De Paris (1960)

• Hotel had bar operated by an external party on an agreement.

• Relationship deemed to be a license because there was no exclusive possession, just a grant to run the business there from time to time. Contract therefore deemed to bind only the original contracting parties.

CREATION OF TENANCIES

1. Periodic Tenancies

• Most leases are periodic tenancies (ie for a specific period). To have an enforceable lease, must have clarity with regards to:

- the property lease must be clear

– parties to the lease must be clear

– price (rent) must be clear

– period of leave must be clear

• Leases for 3 years or less don’t have to be in writing (s 23D of Conveyancing Act) provided they satisfy s 23D requirements. If they are over 3 years, they must be in writing but even if they are not they will still hold equitable interests (Chan v Cresden).

• Walsh v Lonsdale (1882)

• Where there is an agreement to enter into a lease, it is considered an equitable lease which will remain in force until the formal lease comes into effect. It is an interest in land which can be either oral or written.

2. Tenancy at Will

• A tenancy which continues according to the will of the parties of the lease. It can be brought to an end at will.

COVENANTS IN LEASES

• Proudfoot v Hart (1890) and Haskell v Marlow (1928)

• A tenant is obliged to pay the rent and use the property in a tenant-like manner.

• Landlord obligations include

- providing quiet enjoyment of the property (Dowse v Wynyard Holdings)

• For example, house needs to have windows/doors, landlord can’t be disruptive etc.

• Particularly relevant to shopping centres where bulldozers and remodelling may interfere with sales and customer flow etc.

– not to derogate from the grant of the lease (Karagiannis v Malltown 1979)

• Tenant leased 6th floor building and relied on lift to get his patrons to his restaurant. Lift was out of order for 3 months and Sup Ct held the LL had derogated (taken away from) the grant of the lease.

• Remedies for breach of landlord obligations – rent reduced or taken away from LL as well as potentially being found liable for loss of business etc.

DEFINING ASSIGNMENTS AND SUBLEASES

• Assignment – where a tenant transfers their total interest in the land in both time and space.

• For example, 3 storey building with 4 year lease. Assignment applies to all 3 stories for very remaining day of the 4 year lease. Assigning only 2 stories or a lesser time would amount to a sublease.

• Sublease – a transfer of something less than a total interest in land, whether it be in time or space.

• Privity of estate cannot exist between the landlord and subtenant, except for where there has been an assignment between the landlord and tenant.

• Privity of estate can exist between a tenant and a subtenant (tenant acting like LL and subtenant like standard tenant)

LEASES AND ASSIGNMENTS

• For example, MLC owned their tower, but Lendlease bought it and MLC became the head tenant. MLC let to tenants on 5 other floors, who in turn created subleases who in turn created sub sub leases etc.

• If rent was not paid or quiet enjoyment denied – LL sued tenant and vice versa

• If subtenant didn’t pay rent or get quiet enjoyment – subtenant v tenant and vice versa. (The tenant could then go on to sue his/her LL if necessary.)

• Some leases prohibit assignment, and in such cases tenant cannot make their landlords consent to it. Most lesee’s however won’t enter into an extended lease under such conditions so most leases now do tend to provide for them in the form of a covenant permitting an assignment. Will usually require the permission of the landlord though – qualified covenant.

• Barrow v Isaacs & Sons (1891)

• If clause in contract requires the LL’s consent and the tenant fails to seek consent, the assignment is bad and considered a breach of the lease – regardless of the assignee’s suitability and applicability. Assignment is totally void.

• Wilson v Fynn (1948)

• Where the LL’s consent is sought, the LL is entitled to make reasonable enquiries about the proposed sublesee or assignee e.g. financial position or intended use of premises.

• The enquries themselves and the amount of time spent on them being made must be reasonable.

• S 133B Conveyancing Act

• Where the lease permits assignment or sublease, the LL cannot unreasonably withold consent. Entitled to make reasonable enquiries in a reasonable amount of time, but at the end of the day cannot unreasonably withold permission.

• SS 123 and 120 Conveyancing Act – LLs of leases prohibiting assignee or sublesees have the option of changing their minds and granting permission if they so wish.

UNREASONABLY WITHOLDING PERMISSION

• Re Gibbs v Houlder Bros (1925) – old UK position

• 2 main matters a LL can focus on when determining whether to grant permission or not:

- the suitability of person proposed in terms of financial status, criminal record etc.

– intended use of premises

• International Drilling Fluids v Louisville Investments (1986) – new UK position

• Broadened grounds of examination, saying need to look at all the facts and circumstances in determining whether the witholding of consent was unreasonable or not. Should look at all the facts, but the 2 listed in Gibbs are probably the most important – but shouldn’t be limited JUST to that.

• Cannot use extraneous factors though – areas examined need to directly relate to the assignee and his/her suitability.

• The evidentiary burden is on the lessee claiming unreasonable witholding of consent to show unreasonableness.

• NSW position tends to follow International Drilling.

• Creer v P&O Lines (1971)

• P&O building rented out floors to a law firm (C was the main partner).

• Lease allowed for assignment upon acquisition of LL’s consent.

• Following sublease/assignment clause was a surrender clause ( a condition precedent to gaining LL’s consent is that the lesee will offer to surrender his/her own lease).

• HC held the clause was enforceable and C couldn’t object to surrender clause on the grounds that it was inconsistent with s 133B of ICA. There was held to be no inconsistency.

• Commercial background to Surrender Clauses – eg – LL trying to rent a property at time market is down. The rent is pegged at a price for5 years at the time. Market doubles and tenant seeks to assign someone at new price – therefore tenant making profit and LL is still struggling 9similar to P&O facts).

• Surrender clause allows the tenant to assign, but to do that tenant must surrender his/her lease so the LL can have the profit instead of the tenant.

TERMINATION

• Can occur with consent or due to breach of lease obligations (eg failure to pay rent, breaching scope of permissible use of property, denial of quiet enjoyment etc).

• THESE RULES APPLY ONLY TO PROPERTIES NOT UNDER THE Residencies Act or Retail Leases Act which give specific requirements.

• Where breach is for reasons of nonpayment, LL can reenter premises and no notice need be given. (per s129 Conveyancing Act).

• Where breach is for other reasons, 14 days notice must be given (per s 129 Conveyancing Act)

• Shevill v Builders Licensing Board (1982)

• HC decision

• Tenant was continuously falling behind in rent, were paying sporadically etc.

• LL decided to reenter for non payment of rent (as within rights).

• Question of LL’s entitlement to damages went to HC.

• Pre Shevill, practice was that for cases of non-payment and LL reenters, LL is entitled to non-payment of debt until point of reentry and loss of rent until next tenant found.

• HC held – LL was considered to have terminated the lease by rentering rather than act of non-payment by tenant. Court held LL was therefore only entitled to rent until date of reentry (because he CHOSE to terminate the lease).

• Progressive Mailing House v Tabali (1985)

• Different case scenario therefore different outcome.

• Tenant in this case didn’t pay ANY rent for four months straight. LL reentered.

• HC held in this case tenant (not LL) terminated the lease by a form of conduct which “evinced an intention not to be bound” by the lease (test).

• If the tenant falls within this category then LL’s reentry is simply considered an acceptance of tenant’s termination.

• In such a situation, the LL is able to claim outstanding back-rent and rent until the next tenant is found.

• The general rule is whoever is responsible for terminating the lease will be responsible for dealing with rent until the next tenant is found. In the case of Shevill, the LL was responsible so the tenant didn’t have to cover anything except the back-rent.

• Before Shevill however, the tenant was always responsible for paying the back rent and the rent until a new tenant was found.

• So if advising a tenant, suggest he/she makes some indication of trying to pay some rent etc and wanting to stay on rather than being put in a position of being seen as the terminating party.

RELIEF AGAINST FORFEITURE

• Hayes v Gumbola (1988)

• If tenant has not paid rent and LL has reentered, the tenant can go to the Supreme Court (Equity Divison) and offer to “do equity” in return for regaining exclusive possession (ie pay back rent, reasonable costs incurred and promise to never breach again).

• If court agrees, it will grant “relief against forfeiture” – particularly if lease is of value to lesee in terms of goodwill etc (especially for businesses). Overrides harshness of common law – so if tenant is prepared to do equity might get a 2nd chance.

MORTGAGES

NATURE OF MORTGAGES

• Definition at Common Law – a conveyance or transfer of property as security for the repayment of a debt or the discharge of some other obligation.

• Definition under s 3(1) RPA – a charge created on land merely for securing the payment of a debt. (common law definition is wider).

• A mortgage embodies a personal right to repay. Therefore, if the security is not enough, the mortgagee can sue to recover the outstanding debt.

A) OS Mortgages

• A mortgage under OS makes use of the ‘classic’ form of mortgage – where the mortgagee’s interest in the land was subject to a condition subsequent (ie payment of the debt). Until the debt is paid under S, the mortgagor has an unconditional conveyance in the land.

B) TT Mortgages

• S 3(1) RPA – a charge created on land merely for securing the payment of debt.

EQUITY OF REDEMPTION

• Under common law, the mortgagor’s obligation to repay the loan on the agreed dates was strictly enforced. Failure to repay could have amounted to the mortgagor losing his right to reconveyance even where the land was worth more than the outstanding amount.

• Since c17th, the mortgagor has had not only the equitable right to redeem but also an equitable estate in the land - as per Kreglinger v New Patagonia Meat and Cold Storage Co Ltd (otherwise known as an equity of redemption).

• Equitable right to redeem – arises after contractual date of completion has expired ( period of time external to the contractual due date to allow repayment)

• Equity of redemption is the right of the mortgagor to get back the security given for the mortgage after the loan has been fully paid.

• Contractual period + equitable period = equity of (Kredlinger)

of redemption of redemption redemption

• Equity looks more to the purpose of the transaction than the form – looks at the intention of the parties (To prove a mortgage is intended the person asserting the intention must prove it).

• Kredlinger – parol evidence is admissible to show the parties’ intention regarding the substance of the transaction, even if the evidence contradicts the plain terms of the contract.

• If the purpose of the mortgage is to provide security for the repayment of money, then regardless of the form the transaction is regarded in equity as a mortgage.

1. Clogs On Equity Of Redemption

• Equity of redemption cannot be fettered or clogged.

• Mortgagor’s right to redeem on paying of the debt is a fundamental element of all mortgages.

• Anything that purports to fetter or clog this equity will be overriden by the court of equity so as to allow the mortgagor to redeem his property.

• A mortgage cannot be made irredeemable (Fariclough v Swan Brewery).

• A mortgagee also cannot (as part of the mortgage transaction) take a right or option to purchase the mortgaged property as this extinguishes the equity of redemption. Such transactions must be entirely separate contracts, in substance (Kredlinger)

• Fairclough v Swan Brewery (1912)

• Mortgage of leasehold interest for 20 years, the right to redeem was at the end of 17yrs and 6 months before the end of lease.

• Court held this to be a device impeding the equity of redemption

• Postponement of date to redeem made the redemption worthless as by the time the leasehold would have been redeemed it would have almost entirely expired.

• Not all postponement is a clog though, and therefore not all postponement is entirely void. Must look at the nature and extent of the postponement.

• Knightsbridge Estates v Byrne (1939)

• A fall in the interest rates meant the mortgagor could afford to pay off mortgage early. A clause in the mortgage prevented it.

• Court held – a provision which attempt to postpone the contractual date for redemption is void as a clog only where it renders redemption as illusory, or is oppressive or unconscionable.

• Salt v Marquess of Northampton

• Preventing redemption to a certain person is a clog on the equity of redemption.

• S 93 Conveyancing Act – a date of redemption can be brought forward if all the outstanding money including interest is paid.

PENALTIES

• A provision to pay a larger amount than would otherwise be payable is not enforceable as it is considered a penalty. It doesn’t make the whole contract void, just that element.

• The provision to pay extra is only unenforceable if the bargain is unconscionable or oppressive.

• Strode v Parker (1694)

• Propounded that a covenant to pay a higher interest rate on default is generally unenforceable. Mortgagors can pay a LOWER rate as a reward for punctual payments etc, but the mortgagee cannot raise the rate for default.

• A provision is valid though if it imposes a higher penalty after the date of default, until the date of payment but not if it is retrospective.

• Wanner v Caravana (1974)

• Mortgage was 10% interest rate, reducible to 9%for prompt payment over 6 years. Default of any payment however meant that the whole principal and the interest at 10% being due.

• Street CJ held it was void as a penalty because it required immediate payment of unaccrued and unearned interest; it was not a genuine pre-estimate of the loss.

• Odea v Allstates Leasing System (1983)

• Ct held – an amount due which has accrued is not a penalty. The present debt is a debt actually due before the breach which accelerated the payment. The debt must be due before the breach for it not to be considered a penalty.

• GENERALLY – there is no penalty where mortgages provide that upon default the future payment means the amount becomes immediately due; but they must not receive any more than the present value of the amounts outstanding.

• Late redemption – if a mortgagor want extra time to pay of mortgage, must give 6 months notice of this intention or subsequently pay 6 months interest in lieu of notice (applies to both OS and TT).

• Early redemption – subject to several exceptions, a mortgagor is not entitled to redeem in advance of the contractual date in both equity or common law. The exceptions are:

- where there is a contrary agreement, express or implied

– where the mortgage offends the rules relating to undue suspension of the right to redeem

– where the mortgagee has demanded repayment or otherwise taken steps to enforce the security as by going into possession

• S 93(1) Conveyancing Act – gives the mortgagor a statutory right to redeem in advance of the contractual date for repayment (if all the interest and principal is paid). Under this section, the mortgagor must pay off all the interest due under the mortgage. – can’t that be seen as a penalty though?

POWERS OF A MORTGAGEE IN CASE OF DEFAULT OF PAYMENT

A) Possession

• In the event of default by mortgagor (either by non payment or default at end of loan period), the mortgagee can enter and take possession. Often acts as a precursor to sale.

B) Foreclosure

• Mortgagee ends up owning the property and the mortgagor consequently has no interest in the land. (as opposed to a sale where a 3rd party ends up as an owner)

• If a mortgagee forecloses, he/she gives up his/her right to sue for any shortfall if the amount the property is worth is less than the debt owed.

• In order to foreclose, the value of the property MUST be less than the debt.

• Grounds for foreclosure:

(i) default

(ii) notice to remedy default

(iii) non compliance with notice

(iv) properly conducted auction

(v) highest bid must be less than the debt

(vi) further period given to mortgagor to repay the debt (RPA – for registered TT land, it is 6 mths; for unregistered TT or OS land a court to determines what the further period will be according to its discretion – s 100 CA).

(vii) further failure to repay

• Only after all those steps can foreclosure legally take place. Then mortgagee becomes owner, mortgagor loses interest and the mortgage itself is discharged. Mortgagor is no longer liable to the mortgagee.

C) Defaults on Rent

• Where the mortgagor has a rental property and doesn’t put rental income towards the debt, the mortgagee can appoint a receiver to take the rent to pay off the debt.

• The mortgagee can also take possession of a rental property and lease it to someone else.

D) Improvements

• Southwell v Roberts (1940)

• A mortgagee can spend money on improving a property, but it must be done reasonably.

• Test at time of case was asking questions like was it reasonable to make the improvements? Ie did it improve chances of sale? Did it add value to the property?

Sale

• Most popular remedy.

To have power of sale must have

(i) default (s 57(2)(b) RPA or s111 CA)

(ii) notice to remedy default

(iii) non compliance with notice from mortgagee to mortgagor

RIGHTS AND DUTIES OF A MORTGAGEE

(A) Sale

1. Sale necessary

• Statutorily, ss 111 and 112 of CA and ss 57, 58 and 58A RPA grant a power for sale, on basis the 3 grounds are satisfied (option to auction is not included).

- The mortgagee has the power to (but is not obliged to) sell under this legislation

- The mortgagor can’t make the mortgagee sell unless they are able to repay the entire debt.

- The mortgagee isn’t obliged to the mortgagor at all until everything has been fully repaid.

• Farrar v Farrars Ltd (1881)

• Court said a mortgagee is entitled to sell to a company in which the mortgagee has a shareholding.

• It is not a mortgagee sale to sell a property to ones self, but to sell to a related entity is okay.

• Belton v Bass Ratcliffe (1922)

• Decision to sell or not sell is a decision for the mortgagee alone to make.

• Palk v Mortgagee Services Funding (1993)

• The court will order a mortgagee to sell if a mortgagor goes to court claiming that a failure to do so will affect his/her equitable rights. On other grounds however, the mortgagee is entirely in control as to when to sell.

• ANZ v Bangadilly Pastoral Co (1978)

• Court stated that while sale of property by a mortgagor to a ‘related’ property is sustainable, such a sale can only be made if it is “truly independent bargain”.

• The best way to evince a truly independent bargain is to conduct a legitimate sale (ie with real prospects, ads, real estate agents to control it etc).

(B) Duty to Act Bona Fide

(C) Duty to Obtain a Reasonable Price

• “Arm’s length sale”

• When selling at arms length, what duties are required? 2 views:

i) Less onerous view

• Warner v Jacobs (1882) – a mortgagee has a duty to act bona fide and not mala fide.

• For example if the mortgagee pre-warns the real estate agent to only sell at a certain amount.

• Approved in McHugh v Union banks of Canada 1913.

• Beneficial Finance v Bourke also approved this.

(ii) British Courts have tended to go for a more onerous approach

• British decisions imply a duty to take reasonable steps to obtain a proper price.

• As per Cuckmere Brick v Mutual Finance (1971).

• Both Pendlebury v Colonial Mutual and ANZ v Bangadily Pastoral (1978) were dealt with by the HC. On each case, at least one judge expressed a preference for the English approach, but no decision has yet been made.

• Forsyth v Blundell (1973) – duty to act in good faith encompasses the duty to take reasonable care to obtain a proper price. A properly constructed auction is usually indicative of this.

• In Queensland though, Caga v Nixon highlighted that QLD legislation codifes and demands that the mortgagee seek the best possible price.

• Belton’s Case – the idea that a better price would have been achieved had the mortgagee waited is irrelevent. The nature of the sale is judged on the day it is conducted.

(C) Remedy for Improper Sale – Injunctive Relief

• The only way to entirely stop a sale for default on payment is to pay the total debt owed into court (CBA v Inglis 1972). Not usually an option because most people who default do so because they don’t have the money.

• If sale goes ahead and the mortgagor is dissatisfied with the outcome, can seek an interlocutory injunction where the court will stop the sale from being settled (Harvey v McWalters)

• A court of equity, in exercise of its discretion, will grant an injunction after exchange of contracts because the court will want to inspect all relevant factors (eg amount owed, sale price etc).

• Other option is to forego injunction and take damages instead – ie suing for the shortfall of sale market price.

• Where there is a multiplicity of mortgagees, the proceeds of sale go in the order of (per s 58 RPA and s 112 CA)

– legal/real estate

– 1st mortgagee

– 2nd mortgagee

– 3rd mortgagee etc

– mortgagor is anything is left over

• Even if it is the 2nd mortgagee who exacts the sale, the 1st mortgagee will still get priority. If there isn’t enough for everyone, those in the lower ranks lose out.

TACKING

• Tacking is where the one mortgagor takes out different mortgages from different mortgagees.

• Under OS the doctrine of “tabula in nafragio” applied – Taylor v Russell (1982)

• Mortgagor had mortgages. When the 3rd mortgagee lent to the mortgagor, was only aware of 1st mortgagee and not the 2nd (because it was unregistered).

• 3rd mortgagee bought out (took assignment of) the 1st mortgagee, so on list became mortgagee 1 and 3.

• HOL said you can tack on your later advance to the 1st mortgage when you have no notice of the 2nd mortgagee when you make your payment buying out mortgagee 1 (thereby taking it over).

• Hopkinson v Holt (1861) and West v Williams (1899)

• Both cases where an initial loan was made with vision of further advancing money to the mortgagor, but there was notice of a 2nd mortgagee in the middle

• Court held if mortgagor 1 knows of mortgagor 2 at time of further advancement, tacking won’t occur. Payment therefore goes, mortgagee 1, mortgagee 2, mortgagee 1.

• Re O’Byrne’s Estate (1885)

• 1st mortgagee made a further advance, unaware of the 2nd intervening mortgagee. 2nd mortgagee however had registered its interest ( so constructive notice was there)

• Ct held that constructive notice will not defeat tacking where, at the outset, the original mortgagee had envisaged further advances.

• Credland v Potter (1894)

• Loan from mortgagee 1, then mortgagee 2 then further advance by mortgagee 1.

• There was no provision for further advances at the outset by mortgagee 1, but later agreed to separately.

• Mortgagee 1 had no actual notice of mortgagee 2 at time of later advance. Mortgagee 2 however had registered, so there was constructive notice.

• Court held that because there was no provision for further advances, the 1st mortgagee’s advance should be treated like any other loan (ie treated separately) – constructive notice was taken into account.

• Therefore order of payment was mortgagee 1, mortgagee 2, mortgagee 1.

• Matzner v Clyde Securities (1975) – TT Case

• Mortgagee 1, mortgagee 2, mortgagee 1 further loan.

• Developer is building flats – borrows from M1 and M1 registers.

• Clause of mortgage said “this mortgage secures all the money lent by the mortgagee”

• Developer borrows from M2. M1 has actual notice of M2.

• Before building is complete, developer goes into liquidation and mortgagees are left with a half complete building.

• M1 learnt that to sell the building in the current state wouldn’t raise enough funds to cover both the mortgages fully, but would cover the 1st mortgage fully - so makes a further advance to complete the building and sell it fully aware of the 2nd mortgage.

• Now enough money, but not to cover the last advances fully – who gets priority?

• Court accepted that OS cases apply equally to TT in this area (this appears wrong)

• Priority should be in accordance with facts – in this case it seems unfair that the 2nd mortgagee should recover fully because but for the further advance of the 1st mortgagee the 2nd mortgagee would be getting nothing.

COVENANTS

RESTRICTIVE COVENANTS

• A restrictive covenant is a covenant limiting what you are able to do with your land – eg height estrictions, material restrictions, density of living restrictions, restrictions on keeping animals etc.

• A height restriction on harbor views for example would limit the height to which B can build his house so A’s views are not ruined.

Harbor views

• Restrictive Covenants are an interest and land (Tulle v Moxhay propounded it was an equitable interest) and therefore run with the land, meaning they do not only bind the original parties, but later parties also. (per Tulk v Moxhay)

A1 --------- B1

A2 B2

A3 B3

Ax ---------- By

A) Enforceability By and Against Successors in Title

• Tulk v Moxhay (1848) – OS Case

• Block B1 burdened by a restrictive covenant; later owners of A and B (Ax and By) are in conflict. By argues no privity of estate.

• Court said no, if you purchase land with notice of a covenant it is enforceable against you.

• For such a rule to apply though, must show that

– the covenant is genuinely restrictive

- and the current owner of the land burdened purchased with notice.

• Although Tulk and Moxhay decision predates the establishment of TT system, the rules also apply to TT land.

• So requirements which must be satisfied in order to have an enforceable restrictive covenant over TT land are:

1. the covenant is genuinely restrictive (Tulk v Moxhay)

2. Current owner of land burdened purchased with notice (Tulk v Moxhay)

3. The covenant must be registered to be enforceable (per 88(3) RPA).

• In absence of registration, rules of indefeasibility mean that the owner of the land burdened will prevail (a covenant must be registered before the current burdened party came into existence or they will prevail.) An exception is where s 88B applies.

• Pratten v Warringah Shire Council

• An unregistered covenant is still enforceable ONLY if it is part of a s88B instrument.

4. SS 70 and 70A Conveyancing Act apply

• If a restrictive covenant says it is between A1 and B1, it should also be assumed that the covenant applies to successors also (unless the instrument specifies that it is intended to be specific to A1 and B1).

5. Touch and Concern

• The restrictive covenant must ‘touch and concern’ the benefiting land for it to be applicable.

• Re Ballards Conveyance [1970]

• 2 adjoining blocks of land. A is 1700 hectares, B is 18 hectares. A had a benefit of a restrictive covenant over B in terms of building materials (could only use brick and tile)

• Court held though that due to the size of both the properties what B used to build his land up with would not really affect A (ie it did not ‘touch and concern’ him)

• Rogers v Hosegood (1900)

• Each case will turn on its own precise facts and circumstances.

6. No Kerridge v Foley Problem

• Usually dealt with in conjunction with touch and concern.

• Most restrictive covenants are part of a development where each block will be burdened for the benefit of other blocks and vice versa. For example:

• Kerridge v Foley established a requirement that the original covenantee (the persona originally benefiting) must have owned the land benefited when the covenant was created otherwise the covenant becomes unenforceable.

• For example: (facts of Kerridge v Foley)

• Vendor owned all the land and proceeded to subdivide it into A B C and D and sold them separately in that order.

• V sold A to Ax; V still owned B C and D so there was no problem enforcing any benefit against block A (by B C and D) because the original covenantee is the vendor who extracts the benefit for B C and D from Ax.

• When block D is finally sold off though, a problem arises because the vendor can no longer extract a restrictive covenant to benefit A B or C as he no longer owns them. A therefore ends up burdened by everyone, and noone can enforce against D.

• Equity saw this as an unfair outcome and developed an exception to help rectify such an imbalance.

7. Schemes of development

• An exception to Kerridge v Foley requirement where it can be proven (Re Louis).

• Elliston v Reacher (1908)

• Propounded that there are 4 requirements in order to prove a scheme of development exists:

- that there s a common vendor

– the vendor subdivided the land into blocks

– the original purchasers of each block bought on a mutual basis (ie that the restrictive covenant mutually burdens and protects everyone)

– current owners bought on the same mutuality basis

• Whether a scheme of development exists is a question of fact. In absence of evidence on the face of documents creating the covenants that they are intended to be mutually enforceable, extrinsic evidence is admissible. Evidence of later acts of original purchasers is also admissible to prove their intention at the time of entering into their covenants.

• It isn’t necessary that all the lots are sold at the same time, as long as the purchasers knew that the common vendor was eventually to sell all the lots as part of the scheme. (Most important feature of the scheme as it means that it no longer matters that the benefit of the covenants is sought to be attached to land no longer owned by the original vendor.)

• Requirements listed in Elliston have been relaxed.

• Baxter v Four Oaks Properties (1965)

• Now the most important requirement is proof that there existed an intention between the common vendor and purchasers to impose a mutually enforceable system of covenants (notwithstanding other technical difficulties).

• The central concept is reciprocity of obligations; the other elements remain as a guide but not as elements that must be strictly enforceable.

• Also said that a scheme of development won’t be negatived simply because the land subject to the scheme had not been laid out in lots prior to the sale. (However it is necessary that there be a defined area within which the scheme is operative.)

• Re Dolphin’s Conveyance (1970)

• The essence is common intention of the vendor and purchasers that the covenants be mutually enforceable.

• It is not necessary to have a deed of mutual covenant to enforce the common intention as that is no more decisive than the intention itself.

• Re Mack(1975)

• It is not a bar that there was not a single common vendor, but 2 or more vendors. It may be easier to work with only one common vendor but it does not extinguish the existence of a scheme of development, so long as they work in a community of interest.

• Also established that a scheme of development will not be rebutted if a few of the lots for sale are not subject to restrictive covenants (here 9 out of 115 lots were sold without restriction).

• NSW Aged Pensioners’ Hostel (1967)

• IF restrictions are unenforceable on a large proportion of the lots this will destroy the required mutuality and the scheme will fail. (here 180 out of 185 did not have restrictive covenants).

• THIS ELEMENT HAS NOT BEEN AFFIRMED BY THE HC YET, SO MAY BE SUBJECT TO FUTURE CHANGE.

8. S 88(1) Conveyancing Act Compliance

• S 88(1) CA states that in order for a covenant to be applicable the land benefited and land burdened must be clearly indicated.

• Pirrie v RG (1962)

• Windeyer and Taylor said must show that either a Kerridge v Foley OR a scheme of development exists. Said also that existence of a s 88(1) requirement does NOT preclude applicability of a scheme of development.

• Approach later adopted by NSW C of A in Re Louis (1971) also. Courts have shown no indication to depart.

• Re Martyn (1965)

• Post Pirrie but pre Louis, this decision arose which preferred the judgements of Owen and Kitto JJ in Pirrie , who propounded that schemes of development and s 88(1) are conflicting and therefore schemes of development are inapplicable in TT problems.

• Re Louis (1971)

• 47 block subdivision; the first 10 blocks had subdivisions identifying the burdened (but not the benefited) parties.

• Deemed it permissible to go beyond the formal construction of the covenant itself to identify the parties burdened and benefited by the instrument

• The essential problem lies in the fact that while it is generally accepted that s88(1) must be complied with, noone is really sure what constitutes compliance.

• Kitto and Owen for example, argue that who is benefited and burdened must come from within the covenant itself ONLY. Schemes of development allow for extrinsic evidence to be admitted to show who is benefited and burdened, therefore conflict.

• Windeyer and Taylor on the other hand see no problem in going beyond the face of the covenant to satisfy 88(1).

• Seeing as the views of Windeyer and Taylor were most recently reaffirmed in Re Louis 1971, they are probably the ones to be followed – therefore schemes of development are okay.

9. ***** Exception of s 88B Conveyancing Act ******

• Enacted in 1964 as a new way of subdividing land in NSW.

• Instead of a developer creating restrictive covenants for each block, s88B allows the covenants to be registered first and the blocks to be later individually registered.

• Before this legislation, a developer couldn’t sell a block with covenants already enacted.

• If a covenant is created after 1964, need only show that it is

- truly restrictive

– part of the 88B instrument

– s 88(1) compliant.

• Ellison v ONeill (1968)

• A had benefit of a height restriction on B.

• Covenant said “it benefited each and every part of Block A”.

• A was subsequently divided into X and Y. Can X and Y enforce the covenant?

• NSW C of A – the covenant did NOT survive the subdivison. For it to have done so, the covenant should have stated it was to the “benefit of A and each and every lot into which A may be subsequently lawfully subdivided.”

POSITIVE COVENANTS

• Positive and negative covenants are distinguishable on the grounds that although both contracts are between 2 owners of property compelling eachother to do (or not do) something, a positive covenant will only ever bind the original contracting person burdened by the covenant (Austebury v Corp of Oldham 1885). The benefit of the covenant however can be assigned.

A1 B1

A2

A3

.

.

.

Ax

• Positive covenants are not, therefore interests in land.

• Example of a positive covenant: A1 andB1 agree to build a fence within 6 months.

• Austerbury v Corp of Oldham (1885)

• Established that positive covenants can only be enforced against B1.

• Recognised exception though – when dealing with easements pertaining covenants (as in Frater v Findlay, Rufa v Cross, Halsall v Brizzell which held that where an obligation is created through a clause in an easement, it will not be considered a positive covenant).

• Frater v Findlay (1968)

• 2 blocks in land; 1 had the right to pump water from the neighbour’s well (dominant tenement over servient tenement) through an easement.

• The well required maintenance of pumping equipment and the neighbours were to go halves in the costs.

• A later dominant tenement (A2) decided he wanted to continue pumping water but without paying the upkeep, arguing that B could not enforce him as he was not the original owner and they were bound by a positive covenant.

• Court held there was an exception where the covenant was part of an easement and the enforceability therefore could run with the land.

• Rufa v Cross (1981)

• Semi detached shops, separated by a common wall.

• Y extends the supporting wall, creating easement saying if X ever decides to also extend, can use the wall for a price. Deal was struck and agreement made.

• Full court said the covenant (to pay) was part of the easement and therefore enforcable.

EXTINGUISHMENT

A) Express Release

• The owner of land benefited by a covenant mat release the covenant expressly.

• For OS the release must be by deed and valid at law.

• For TT, need a deed of release followed by a request to the RG to have it registered.

• S 89(1)(b) – If someone who had the benefit of a covenant/easement decides to extinguish (and goes through the proper means to achieve that) but the register does not change to reflect that, the covenant/easement is still unenforceable.

B) Operation of Law

• Kerridge v Foley – restrictive covenants are extinguished if the land benefited and burdened come into common ownership. (also Re Tiltwood)

• Post Investments v Wilson (1990)

• It may sometimes be required that there be both common ownership and common possession.

• Covenants extinguished by common ownership do not revive id the land later reverts back to separate ownership, unless the common owner recreates them.

• If however, the restrictive covenant is registered before common ownership comes into play, it cannot be extinguished because registration creates indefeasibility (s 88(3) Conveyancing Act). Enforceability however remains subject to general principles of law and courts have discretion under s 89 Conveyancing Act to extinguish a covenant if they see fit.

• A covenant created under s 88B is not extinguished by later common ownership.

(C) Court orders and S 89 Conveyancing Act

• Applies only to restrictive covenants.

• Provides that it is possible to seek an order to have an easement or restrictive covenant modified or extinguished. A court would determine what the impact of modification/extinguishment would be and base its judgement on such relevant factors.

i) Obscelescene

• If you can show there has been a change in the use of the land since the restrictive covenant was created, then the court is empowered under s 89(1)(a) to extinguish or modify an easement/restrictive covenant (as per Re Poltawa 1982).

• Must show that the covenant is obsolete (ie its original purpose can no longer be served) and that the continued existence of the covenant would impede the reasonable use of the burdened land without practical benefit to those benefited.

(ii) Abandonment

(iii) No substantial injury by removal

• 89(1)(c) – The court will extinguish or modify if to do so will not substantially injure the land. “Injury” is measurable in terms of monetary terms (Re Mason 1960).

• Re Mason – if the value of the property is the same with or without the restrictive covenant, the covenant can be removed.

(iv) Miscellaneous information

• Councils can override all personal rights conferred by covenants as all such things are subject to local government laws etc.

-----------------------

A – dominant tenement

B – servient tenement

A – dominant tenement

B – servient tenement

A

Benefiting Party

B

Burdened Party

A B

D C

A B

Ax By

Dw Cz

D C

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