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Sandhurst Trustees Ltd v Australian Country Cinemas Pty Ltd

 

[2006] QSC 165

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO:

Trial

PROCEEDING:

Trial

ORIGINATING COURT:

DELIVERED ON:

5 July 2006

DELIVERED AT:

Brisbane

HEARING DATE:

28 June 2006

JUDGE:

Chesterman J

ORDER:

1.A declaration that the plaintiff is not required to offer the defendant the right to purchase the leased premises referred to in registered lease 701730957 upon the land described as Lot 1 on SP 108180 County of Elphinstone, Parish of Coonambelah before offering to sell that land to another; and

2.The defendant’s counterclaim is dismissed.

CATCHWORDS:

REAL PROPERTY – RESTRICTIVE COVENANTS – ASSIGNMENT OF COVENANT NOT ANNEXED TO LAND – defendant took up assignment of lease and contemporaneously executed deed of covenant – lease and deed of covenant granted the defendant a right of first refusal to purchase premises – lessor sold reversion to property trust for which plaintiff is custodian – whether plaintiff is bound by right of pre-emption contained in deed of covenant – whether right touches and concerns land

Property Law Act 1974 (Qld), s 118, s 184

Denham Bros Ltd v W Freestone Leasing Pty Ltd [2004]1Qd R 500, cited

Dewar v Goodman [1907] 1 KB 612, followed

Federated Homes Ltd v Mill Lodge Properties Ltd [1980] WLR 594, cited

Griffith v Pelton [1958] Ch 205, considered

Mackay v Wilson (1947) 47 SR (NSW) 315, cited

Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326, considered

Pirie v Registrar-General (1963) 109 CLR 619, considered

Re Rakita’s Application [1971] Qd R 59, cited

Rodgers v Hosegood [1900] 2 Ch 388, cited

Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548, cited

Simmons v Lee [1998] 2 Qd R 671, cited

Tulk v Moxhay (1848) 2 Ph 774, distinguished

Woodall v Clifton [1905] 2 Ch 257, followed

COUNSEL:

R Traves SC with him N Andreatidis for the plaintiff

S Couper QC for the defendant

SOLICITORS:

Boulton Cleary & Kern Lawyers for the plaintiff

Hopgood Ganim for the defendant

[1] The plaintiff is the registered proprietor of land located at Cannon Park in Townsville.  It is the custodian of a managed investment scheme registered under Part 5C of the Corporations Act.  Some of the land is vacant but some is developed.  Part of the developed land consists of a cinema which is leased to the defendant.

[2] The plaintiff claims a declaration that it is not required to offer the defendant a right of first refusal to purchase the demised premises, which consists of the cinema complex.  The plaintiff wishes to sell all of its land to a third party for a very substantial price.  The defendant contends that it may not do so without first offering to sell it that part of the land which consists of the cinema. 

[3] On 22 December 1996 Kumali Holdings Pty Ltd (‘Kumali’) leased the cinema to Reading Australia Pty Ltd (‘Reading’).  The lease was for a term of 15 years and was registered on 24 December 1996.  It contained cl 27 which provided:

‘Right of First Refusal

27.1Pre-Conditions

If the Tenant throughout the term of this Lease:

(a)pays rent regularly;  and

(b)does not breach … the provisions of this Lease …

then during the term of this lease the Landlord must not sell or agree to sell or offer to sell the leased premises to any person other than the Tenant unless:

(c)the Landlord has first served on the Tenant a written offer which complies with cl 27.2;  and

(d)the Tenant has not accepted the offer within … 30 … days after service.

27.2Offer

An offer …:

(a)must be in writing;

(b)must state clearly that the Landlord offers to sell the leased premises to the Tenant in accordance with the agreement for pre-emption contained in this Lease;

(c)must state a purchase price which is not greater than the price at which the premises are actually sold or agreed to be sold or offered for sale;

(d)must state or refer to terms which are not less favourable to the Tenant than the terms on which the premises are actually sold … or offered for sale;  and

(e)must state that the Tenant must accept the offer within … 30 … days after service.

27.4Exclusive to Tenant

The benefit of this agreement for pre-emption will not be assigned with an assignment of this Lease and may not be assigned by the Tenant.’

[4] On 15 July 1997 Reading assigned its interest as lessee under the lease to the defendant.  The assignment was effected by a deed of consent and assignment made between Kumali, Reading and the defendant executed on 15 July 1997.  A separate deed of covenant between the same parties was executed on 1 August 1997.  Importantly cl 10 of that deed provided that:

‘[Kumali] covenants and agrees with [the defendant] that it grants to [the defendant] a Right of First Refusal to purchase the Premises on the same terms and conditions as contained in the Right of First Refusal granted to [Reading] pursuant to clause 27 of the lease and [Kumali] shall be bound by the terms of the said clause 27 in the same manner and to the same extent as if [the defendant] was the “Tenant” referred to in that clause at the date of execution of the Lease.’

[5] On 29 October 1997 Kumali’s solicitors wrote to the defendant offering to sell the leased premises for a price of $6,000,000 subject only to the lease to the defendant.  A deposit of $10,000 was to be paid and settlement was to occur within 90 days from the execution of the contract of sale.  The defendant did not accept the offer.

[6] On 15 June 1998 the Cannon Park City Centre Property Trust (‘the Property Trust’) was established by deed made between Northern Property Syndicates Ltd (‘NPS’) and Finpac Management Services Pty Ltd (‘Finpac’).  Two days later, on 17 June 1998, Kumali granted an option to NPS by which it could purchase the entirety of the land comprising the Property Trust which included the cinema premises leased to the defendant. 

[7] There is now a dispute, which it is not necessary to resolve, whether the offer made to the defendant by the letter of 29 October 1997 to purchase the cinema was on terms no less favourable than those offered by Kumali to NPS.  The only point of disadvantage appears to be that the offer to NPS was conditional on finance.  The matter is obscure.  In any event more than six years have passed since the offer was made and if it constituted a breach of any contract between Kumali and the defendant no action was commenced in respect of it.

[8] On 23 October 1998 NPS assigned to Finpac its option to purchase the land from Kumali.  Finpac, if it exercised the option, was to hold the land as trustee of the Property Trust.  On the same day Finpac duly exercised the option to purchase the land including the demised premises.  On 24 October 1998 Kumali and Finpac entered into two contracts for the sale and purchase of Kumali’s land.  One of the contracts was for the sale of land which included the cinema.

[9] By notice dated 29 October 1998 Reading was informed of the sale and directed to pay rent to Finpac.  It is not clear why the notice was given to Reading and not to the defendant.  Nothing turns on the point.

[10] On 12 February 2003 NPS and the plaintiff entered into a custodian agreement, presumably upon the registration of the managed investment scheme. 

[11] On 13 June 2003 Finpac resigned as trustee of the Property Trust which became registered as a managed investment scheme and the plaintiff became custodian of the trust.  Finpac was deregistered on 28 June 2004.

[12] The issue for decision is whether the plaintiff is bound by the obligation contained in cl 27 of the lease, or cl 10 of the deed of 1 August 1997, not to sell the leased premises without first offering them for sale to the defendant.

[13] The defendant’s position starts with the observation that both ‘Landlord’ and ‘Tenant’ are defined by the lease to include their respective successors and assigns.  It is said that the obligation laid on Kumali by cl 27 to give Reading a right of pre-emption extends to the defendant by virtue of the extended definition of ‘Tenant’.

[14] There can be no substance in this point because of the terms of cl 27.4 which expressly provided that the right of pre-emption would not pass with an assignment of the lease and might not be assigned by Reading.  Despite the commonplace definition of landlord and tenant it is clear that the parties expressly intended that the right of pre-emption would not pass to any assignee of the lease and could not be otherwise assigned by Reading.

[15] Any right of pre-emption which the defendant has must be found in the terms of the deed of 1 August 1997.  That, too, included an extended definition of the parties so that Kumali, which granted the right of pre-emption in cl 10, was defined to mean its successors and assigns.

[16] It is obvious that there is no privity of contract between the plaintiff and the defendant whose contract was with Kumali.  An assignee from Kumali is not bound by its promise, it not being a party to the contract and having received no consideration.  I understood counsel for the defendant to concede that it has no contractual right against the plaintiff.

[17] The defendant’s argument is that the right of pre-emption is a restrictive covenant which touches and concerns the demised land so that the defendant may enforce the covenant against the assignees from Kumali.

[18] It is, I think, clear that if the covenant does not ‘touch and concern’ the defendant’s land the covenant will not bind Kumali’s assigns notwithstanding that the covenant was expressed to bind such assigns.  The authority is Dewar v Goodman [1907] 1 KB 612 in which (at 620) Jelf J said:

‘… even where the parties shew by using express words their intention that the benefit and the burden of the covenant … should pass to the respective assignees … yet if the thing to be done be merely collateral to the land and “doth not touch or concern the thing demised in any sort” the covenant does not run with the land’.

In that event the assignees are not bound.

The passage was cited with approval by D M Campbell J (with whom Hanger ACJ and Wanstall J agreed) in Re Rakita’s Application [1971] Qd R 59 at 63. 

[19] Despite the earnest submissions of counsel for the defendant it is, I think, plain that a right of pre-emption does touch or concern land, so that the burden of the covenant does not pass to assignees of the covenantor.  The authorities are all one way.

[20] Woodall v Clifton [1905] 2 Ch 257 was concerned with a lease of land for 99 years which contained a covenant giving the lessee, his heirs and assigns, the right, at any time during the term of the lease, to purchase the fee simple at a specified price per acre of land and the lessor, his heirs and assigns, bound themselves on receipt of the purchase money to execute a conveyance of the land in favour of the lessee or his assignee.  The right was in the nature of an option to purchase rather than a right of pre-emption but for present purposes the distinction (as to which see Mackay v Wilson (1947) 47 SR (NSW) 315) may be ignored. 

[21] The judgment of the Court of Appeal was given by Romer LJ who said (258-9):

‘Unless the covenant … giving the option of purchase can be said to run with the land by virtue of the provisions of the statute, then the plaintiff must fail.  Now undoubtedly the statute is in its wording very wide, but … some limitations must be implied;  as, for example, that the statute does not apply to covenants which do not touch or affect the land demised … The question … is whether the statute was intended to cover … such a covenant … as we have now to consider, so as to make the liability to perform it run with the reversion. …  [T]hat question must be answered in the negative.  The covenant is aimed at creating, at a future time, the position of vendor and purchaser of the reversion between the owner and the tenant for the time being.  It is in reality not a covenant concerning the tenancy or its terms.  Properly regarded, it cannot … be said to directly affect or concern the land, regarded as the subject-matter of the lease, any more than a covenant with the tenant for the sale of the reversion to a stranger … could … do so.  …  It is … concerned with something wholly outside the relation of landlord and tenant with which the statute of Henry VIII was dealing.’

[22] The Queensland equivalent of the statute of Henry is s 118 of the Property Law Act 1974 which expressly limits its application to obligations ‘touching and concerning the land’. 

[23] Woodall was approved by the Court of Appeal in Griffith v Pelton [1958] Ch 205 at 226 in which it was said that:

‘… an alternative contention to the effect that the burden of the proviso creating the option ran with the land so as to bind the assignees … of the reversion …’

was repelled by Romer LJ who held:

‘… that the burden of the proviso did not run with the land so as to make the option enforceable against the assignees of the reversion.’

[24] Woodall was accepted as correct by the Court of Appeal in Denham Bros Ltd v WFreestone Leasing Pty Ltd [2004] 1 Qd R 500 by the President at [6];  McPherson JA at [22] and Holmes J (as her Honour then was) at [66];  and by Giles J in Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 553.  The authors of Woodfall Landlord and Tenant (vol 1 (at 63) [11.063]) also accept the authority of Woodall

[25] The defendant’s answer is that the right of pre-emption is a restrictive covenant of the kind described in Tulk v Moxhay (1848) 2 Ph 774 so that it touches and concerns and runs with the land so as to bind assignees from the covenantor despite not being so regarded by ‘landlord and tenant law’. 

[26] I do not accept the distinction.  The equitable doctrine of restrictive covenants still requires as a condition of the applicability of the equitable obligation that the covenant in question must ‘touch and concern the land’: see Rodgers v Hosegood [1900] 2 Ch 388 at 404.  According to Woodfall (at [11.051]) ‘a satisfactory working rule for determining whether a covenant touches and concerns the land’ is that it must inter alia affect ‘the nature, quality, mode of use or value of the land of the reversioner.’ 

[27] Kitto J in Pirie v Registrar-General (1963) 109 CLR 619 summarised the effect of the doctrine (at 628):

‘But it is basic to the doctrine of Tulk v Moxhay that it applies only to a restriction created to preserve the value of other land, and that the restriction is not enforceable against derivative owners except for the protection of that other land.’

[28] Some observations which appear in the judgment of Stephen J in Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326 at 351 are to the same effect.  The appeal was concerned with whether an option to purchase given by a lessor and contained in a lease as registrable under the Real Property Act 1886 (SA).  Section 117 of that Act permitted the registration of such an option.  The equivalent provision was s 53 of the Real Property Act 1861 (Qld).  That section has no counterpart in the Land Title Act 1994.  But for the repealed statutory provision Stephen J thought that an option to purchase could not be registered.  His Honour went on:

‘Such an option is of its nature unrelated to the tenant’s estate or interest under the lease;  it has no closer connexion with that estate or interest than that the parties to it happen also to be in the relationship of lessor and lessee of the subject land.’

This is a clear expression of opinion, even though obiter dicta, that an option to purchase contained in a lease is unrelated to the tenant’s land.  It is not, therefore, for the benefit of that land.  It clearly does not restrict the user of the lessor’s/covenantor’s land.  The option to purchase does not preserve the value of the lessee’s land.  It confers a separate right which may have its own value but it does not enhance the value of the leasehold estate.

[29] But even if the defendant’s submissions were correct that the right of pre-emption amounted to a restrictive covenant which equity would enforce, the defendant’s contention would founder on the obstacle of s 184 of the Land Title Act 1994.  That provides that a registered proprietor of land holds his interest in it ‘subject to registered interests affecting the lot but free from all other interests.’  The plaintiff is the registered proprietor of the cinema land.  The equitable restrictive covenant, if there be one, is an unregistered interest and the plaintiff holds its land free of it.  The equity is not one of the specified exceptions, found in s 185 of the Act, to the indefeasibility granted by s 184. 

[30] The registration of the lease does not assist the defendant.  Registration of that instrument will not protect a right of pre-emption which is not an interest in land, certainly not before the occasion for the exercise of the right arose.  This was the view of Gibbs and Stephen JJ in Mercantile Credits.  More importantly, it was not the lease which conferred the right of pre-emption on the defendant but the deed of 1 August 1997.  That instrument has not been registered under the Land Title Act 1994.

[31] It should, perhaps, be mentioned that the defendant obtains no assistance from s 53 of the Property Law Act which provides that a covenant relating to land of the covenantor shall be deemed to be made on behalf of the covenantor and successors in title.  To obtain the benefit of the section a covenant must relate to land and that phrase imports the same requirement for a covenant to ‘touch and concern’ the land: see Federated Homes Ltd v Mill Lodge Properties Ltd [1980] 1 WLR 594; Simmons v Lee [1998] 2 Qd R 671.

[32] I cannot therefore accept the defendant’s basic submission.  This is enough to dispose of the action.  The defendant raised other points in its defence but they were not relied upon in its counsel’s submissions and appear to be adequately answered by the plaintiff’s written submissions. 

[33] I declare that the plaintiff is not required to offer the defendant the right to purchase the leased premises referred to in registered lease 701730957 upon the land described as Lot 1 SP 108180 in the County of Elphinstone, Parish of Coonambelah before offering to sell that land to another.  The counterclaim should be dismissed.

Close

Editorial Notes

  • Published Case Name:

    Sandhurst Trustees Ltd v Australian Country Cinemas Pty Ltd

  • Shortened Case Name:

    Sandhurst Trustees Ltd v Australian Country Cinemas Pty Ltd

  • MNC:

    [2006] QSC 165

  • Court:

    QSC

  • Judge(s):

    Chesterman J

  • Date:

    05 Jul 2006

  • White Star Case:

    Yes

Litigation History

No Litigation History

Appeal Status

No Status