Given developments over the last few days, I thought it would be worth doing a single post on the validity of the third floor determination.

The relevant dates are as follows:

• 15 April 2003 – the RLA 2003 received Royal assent;
• 29 April 2003 – date of third floor determination;
• 30 April 2003 – Gazette entry publishing third floor determination;  and
• 1 May 2003 – s 5(1) of the RLA 2003 came into force.

In a hearing last week, the County Court expressed the view that the third floor determination may not be valid because the determination is made under s 5(1) of the RLA 2003 and was made on 29 April 2003, but s 5(1) did not come into force until 1 May 2003.

However, Robert Hay, in a post on his blog, pointed out that the instrument appears to be valid under s 13 of the Interpretation of Legislation Act 1984.

Section 13 of the ILA, as was current at the date of the Ministerial Determination, states that:

13. Exercise of powers between passing and commencement of Act

Where an Act or a provision of an Act which does not come into operation immediately on the passing of the Act will, upon its coming into operation, confer power or amend another Act so as to confer power under the other Act as so amended to make subordinate instruments, give notices, make appointments, prescribe forms or do any other thing for the purposes of the first-mentioned Act or provision or that other Act, the power may, unless the contrary intention appears, be exercised at any time after the passing of the first-mentioned Act but the exercise of the power does not confer a right or impose an obligation on a person before the coming into operation of the first-mentioned Act or the provision of that Act in question except insofar as is necessary or expedient for the purpose of—

(a)  bringing the first-mentioned Act or the provision of that Act in question into operation; 

(b)  making the first-mentioned Act or the provision of that Act in question fully effective at or after the time at which it comes into operation; or

(c)  making the amendment made to the other Act by the first-mentioned Act or the provision of that Act in question fully effective at or after the time at which the first-mentioned Act or provision comes into operation.

As the RLA 2003 was passed on or before 15 April 2003, s 13 of the ILA appears to be sufficient to save the determination.

A copy of the determination is available here.

My friend Robert Hay just added a post to his blog on a new decision in which VCAT held that a landlord repudiated the lease by failing to comply with its repair and maintenance obligations under s 52 of the RLA.

Read Robert’s post here.

VCAT’s decision is available here.

Acceptance of the landlord’s repudiation will terminate the lease and allow the tenant to claim damages.

This decision is useful for tenants as it gives a tenant bargaining power against a landlord who has failed to adequately maintain a premises, particularly given the recent press about the lack of retail tenants to fill vacant shops.

For example, assuming that the breach constitutes a repudiation of the lease (not all breaches are a repudiation – but that is a topic for another post), it might be possible for a tenant to accept the landlord’s repudiation, terminate the lease and use the threat of litigation to renegotiate the terms of its lease on more favourable terms.

However, this would be a bold strategy because:

1. the landlord may be able to find another tenant, causing loss of goodwill, investment in fitout and all the usual problems that come with the loss of a retail premises lease; and
2. the tenant would then need to sue for damages.  This may be a hollow remedy given that:

(a) the tenant is only entitled to its loss.  Many smaller retail tenants have significantly reduced profits after payment of directors’ salaries;  and

(b) the litigation would take place in a no-cost jurisdiction.  Litigation over the loss of a tenancy requires either a forensic accountant or a valuer in addition to the usual legal costs, which may consume a significant portion of the damages award.

In the past week or so a debate has been brewing between shopping centre retailers and landlords, fuelled by comments made in the media by Mark McInnes and Solomon Lew of Premier Investments.

McInnes is employing a strategy of closing stores to reduce losses in his ‘ongoing cost-reduction program’.   In some cases where Premier Investments have threatened to close stores, landlords have responded by offering rent reductions of up to 30%.

McInnes discusses this strategy here and refers to the “massive arguments” taking place between centre management and retailers.

One commentator says that landlords face the possibility that other retailers might follow Premier’s lead and should be thankful that there have not been more store closures.   In the same article, he encourages landlords to “jump at the chance to replace underperforming fashion tenants sooner rather than later”.

Solicitors for both landlords and tenants should consider both the opportunities and the risks that this recent press creates for their clients.

For those interested in following the debate, a summary of recently reported articles follows:

‘Lew all cashed up for bargain hunt’, AFR, 20 September 2011

• Solomen Lew intending to take advantage of poor retail conditions to purchase assets
• Solomen Lew optimistic for sales growth in first half of 2012 compared with 2011

‘Premier warns retail to get worse’, The Australian, 20 September 2011

• 18% decline in profit for 2010-11
• Premier’s strategy of closing stores to reduce losses; ‘ongoing cost-reduction program’
• some store closures have been prevented where shopping centre landlords have offered rent reductions when Premier threatened not to renew their lease

‘McInnes gets his mojo back with ambitious agenda’, The Australian, 20 September 2011

• Solomen Lew waiting for the right acquisition opportunity
• McInnes talks about the “massive arguments” between centre management and retailers
• McInnes discusses strategy of closing stores on expiry of leases
• When threatened with store closures, some landlords are offering rent reductions
• McInnes also suggested that there is the possibility of claw-back by sharing the costs for store refits
• Suggests that retailers only have bargaining power where they are willing to close stores

 ‘Retailers ‘being gouged’’, The Age, 20 September 2011

• McInnes increasing his rhetoric against shopping centre landlords, threatening landlords with closure and in some cases succeeding in getting rent reduced

 ‘The making of a real estate monster’, SMH, 21 September 2011

• small retailers at risk
• suggests that retail property owners may be thankful that there haven’t been more store closures
• landlords face the possibility that other retailers might follow Premier’s lead
• says landlords must “jump at the chance to replace underperforming fashion tenants sooner rather than later”

Solicitors with clients who possess old laneways should consider lodging caveats to protect their clients’ possessory title and making an adverse possession application to the Registrar or Titles as soon as possible.

Under s 7B of the Limitation of Actions Act 1958 (Vic):

7B            No title by adverse possession against Councils

 (1) Despite any rule of law or provision made by or under this or any other Act, but without limiting section 7, the title of a Council to council land is not affected by reason only of any possession of that land adverse to the Council, irrespective of the period of that possession.

…

(3) In this section—

…

council land means land of which a Council is a registered proprietor under the Transfer of Land Act 1958;

registered proprietor and Registrar have the same meanings as in the Transfer of Land Act 1958.

A registered proprietor under the TLA is defined as ‘any person appearing by the Register or by any registered instrument to be the proprietor of any estate or interest in land’.

Many land owners have adversely possessed disused laneways for decades without needing to perfect their titles, many of whom purchased the possessory title from their predecessors.

The register often still shows the proprietor of the land to be the old developer who subdivided the land in the early years of the 20th century, even though local government legislation vests the title in the council.

However, it appears that the local council may be able to defeat old adverse possession claims by making an application to the Land Titles Office to become registered proprietor.  If the adverse possessor does not have a caveat lodged, then the council’s application may proceed without their knowledge.  The person in actual possession of the land may then need to purchase the disused land from the council.  As the current occupant of the land probably purchased the possessory rights from their predecessor in title some years ago, this could mean that they have to buy the land a second time.

Anyone claiming adverse possession of a laneway will, of course, need to satisfy all the usual requirements of an adverse possession claim.  Consideration will need to be given to whether or not an entry has been made in the Government Gazette declaring the disused laneway to no longer be a road and its impact on any adverse possession claim (see, for example, the discussion at [225-1250] of Halsbury’s Laws of Australia).

Robert Hay has just put an interesting post on his blog about a change to the legislation regarding goods left on the premises after termination of a lease – see here.

The potential problem with the statute that Robert has identified emphasises that it is prudent for landlords to ensure that leases contains a clause dealing with goods left behind.