In commercial lease transactions a lessee will usually, before taking possession of the premises, sign and return the lease to the lessor who then countersigns, registers (if necessary) and returns the signed and registered lease to the lessee. Because of this, it can sometimes be difficult to ascertain when a lease becomes binding, as demonstrated by the following recent decisions.
Case study lessee fails to establish a binding lease
In the recent case of Darzi Group Pty Ltd v Nolde Pty Ltd  NSWSC 335, the lessee had failed to establish that a binding lease had come into effect after signing and returning it to the lessor. The parties had signed a heads of agreement, the lessee took possession of the premises and started to fit out of the premises before a formal lease had been signed. The lessee was expecting the formal lease to reflect the heads of agreement, however the terms of the lease provided by the lessor varied substantially.
As a result, the parties negotiated the lease terms through their solicitors for 2 years, which resulted in the lessee executing the lease and returning it to the lessor. However, despite the passing of another 2 years, the lessor never signed the lease and attempted to renegotiate the terms. The lessee then commenced legal proceedings to enforce the lease it had signed. The Court found in favour of the lessor and held that the parties did not intend to be bound by the lease as it was reasonable to presume that where parties are acting through legal advice, no binding agreement arises until formal execution and exchange.
Case study contrast Court finds lease to be binding
However, this is to be contrasted with another recent case of Realm Resources Ltd v Aurora Place Investments Pty Ltd  NSWSC 379, where a dispute arose as to whether the sublessee was bound after signing and returning the sublease to the sublessor. After returning the sublease, the sublessee attempted to withdraw from the transaction, before the sublessor’s countersignature. The sublessee then commenced proceedings, contending that the sublease was not intended to be binding before both parties had signed and that it had been validly withdrawn. The Court found in favour of the sublessor and held that:
• the sublease was intended to take effect as a deed as evidenced by a clause in the sublease which stated that it was “a deed, even if it is not registered”;
• the sublessee had properly executed the deed in accordance with section 127 of the Corporations Act 2001 (Cth);
• the sublessee delivered the deed with the intention to be bound immediately, subject only to the sublessor’s execution, and once the deed is delivered it cannot be withdrawn.
The above cases illustrate that when it comes to ascertaining when a lease is binding, the court will consider the conduct between both parties in detail. Where parties do not wish to be bound by the terms of an agreement until such agreement has been executed and exchanged, this should be expressly stated.
If you have any questions about drafting and negotiating your commercial lease or need assistance in ascertaining whether a binding lease is in place, please contact our Property and Commercial Litigation Teams and we will be happy to assist.
There have been some recent changes in the way the Titles Registry deals with paper certificates of title (paper CTs) in Queensland, which aims to streamline and facilitates electronic conveyancing.
What is a certificate of title?
A paper Certificate of Title (paper CT), or a title deed, is a paper record showing the current owner and title particulars of a property. Before 1994, a paper CT existed for every property in Queensland and the paper CT was required in order to deal with the property, by sale, transfer, mortgage or otherwise.
However, from 1994 the Titles Registry converted to an electronic titles register and has not automatically issued paper Certificates of Title for property since then. A paper CT could only be obtained from the Titles Registry on request from a property owner. Currently only about 11% of properties in Queensland still have a paper CT in existence.
The main reason associated with obtaining a paper Certificate of Title was to ensure that further dealings with the property were not lodged (e.g. transfer of title, registration of mortgages, leases etc) unless the paper CT was deposited with that dealing. Paper CTs are also sometimes used as a form of security held by a lender to secure repayment of a loan or facility.
What is the change?
On 29 March 2019, The Land, Explosives and Other Legislation Amendment Act 2019 was passed in Parliament and amended a number of Acts, including the Land Title Act 1994. The amendments mean that from 1 October 2019, property owners will not be able to request a paper Certicate of Title from the Titles Registry and paper CTs will no longer have any legal effect.
Until 1 October 2019, the current laws that govern paper CTs remain in place. This means any property transactions where there is a paper CT, will still need that paper CT to be deposited.
If you have a paper Certificate of Title, you should store this in a safe place until the changes take place on 1 October 2019, after which the paper CT will become an item of sentimental value only and will no longer need to be deposited when a property dealing is lodged.
Where a paper CT is currently held as a form of security, we recommend that you make other arrangements as soon as possible before the changes take place. We can assist you with reviewing and amending your current finance agreements and seek alternative security such as mortgages, security interests and/or personal guarantees.
In the recent decision of Central Highlands Regional Council v Geju Pty Ltd  QCA 38, the Queensland Court of Appeal considered whether a regional council could be liable in negligence to a buyer relying on an incorrect town planning certificate issued by the council but supplied to the buyer by a third party, namely, the seller’s real estate agent.
The case involved an appeal by Central Highlands Regional Council (“Council”) against a judgment requiring Council to pay the respondent, Geju Pty Ltd (“Geju”), the sum of $852,205.50 for loss sustained by Geju when it purchased vacant land in Capella in Central Queensland (“Lot 70”) in reliance upon a negligent misrepresentation in Council’s limited planning and development certificate (“Certificate”).
Facts of the case
In March 2007, the then owners of a lot of land, Ford Property, contracted to sell that lot to Mayfair Group. The lot was in the rural zone but Ford Property had applied to subdivide the lot and for a material change of use from rural to industrial which was approved in August 2007 with conditions. Lot 70 was created upon registration of the survey plan and the material change of use would lapse if the change of use did not occur within 4 years of the approval taking effect.
Ford Property sold Lot 70 to Mayfair Group in December 2007. On the same day, Mayfair Group’s solicitors wrote to Council stating that they acted for the buyer and requested for a limited planning and development certificate. The Certificate was issued to Mayfair Group’s solicitors which incorrectly stated that Lot 70 was in the industrial zone when it should have stated that it was in the rural zone. The Certificate also contained an incorrect lot description.
If the Certificate was accurate and Lot 70 was zoned industrial, there would be greater scope to reconfigure the land into smaller lots and the ability to use the land for industrial purposes would not be limited to the 4 year timeframe under the material change of use approval.
Mayfair Group sold Lot 70 to Geju in June 2008. During the sale process before the contract was entered into, the real estate agent provided the Certificate obtained by Mayfair Group to Geju. Finance was approved based on the incorrect zoning, the lot was worth significantly less than the purchase price on application of the correct zoning.
The main issue for the court to determine was whether Council owed a duty of care to Geju, the court noted that while it was foreseeable that the Certificate would be passed to a broader class of people, there was no evidence that Council knew that the Certificate would be passed on or that a person would buy Lot 70 relying on the information in the Certificate.
Under the statutory framework any person who suffers financial loss because of an error or omission in the certificate may claim reasonable compensation from Council. However, the claim the subject of the proceedings was not made under the statutory provisions but under the common law. The Court of Appeal also noted that Geju was not the requestor of the Certificate.
Geju was not the requestor of the Certificate, nor was it a member of a limited class of people that the Council should have known would likely receive, and rely on, the Certificate. There was insufficient evidence to conclude that the Council owed Geju a duty of care and the Court of Appeal set aside the judgement against Council.
In the course of a property transaction, this case demonstrates the importance for the buyer to obtain a planning and development certificate itself or by its advisors before the contract is entered into. In this case, Geju should not have relied on the Certificate provided by the seller and should have conducted its own due diligence. Further, if a buyer was going to rely on information given to it by the seller, then the relevant warranty about its accuracy should be included.
Please do not hesitate to contact us if you would like us to assist you with your legal due diligence in a property transaction or if you would like us to review the contract before it is entered into.