Real Estate Agents Entitlement To Commissions

Real Estate Agents Entitlement To Commissions

Frequently, disputes arise as to whether an agent was the effective cause of sale and therefore entitled to commission on sale of a property .

In Outerbridge trading as Century 21 Plateau Lifestyle Real Estate v Hall [2020] NSWCA a real estate agent agreement appointed the agent on a non-exclusive basis. The agreement conferred a right to be paid commission where the agents were “the effective cause of the sale” and if a purchaser “has been effectively introduced” by them.

Following a sale of the property, by another agent, a dispute arose as to whether the first appointed agent was the effective causer of sale and entitled to payment of commission.

The buyer in this instance was introduced by first agent . An offer was made and rejected by the sellers. A further offer was made, and accepted “in principle” initially but then the acceptance was withdrawn. Further attempts to negotiate were unsuccessful as the agent went overseas on holidays.

The buyer then contacted second agent to look for other properties ,but then went back to look at the subject property, and revived negotiations ,increasing their offer by some $400,000 which was accepted and a contract was signed and a sale then completed . The second agent however-had gone into liquidation and

The issue for the appeal court was whether the first agent was the, or an, effective cause of the sale of the property.

The Court found against the first agent holding that the mere introduction of the buyer to the property is insufficient to amount to an effective cause of sale. The first agent appealed.

The issues on appeal were:

(i)  Whether the primary judge wrongly considered that the appellants’ contention that they were an effective cause of the sale was necessarily inconsistent with the second agent being an effective cause of the sale.

(ii)  Whether the primary judge erred in supposedly equating the importance of procuring finance with the task of providing the clarification on price desired by the purchaser.

(iii)  Whether the primary judge erred in failing to give consideration to whether the task of negotiating a sale could have been undertaken by the first agent.

(iv)  Whether the primary judge’s finding that the appellants were not the effective cause of the sale of the property was contrary to the weight of the evidence.

The Court held, dismissing the appeal:

As to issue (i): While the actions of more than one agent can answer the description of an “effective cause” of the sale of a property, a consideration of whether the first agent’s conduct was the effective cause of the sale nevertheless required a consideration of factors external to him that brought about the sale, including the conduct of the second agent.

As to issue (ii) : The primary judge did not treat the conduct of the second agent in securing the sale of the property as akin to the task of arranging finance. The task of providing clarification to the purchaser was referred to as part of the explanation of how a transaction that was effectively over after the first agent departed on holiday was later revived.

As to issue (iii) : The primary judge did not fail to give consideration to whether the task of negotiating the sale could have been undertaken by the first agent in circumstances where he was not capable of providing the purchaser with any clarification of the respondents’ price expectations because he was overseas and effectively uncontactable.

As to issue (iv) : A determination of effective cause requires a consideration and evaluation of all the circumstances surrounding a sale. The mere introduction of a purchaser that creates their interest in a property is usually, or at least sometimes, insufficient to be an effective cause. In this case the potential for a sale was effectively extinguished when the first agent departed overseas and became uncontactable. It was the second agent who revived and completed the sale.

Each case turns on its own facts, and determination of whether an agent is an effective cause of sale will invariably involve evidence of the terms of the agency agreements and the actual events of introduction, negotiations and offers and acceptance.

If you have a commission dispute as an agent or seller, please don’t hesitate to contact us for advice.

NSW Government Announces Changes to Stamp Duty Thresholds for Eligible First Home Buyers

NSW Government Announces Changes to Stamp Duty Thresholds for Eligible First Home Buyers

In a bid to stimulate consumer spending, boost housing construction and create opportunities for employment as part of its COVID-19 Recovery Plan, on 26 July 2020 the New South Wales Government formally announced various changes to stamp duty thresholds for eligible first home buyers.

For the 12-month period commencing on 1 August 2020, the stamp duty thresholds for eligible first home buyers under the NSW Government First Home Buyers Assistance Scheme are to be temporarily changed as follows:

New Homes

– Full Stamp Duty Exemption for purchases of new homes valued at less than $800,000 (previous threshold being $650,000); and

– Partial Stamp Duty Exemptions for purchases of new homes valued between $800,000 and $1,000,000 (previous range being between $650,000 and $800,000).

Vacant Land

– Full Stamp Duty Exemption for purchases of vacant land (on which it is intended to build a home) valued at less than $400,000 (previous threshold being $350,000); and

– Partial Stamp Duty Exemptions for purchases of vacant land (on which it is intended to build a home) valued between $400,000 and $500,000 (previous range being between $350,000 and $450,000).

The changes offer eligible first-home buyers significant stamp duty savings as well as the potential to access a greater range of properties in New South Wales.

The temporary changes under the First Home Buyers Assistance Scheme are not anticipated to affect the existing First Home Owner Grant (New Home) scheme, under which the NSW Government offers $10,000 to eligible first home buyers (in addition to the concessions available under the First Home Buyers Assistance Scheme) who either:

– Are purchasing a new or recently substantially renovated home worth no more than $600,000; or

– Are purchasing land to build a new home, where the total price of the land and home is no more than $750,000.

Rostron Carlyle Rojas Lawyers have an experienced team of Commercial and Property lawyers committed to achieving superior outcomes for their clients.

For further information or assistance regarding the purchase of your first property, or in relation to property or commercial matters generally, please contact James Hatzopoulos at Rostron Carlyle Rojas Lawyers on (02) 9307 8900 or by email to [email protected]

Queensland Government Small Business COVID-19 Adaption Grant Program

Business man

The Queensland Government has announced that it will provide additional grants of up to $10,000 for eligible small or micro businesses who are subject to closure or highly impacted by COVID-19 government restrictions. This is to assist them to adapt and sustain their business. From 1 July 2020 there are grants available for legal or other professional advice to support business sustainability and diversification.

Certain eligibility criteria apply, an applicant must:

• have been subject to closure or otherwise highly impacted by current shutdown restrictions announced by Queensland’s Chief Health Officer on 23 March 2020
• demonstrate you have experienced a minimum 30% decline since 23 March 2020, over a minimum 1-month period due to the onset and management of COVID-19
• employ staff and have fewer than 20 employees at the time of applying for the grant (employees must be on your payroll and does not include the business owner(s))
• have a valid Australian Business Number (ABN) active as at 23 March 2020
• be registered for GST
• have a Queensland headquarters
• have an annual turnover over $75,000 for the 2018–19 or 2019–20 financial year, or you can provide financial records that show this will be met for recently started small businesses
• have a payroll of less than $1.3 million
• not be insolvent or have owners or directors that are an undischarged bankrupt.

For more information see
https://www.business.qld.gov.au/starting-business/advice-support/grants/adaption

If you believe your business is eligible and would benefit from advice to adapt to changed market conditions, please do not hesitate to contact us for a free 30-minute consultation to discuss your eligibility and how we can help. Funds are limited, so hurry to take advantage of this opportunity for your business.

Call us on 07 3009 8444
Michael Sing
Partner – Commercial and Property
Rostron Carlyle Rojas Lawyers

Queensland, Brisbane Offices

NSW (New South Wales) COVID-19 Land Tax relief

NSW (New South Wales) COVID-19 Land Tax relief

The NSW Government has introduced measures to provide relief to residential and commercial landowners who have provided rental reduction to tenants experiencing financial distress due to COVID-19.

The 2020 Land Tax COVID-19 Relief Scheme acts both as an incentive for landlords to offer their tenants waivers and rental deduction while also supporting landlords by reducing their land tax payable for 2020, by up to 25 per cent, for a taxable parcel of land where rent relief has been given to the tenant who occupies that land.

Eligible landowners are also able to defer land tax payments up to 3 months.

Eligibility for Land Tax Relief

To be eligible for the land tax relief scheme, you must be leasing property to:

  • A commercial tenant with an annual turnover of less than $50 million who has lost 30% or more turnover due to COVID-19; or
  • A residential tenant who has lost 25% or more of household income due to COVID-19

You must have also:

  • reduced the rent of the affected tenants for any period between 1 April 2020 and 30 September 2020;
  • provided the rent reduction without any requirement to be paid back (i.e. not a rent deferral- must be reduction or waiver without a right to re-claim the lost rent); and
  • the land tax must be attributable to that particular parcel of land that is leased to the impacted tenant (i.e. the relief must relate to the land leased to the tenant and not another property owned by you).

Relief available for Landlords -Land Tax Relief

The relief available under the scheme to landlords is a reduction (the lessor of):

  • the amount of rent reduction provided to a tenant for the period between 1 April 2020 and 30 September 2020; or
  • 25% of the land tax attributable to the parcel of land leased to that tenant.

If you have already advanced payment of land tax for the 2020 year, the eligible reduction can be refunded to you.

Where land tax has not been paid yet the relief will reduce or offset the amount still owing to the Commissioner. Any successful application under the scheme automatically defers remaining land tax payments for 3 months without interest.

Required Documents/Details for an Application

  • A MyService NSW Account – the application is only available through Service NSW.
  • Two proof of identity documents (i.e. Australian driver licence, Medicare card, Australian passport, Australian birth certificate etc)
  • your land tax client ID & correspondence ID
  • Electronic Funds Transfer (EFT) details
  • evidence of your rental reduction. i.e. copies of tenancy agreements proving rental reduction; rental ledgers or a letter from your property manager
  • evidence of your tenants’ financial distress due to COVID-19. i.e. their financial statements or a letter from your tenants’ accountant or property manager.

Rostron Carlyle Rojas Lawyers is here to help

We are committed to helping our clients navigate the recent changes the way business is conducted as a result of COVID-19. If you require assistance with accessing the various government stimulus packages or are now unsure if your business will survive the pandemic, contact us today. Our qualified legal advisers are here to help.

Contact us today at:
QLD: 07 3009 8444
[email protected]

NSW: 02 9307 8900
[email protected]

NSW Negotiating a commercial tenancy with a tenant (for landlords)

NSW Negotiating a commercial tenancy with a tenant for landlords

The NSW Government has passed the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (“the Regulation”) under the Retail Leases Act 1994 (NSW) (“the Act”) which came into effect 24 April 2020. The Regulation has inserted and/or amended relevant sections under various acts and can be accessed here.

The Regulation is applicable to tenants with an impacted lessees being:

  • A lessee who qualifies for the job keeper scheme – i.e. has experienced at least a 30% decline in turnover due to COVID-19 (or 15% in the case of not for profits), compared with a corresponding month or quarter in 2019; and
  • has an annual turnover of less than $50 million in the 2018/2019 financial year.

The Regulation is applied for the prescribed period of 6 months from the date of publication being from 24 April 2020 to 24 October 2020.

Prohibitions and Restrictions relating to commercial leases

Under the Regulation, you are prohibited from taking a prescribed action against an impacted lessee for breach of the commercial lease involving:

  • a failure to pay rent;
  • a failure to pay outgoings; or
  • the business operating under the lease not being open for business during the hours specified in the lease.

This means you cannot (amongst other things):

  • evict the tenant;
  • terminate the lease;
  • exercise a right of re-entry to the premises or possession;
  • seek damages in court or tribunal;
  • seek the recovery of the whole or part of a security bond under the commercial lease; or
  • require payment of interest on, or a fee or charge on unpaid rent,

while the relevant COVID-19 legislative schemes are in place.

Enactment of the Code

The Regulation further implemented the National Cabinet Mandatory Code of Conduct which imposes a set of good-faith leasing principles which amongst other things mandates that:

  • Landlords must offer waivers and deferrals of rent up to 100% of the amount ordinarily payable, on a case-by-case basis, proportionate to reductions in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.
  • Rental waivers must constitute no less than 50% of the total reduction in rent payable over the COVID-19 pandemic period. Waivers should constitute a greater proportion of the total reduction in rent where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease. Regard must also be given to the Landlord’s financial ability to provide such additional waivers. (Tenants may waive the requirement for a 50% minimum waiver by agreement.)
  • Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.

Requesting a rent reduction

If you are a landlord with an eligible impacted lessee, if you offer or have offered rental reduction due to COVID-19 to a tenant or tenants you may be eligible to apply for COVID-19 Land Tax Relief.

To offer your tenant rent reduction:
1. Contact your tenant in writing and invite them to negotiate an agreement.
2. Negotiate your new rent arrangements
3. Write down your agreement.
4. Send the agreement to your tenant to sign a copy and return to you, and keep a record of the arrangement.

Rostron Carlyle Rojas Lawyers are here to help

If you are having difficulty reaching a settlement with your tenant or landlord, we can assist by providing qualified advice throughout the negotiation process.

Our lawyers are experienced in practical negotiations and will be able to document the negotiated agreement in a way that ensures the agreement can be relied on once the pandemic is over.

Contact us today at:
Qld: 07 3009 8444
[email protected]
NSW: 02 9307 8900
[email protected]

NSW: Requesting a commercial tenancy rent reduction (for tenants)

NSW Requesting a commercial tenancy rent reduction for tenants m

The NSW Government has passed the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (“the Regulation”) under the Retail Leases Act 1994 (NSW) (“the Act”) which came into effect 24 April 2020. The Regulation has inserted and/or amended relevant sections under various acts and can be accessed here.

Application
The Regulation is applicable to impacted lessees being:

  • A lessee who qualifies for the job keeper scheme – i.e. has experienced at least a 30% decline in turnover due to COVID-19 (or 15% in the case of not for profits), compared with a corresponding month or quarter in 2019; and
  • has an annual turnover of less than $50 million in 2018/2019.
    The Regulation is applied for the prescribed period of 6 months from the date of publication being from 24 April 2020 to 24 October 2020.
    Prohibitions and Restrictions relating to commercial leases
    Under the Regulation, a lessor is prohibited from taking a prescribed action against an impacted lessee for breach of the commercial lease involving:
  • a failure to pay rent;
  • a failure to pay outgoings; or
  • the business operating under the lease not being open for business during the hours specified in the lease.
    This means a lessor cannot (amongst other things):
  • evict the lessee;
  • terminate the lease;
  • exercise a right of re-entry to the premises or possession;
  • seek damages in court or tribunal; or
  • require payment of interest on, or a fee or charge on unpaid rent,
    while the COVID-19 rental scheme is in place.

Enactment of the Code

The Regulation further implemented the National Cabinet Mandatory Code of Conduct which imposes a set of good-faith leasing principles which amongst other things mandates that:

  • Landlords must offer waivers and deferrals of rent up to 100% of the amount ordinarily payable, on a case-by-case basis, proportionate to reductions in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.
  • Rental waivers must constitute no less than 50% of the total reduction in rent payable over the COVID-19 pandemic period. Waivers should constitute a greater proportion of the total reduction in rent where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease. Regard must also be given to the Landlord’s financial ability to provide such additional waivers. (Tenants may waive the requirement for a 50% minimum waiver by agreement.)
  • Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.

Requesting a rent reduction

If you are an impacted lessee, you are eligible for rent reduction and/or waivers and deferrals.
To seek a rent reduction:
1. You are required to show that your annual turnover in 2018/2019 was under $50 million by providing documentation such as a tax return, or Business Activity Statement (BAS).
2. Contact your landlord or their managing agent in writing and invite them to negotiate.
3. Outline your circumstances and provide evidence of your eligibility criteria.
4. Negotiate your new rent arrangements and come to an agreement.
5. Write down your agreement.
6. Send the agreement to your landlord to sign a copy and return to you, and keep a record of the arrangement.

Rostron Carlyle Rojas Lawyers are here to help

If you are having difficulty reaching a settlement with your tenant or landlord, we can assist by providing qualified advice throughout the negotiation process.

Our lawyers are experienced in practical negotiations and will be able to document the negotiated agreement in a way that ensures the agreement can be relied on once the pandemic is over.

Contact us today at:
Qld: 07 3009 8444
[email protected]
NSW: 02 9307 8900
[email protected]

Queensland Government Small Business COVID-19 Adaption Grant Program Available for Legal Advice

Business man

The Queensland Government has announced that it will provide grants of up to $10,000 for eligible small or micro business’ who are subject to closure or highly impacted by COVID-19 government restrictions to assist them to adapt and sustain their business. There are grants available for legal or other professional advice to support business sustainability and diversification.

Certain eligibility criteria apply, an applicant must:

• have been subject to closure or otherwise highly impacted by current shutdown restrictions announced by Queensland’s Chief Health Officer on 23 March 2020;
• demonstrate that business revenue has been significantly impacted since 23 March 2020 over a minimum 1-month period due to the onset and management of COVID-19;
• employ staff and have fewer than 20 employees at the time of applying for the grant;
• have a valid Australian Business Number (ABN) active as at 23 March 2020;
• be registered for GST;
• have a Queensland headquarters;
• have an annual turnover over $75,000 for the last financial year;
• have a payroll of less than $1.3 million; and
• not be insolvent or have owners/directors that are an undischarged bankrupt.

For more information see
https://www.business.qld.gov.au/starting-business/advice-support/grants/adaption

If you believe your business is eligible and would benefit from advice to adapt to changed market conditions, please do not hesitate to contact us for a free 30-minute consultation to discuss your eligibility and how we can help. Funds are limited so hurry to take advantage of this opportunity for your business.

Call us on 07 3009 8444
Michael Sing
Partner – Commercial and Property
Rostron Carlyle Rojas Lawyers

Queensland COVID-19 (coronavirus) residential tenancy changes

Queensland COVID-19 (coronavirus) residential tenancy changes

Coronavirus residential tenancy changes- Queensland

The COVID-19 pandemic is a difficult time for many tenants and property owners and managers, especially when tenants face excessive hardship, which may impact their ability to maintain payments. Social distancing requirements may also impact obligations under tenancy law, including inspections of premises.

The Queensland Government recently passed the Residential Tenancies and Rooming Accommodation (COVID-19 Emergency Response) Regulation 2020 (“Regulation”). The Regulation was implemented as part of National Cabinet’s temporary six-month freeze on evictions under the COVID-19 Emergency Response Act 2020 (“Act”) and the Residential Tenancies and Rooming Accommodation Act 2008 (“RTRA Act”).

The Regulation applies to all residential tenancy agreements and rooming accommodation agreements in Queensland entered into before or after 29 March 2020, but is limited to tenants who have suffered excessive hardship because of the COVID-19 emergency.

COVID-19 excessive hardship

The tenant qualifies as a person suffering excessive hardship if the tenant:
1. If during the COVID-19 emergency period:
o They or someone they care for are affected by COVID-19;
o They are subject to a quarantine direction;
o A public health direction has closed their employment or restricted their employer’s trade or business, including for e.g. a public health direction has closed a major supplier or customer of their employer;
o They are self-isolating because they or someone they live with or are a primary carer for is a vulnerable person;
o They are unable to work because of travel restriction imposed under a public health direction prevents them from working or returning home;
o They have been prevented from leaving or returning to Australia; AND
2. The tenant suffers a loss of income of 25% or more OR the rent payable is 30% or more of the tenant’s income. If there is more than one tenant under the agreement, there must be a loss of combined income of 25% or the rent must be more than 30% of their combined total income.

When does the moratorium on evictions apply?

Between 29 March 2020 and 29 September 2020 (or an earlier date if the COVID-19 emergency period is declared to have ended), a landlord must not evict a tenant (or enlist them in a tenancy database) for failure to pay rent if the failure is due to the tenant suffering excessive hardship because of the COVID-19 emergency.

The moratorium does not prevent a landlord from ending a tenancy for another reason other than failure to pay rent, though a landlord is prohibited from giving a notice to leave without grounds during the COVID-19 emergency period if the tenant is suffering excessive hardship.

Extension of fixed term agreements

If a tenancy agreement for a fixed term ends after 24 April 2020 but before 29 September 2020 and the tenant is suffering excessive hardship because of the COVID-19 emergency, the landlord must extend the term to 30 September 2020 unless the tenant requests a shorter term.

Unpaid rent

The Regulation also prohibits landlords from giving tenants a notice to remedy breach if the rent has remained unpaid for 7 days and the landlord knows, or ought reasonably to know, the tenant is or has been suffering excessive hardship because of the COVID-19 emergency.

Instead, a landlord may give the tenant a show cause notice either requiring the tenant to pay the unpaid rent or to inform the landlord that rent is unpaid because the tenant is or has been suffering excessive hardship within 14 days.
If no notice is given by the tenant within 14 days, the landlord may give the tenant a notice to remedy breach for the unpaid rent. However, if the tenant later claims excessive hardship, the landlord will not be able to give a notice to leave for unpaid rent or obtain a termination order.

Negotiating rent variations

Landlords are not required by the Regulation to agree to vary rent, but may agree with the tenant to either a rent reduction or rent referral with payment plan, the terms of which should be recorded in the approved form (Form 18d General tenancy COVID-19 variation agreement).

Landlords should look into any available financial relief, such as Commonwealth income support, Queensland Government land tax relief and utilities rebate, and speak with their financial institution to discuss the possibility of temporary relief from mortgage repayments during COVID-19.

Entry and inspection of premises

Entry to the premises by the landlord or their agent for certain purposes are prohibited where:
• A person at the premises is subject to a quarantine direction; or
• The landlord or agent is subject to a quarantine direction; or
• The entry would contravene a public health direction; or
• The tenant refuses entry to the premises because the tenant, or another person staying at the premises, is a vulnerable person.
These restrictions will impact a landlord’s right of entry including entering to show the property to a prospective buyer or for the purpose of a valuation as the tenant can lawfully refuse entry.
However, entry is permitted for emergency repairs and maintenance and the landlord’s obligations for routine repairs and maintenance are relaxed.

Ending agreements

If the tenant has not claimed excessive hardship the usual notice to leave provisions in the RTRA Act will apply, subject to some changes introduced by the Regulation. The Regulation includes additional approved reasons for a landlord to give a notice to leave, such as if the property is being sold or if the landlord or a member of their family needs to move into the rental property.
If the tenant does not leave after a valid notice to leave for an approved reason is given, the landlord may apply for a termination though conciliation may be required under the RTRA Act.

There are also new approved reasons for tenants to end a tenancy during the COVID-19 emergency if the tenant because they can no longer safely live in the rental property because of domestic or family violence or within the first 7 days of moving into the rental property, the tenant finds the property is not in good repair.

How we can assist

The Act has significantly changed the residential tenancy scene, please contact our Property Teams if you have any questions about your new obligations during the COVID-19 emergency period. The Queensland Government has also created The Residential Rental Hub (https://www.covid19.qld.gov.au/the-hub) which contains many useful information such as the Residential Tenancies Practice Guide which can be downloaded via this website.

Disruptions in selling and buying property during COVID-19 (coronavirus)

Disruptions in selling and buying property during coronavirus

The Impact of coronavirus on the property market

The impact of COVID-19 (coronavirus) on the real estate (property) market is difficult to predict as the government’s responses to the pandemic is changing daily. Therefore, during this time of uncertainty, it is important for sellers and buyers to consider potential disruptions which may affect their obligations when selling and purchasing property.

Delays in satisfying contract conditions

The coronavirus pandemic situation means that time periods and obligations under contracts could be impacted by further closures or unavailability of parties (including financiers) which may be outside the control of parties and not be currently foreseeable.
Delays due to undertaking property searches, finance approval or a building and pest inspection report caused by COVID-19 restrictions or consequences will not usually entitle a property buyer to unilaterally extend the timeframe for satisfaction of the condition or settlement. However, the buyer may still seek the seller’s agreement to an extension of time for the condition or settlement.
For new property contracts, the potential for these types of delays as well as the following, should be taken into account to allow for insertion of any special conditions that might need to be included:
• either party not being able to do things to prepare for settlement (e.g. witnessing or face-to-face verification of identity) and extensions for that purpose;
• inability to perform any other contractual obligations or obtain necessary approvals (e.g. from 29 March 2020, all foreign buyers will require Foreign Investment Review Board approval and the threshold for all property classes have been reduced to $0, which might result in significant delays in the application process;
• the risk of delay in either party being able to settle and mechanisms to extend or suspend the settlement date, e.g. self-isolation (unable to give vacant possession);
• termination rights that might be needed if settlement suspended for a particular period;
• if a financier in the transaction is unable to attend a settlement;
• suspension or removal of time of the essence;
• a right for either party to extend critical dates on a specified number of occasions.

Tenancy risks for Investment Property during coronavirus pandemic

Buyers purchasing an investment property with an intention to lease to a tenant will need to be aware that the government has announced plans to change the residential tenancy arrangements in response to the current COVID-19 (coronavirus) pandemic. These changes may include a freeze on evictions due to rent arrears for tenants experiencing financial distress due to the impacts of coronavirus pandemic and even possibly capping tenant break lease costs during the pandemic. If these (or similar) changes are passed, it will impact the buyer’s investment objectives. The government has already released a mandatory code of conduct for certain commercial tenancies, for more information about this please see our article on this topic: National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During The Coronavirus Pandemic.

Settlement of property contracts during coronavirus pandemic

Whether a party can utilise the coronavirus pandemic to delay fulfilment of their settlement obligations will depend on the terms and conditions in the contract. Time is usually of the essence under the REIQ contract but the Suspension of Time provision applies if a party is unable to perform a settlement obligation solely as a consequence of a Delay Event. However, this provision is likely to be construed quite narrowly and it:
• only relates to the inability of a party to perform settlement obligations, not to other obligations or to dates for satisfaction of conditions;
• the definition of Delay Event does not specifically refer to a pandemic event;
• requires the inability to perform to be “solely as a consequence of” a Delay Event and will not apply if the property is destroyed or finance is withdrawn.

The only relevant Delay Event refers to compliance with any lawful direction or order by a government agency. This may extend to the current government direction that a person must self-isolate and if a person is unable to leave their home due to compliance with such a direction and therefore unable to give vacant possession, a right to delay settlement may arise.

When a party is affected by a Delay Event, they must take reasonable steps to minimise the effect of the Delay Event and their ability to perform the settlement obligations and notify the other party when they are no longer prevented from performing their settlement obligations due to the Delay Event. Either party may then give the other a Notice to Settle nominating a new settlement date (between 5 to 10 business days after the Notice to Settle is given).

As such, to provide clarity and comfort to sellers and buyers in new contracts, special conditions should be included which:
• amends the definition of Delay Event to include the inability of a party to perform a settlement obligation due to the COVID-19 pandemic (e.g. compulsory lockdown, self-isolation);
• extends the settlement timeframe for a longer period after the Notice to Settle is given to ensure that all parties in the transaction (e.g. solicitors and banks) are ready to settle.

For existing contracts, it may be safer to request a mutual agreement to extend settlement if either the seller or the buyer are unable to settle as incorrectly utilising the Suspension of Time provision may amount to repudiation and result in a claim for damages. Other common law rights, such as force majeure or frustration, may apply depending on the terms and circumstances of the contract.

Another way of minimising the impact of COVID-19 (coronavirus) is for settlements to occur electronically via the PEXA platform without the need for a physical settlement.

If you have any questions about your contractual obligations or would like us to assist you with preparing special conditions relating to the COVID-19 pandemic and government responses, please contact our Property Teams and we will be happy to assist.

Can a lease become binding before both parties sign it?

binding lease

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 [2019] 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 [2019] 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.