Primary RE Ltd v Great Southern Property Holdings Ltd – are purported forestry rights in fact leases?

Given the number of issues raised in the Primary RE case and the size of the judgmnent (114 pages!), I thought it would be useful for those following this blog to have a separate post on each issue in the judgment.

The first and, perhaps, one of the less complicated issues considered in the Primary RE case was the treatment of forestry rights for the purposes of termination.

In some of the jurisdictions in which the plantations were established, the scheme operators granted forestry rights instead of leases.  A forestry right is a statutory form of profit a prendre.

Primary RE argued that the relevant forestry rights were in fact leases in all but name and that the creators of the scheme had chosen to grant forestry rights as a device to overcome prohibitions of subdivision.  As a result, the forestry rights were leases and could only be terminated by service of a s 146 notice.  Primary also argued that the s 146 notices were invalid, and, accordingly, so was the purported termination based on those notices (the validity of the s 146 will notices be discussed in another post).

The receivers argued that the forestry rights were not leases and that notice under s 146 was not required.

The Court found that the forestry rights were leases in all but name because they effectively granted exclusive possession to the former responsible entity and that s 146 notices were, accordingly, required.

Lawyers drafting and, importantly, terminating agreements that may arguably be leases in all but name to consider serving a s 146 notice.

A common example is a franchise outlet licence.  Many franchisors take a lease of the relevant shop then grant a contractual licence to the franchisee.  The outlet licence gives to the franchisee rights very similar to the rights of a tenant.  Lawyers for franchisors should consider serving a s 146 notice on the franchisee before terminating an outlet licence.  The absence of a s 146 notice may also give franchisees leverage after purported termination.

The relevant discussion takes place at paragraphs [84] to [93] of the Primary RE judgment.