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Related Titles

Property Law Guidebook

Chris Davies


Property law can be a challenging subject for many students. This new title in the Law Guidebook series makes property law more accessible by introducing students to the core topics of the subject in a relevant and user-friendly way. It uses case summaries to bring the subject matter alive – engaging students and demonstrating how important property law is to ‘real life’.

Adopting a logical structure and incorporating clear explanations, the book helps students to link the key property law concepts from their lectures, textbooks and tutorials and to apply their knowledge to assessment tasks.
  • Examples in each chapter show how the concepts and principles of property law work in a practical setting.
  • Tip boxes, Cases to Remember, “Think about it” sections and diagrams flag important concepts and help students to achieve a greater understanding of the subject.
  • Definitions of complex terms are included in a glossary at the end of the book.
1. Introduction
2. What is property?
3. What is land?
4. The Doctrine of Tenure and estates
5. Native title
6. Co-ownership
7. Strata title
8. Creation and enforcement of property interests
9. The Torrens system
10. Mortgages
11. Leases
12. Proprietary interests in land owned by another
13. Problem Solving for Land Law
14. Glossary of Terms

Chris Davies , Senior Lecturer, School of Law, James Cook University

This guide to problem solving for property law accompanies the Property Law Guidebook. The guide includes sample problem questions and suggested answers.

Guide to problem solving for Property Law.pdf


Problem solving for property law

The IRAC method
Like for all substantive law subjects, there is a set way in which to answer problem questions relating to property law. This involves first of all identifying the issues in the problem, then stating the rules, principles or law that relate to those issues. This law then needs to be applied to the specific facts given in the problem before reaching a conclusion. Such a system is often referred to as the IRAC, IPAC or ILAC method:

I—Issues
R/P/L––Rules, principles or law
A––Application
C—Conclusion


It does not matter which term you use to refer to it as they are essentially the same system. While IRAC may appear to be a rigid system, it should be noted that a good answer will often need to merge some aspects of this system, particularly the rules and application stages. Thus, how IRAC is best applied will vary depending on the actual problem that is being answered. A number of problems relating to various areas of property law are therefore presented here, together with suggested answers and some comments on the answers to help explain the approach that has been taken.

Property law does have extensive legislation and therefore, when examining the rules or law for a particular problem, one of the first considerations is which statute applies. Due to the fact that there are different statutes in each state, the problems presented here have been deliberately written to reduce the need for reliance on statutes. Students should be aware that for most of their exam questions a greater use of the relevant statutes may almost certainly be required. It is also suggested that students consult with their lecturer or tutor in regard to how they expect an answer to be constructed, since what is presented in this chapter is just one of a number of ways that a particular problem may be answered.



Problem Example 1

The problem
While Mary was studying medicine at university, she rented two rooms in a house owned by Jack and Joan. She liked the place and continued to live there when she started working at the local hospital. Jack and Joan then told Mary that they were going to sell the house and asked whether she would be interested in buying it. Mary readily agreed and was able to raise the finance with the bank. Mary is aware of the following items that are associated with the house:

•    a dishwasher set into the kitchen benches
•    a plasma television, set onto the wall by means of brackets, which is in a separate television room furnished with two lounge suites
•    air conditioners set into the walls of the lounge room and main bedroom
•    a small fountain that has been screwed onto a pole on the back veranda
•    six hanging baskets hanging from the roof of the back veranda
•    six pot plants sitting on the back veranda.


In the back garden, meanwhile, there are the following items:

•    a small portable shed
•    a large decorative fountain surrounded by a good-sized fishpond
•    numerous plants in the ground.


Discuss what items Jack and Joan can take with them and which ones the law would require them to leave behind when the house is sold.

Suggested answer
The issue here is which of the various items are fixtures and must remain with the house, and which items have remained chattels and can be removed by Jack and Joan.


General law
The doctrine of fixtures is governed by the principle stated in the maxim 'quicquid plantatur solo, solo cedit', which means: 'Whatever is affixed to the soil becomes a part of the soil'. In Holland v Hodgson a two-step test was developed to determine whether an object is a fixture or not. It requires looking at the degree of fixation, and the intention relating to the annexation. The courts these days look at the objective intention of the person who has affixed the object, though the degree of fixation may help to indicate what that intention was. Ascertaining the intention requires an examination of all the surrounding circumstances, namely the degree of fixation, whether the object can be removed without causing damage, what is being done with the object and its function. Intention can also be determined by asking whether annexation is for the better use and enjoyment of the item itself, in which case it is more likely to remain just a chattel. However, if the intention is for the better use and enjoyment of the actual land or building, then the object is more likely to be a fixture. The presumption is that if the item is affixed to the land to any great extent beyond its own weight, it is presumed to be a fixture, but if it is not so affixed and merely rests on its own weight, it is presumed not to be a fixture.


Dishwasher
The case of Farley v Hawkins involved a dishwasher connected to the wall by inlets and outlets for water. When it was removed, it left an unsightly gap in the kitchen. It was stated in that case that if a chattel is securely attached to a dwelling there is a strong presumption that it is a fixture, although all the circumstances of the case have to be considered. However, the dishwasher's status as a fixture was established because of the fact that it was not only lightly connected with other fixtures, but also set into those fixtures. Therefore, although it could be easily removed after the disconnection of the plumbing, the entire fixture into which it was built was intended as an integrated whole. In the present case, the dishwasher is likewise set into the kitchen benches. It is connected with other fixtures and its removal would leave an unsightly gap in the kitchen. It is therefore likely that the dishwasher is a fixture.


Plasma TV
Based on the degree of fixation, a plasma TV attached to a wall would likely be considered a fixture. However, the intention would be for it to remain a chattel, as the annexation contributes to the enjoyment and use of the TV itself as opposed to the building. It would therefore likely be considered a chattel unless the surrounding circumstances indicate that it may fit into an overall architectural design of a house. In Re Whaley, a portrait and a tapestry were held to be fixtures because of the way they were intended to become part of how the room was presented. The television in the present case is described as being in a separate room, but the mere existence of a separate television room is not sufficient for the TV to be considered part of the architectural design of the house and it is therefore likely to have remained a chattel. The two lounge suites would likewise be chattels.


Air conditioner
In Belgrave Nominees v Barlin-Scott Air-conditioning, platforms were constructed to hold air conditioners that stood on their own weight. Despite this, it was held that because the air conditioners were connected to water pipes by means of bolts and nuts, there was some connection with the building. This meant they were intended to be permanently fitted and were therefore fixtures. In the present case, the air conditioners are described as being set into the walls, which means that there is some connection to the building that indicates an intention for them to be permanent. The air conditioners are therefore likely to be fixtures.


Small fountain
The small fountain is described as being screwed onto a pole on the back veranda, which, while showing a small degree of fixation, also indicates that it can be easily removed without causing any real damage. It is therefore likely to be a chattel unless it fits into an architectural design of the house, which, on the facts given, does not seem likely.


Hanging baskets, pot plants and garden plants
The intention with hanging baskets and pot plants is for them to remain chattels as they are, in the case of the pot plants, not affixed, or, in the case of hanging baskets, only lightly affixed, which means that they can be easily removed without causing any damage. However, the garden plants are considered to be fixtures as the intention is for them to become a permanent part of the soil.


Fountain
The fountain in this case is described as being large and surrounded by a good-sized fishpond. The intention appears for it to become part of the architectural design of the garden and for it to be enjoyed as a part of the garden. It is therefore likely to be considered a fixture.


Shed
In Farley v Hawkins a shed that was used to store earth-moving equipment was bolted into large concrete blocks in the ground. It was held that due to its size and relative permanence the shed was intended to be a fixture. It was further stated that a shed would normally be a fixture, unless the structure was light and easily portable. In the present case, however, the shed is described as being 'small and portable' and therefore it could be considered to be a chattel.


Conclusion
The dishwasher, air conditioners, garden plants and fountain are definitely all fixtures and must remain with the property, while the plasma TV, small fountain, hanging baskets and pot plants are all chattels that can be removed from the property. The fact that the shed is described as small and portable indicates that it may be a chattel despite the fact that most sheds will be considered fixtures. More information would therefore be required about the shed before a conclusion can be reached.


Comments on the answer
The first thing that should be noted in this answer is that the general rules are stated and then applied to the specific items mentioned in the problem. More rules in the form of fact-specific cases are then added during the application stage. It is therefore an example of an answer that merges to some degree the rules and application stages of IRAC. This prevents the need for the general principles to be repeated throughout the answers and also allows the specific rules to be placed in better context by being mentioned adjacent to the facts.

As a law student you should by now be used to the fact that there are some cases which set out general principles, and some cases which are specifically relevant to the facts of a particular problem. If a fact-specific case is relevant to your answer, then it needs to be applied directly or distinguished on the facts. Note that in an area like fixtures there are many cases from various jurisdictions that cover many specific fact situations. However, in this answer, only cases from the text have been used unless there was no case on point, in which case general principles have been applied. If you knew of a case on point from sources other than this text, then it could also have been incorporated into your answer. While a conclusion has been reached in regard to each item, it is also a good idea to make a brief, overall conclusion at the end of the problem. It is mentioned that more information is required in regard to the shed and there will be times when it is appropriate to make such a statement. However, it is essential that you first of all refer to, and use, whatever facts you have been given.

The answer has incorporated headings and these can be very useful in an answer, but only when material can be readily split into material that fits neatly under those headings. When referring to a case, the name but not the full citation has been used. Due to the time restraints involved with an exam answer, this is usually acceptable. However, you should check with your lecturer whether full citations are required in the exam answer as some lecturers will require that they are used.



Problem Example 2

The problem
Oscar, who was a barrister, bequeathed Monarch Estate, a farm and mansion, to his three daughters Peace, Quia and Rosa 'jointly and to share amongst themselves'. Since childhood the three girls had quarrelled incessantly, though Peace and Rosa could tolerate each other. As adults an uneasy truce prevailed between them. However, in an effort to spurn Quia, Peace and Rosa devised a scheme by which each transferred her interest to the other without the knowledge of Quia. Since the relationship between Quia and her two sisters remained frosty, Quia decided to move out. Two years later Quia decided to buy herself a flat. She mortgaged her interest in Monarch Estate to Toogood Bank to raise the purchase price of the flat. Unbeknown to Quia, Peace and Rosa had also moved out a year ago and leased Monarch Estate to Unus Pty Ltd for a term of ten years. While driving to a movie last Saturday, Peace and Rosa were killed in a motor accident. Neither Peace nor Rosa, had made a will.

Discuss all the relevant legal issues in relation to Monarch Estate.


Suggested answer
The issues in this problem are:

1    What type of co-ownership has been created?
2    Has severance occurred?
3    Can Quia claim occupation rent for the years she was not living on the property?
4    Can Quia mortgage her interest in the property?
5    Can Peace and Rosa lease out the property, and is Quia eligible for some of the rental income?
6    Who will now inherit Peace and Rosa's share in the property?


In regard to the first issue, it should be noted that the word 'jointly' has been used, which may indicate a joint tenancy. However, the words 'share amongst themselves' are also present, and in Robertson v Fraser it was held that any words that suggest a sharing of the property will indicate that a tenancy in common has been created. While the common law favours a joint tenancy in both NSW and Queensland, the relevant statutes (s 26 Conveyancing Act 1919 (NSW) and s 35 Property Law Act 1974 (Qld) respectively) now have a presumption in favour of a tenancy in common. It should also be noted that the property has been left in a will, which means that the intention of the testator must be considered. The facts here are similar to Re Barbour where a farm was left to two brothers and a sister 'to share and share alike as joint tenants'. In that case it was held that the intention was to create a joint tenancy in order to keep the farm as a single unit, since otherwise the farm would not have been viable. In the present case, the property in question is also a farm so that it could also be concluded that Oscar's intention was to leave it to his daughters as joint tenants. In NSW and Queensland, however, the relevant statutes may mean that it would be considered to be a tenancy in common.

The second issue is whether the joint tenancy has been severed by Peace and Rosa, though it should be noted that if a tenancy in common was created, this will not be an issue because severance only applies to a joint tenancy. The facts in this case are similar to Wright v Gibbons, where two sisters and a sister-in-law were joint tenants of a number of properties in Hobart. The two sisters then transferred their interests in the estate to each other without the knowledge of the sister-in-law, and this was held to have severed the joint tenancy. This was because the four unities were no longer present as there were now three different documents completed at different times in relation to the estate. Therefore, in the present case it would appear that Peace and Rosa have severed the joint tenancy and created a tenancy in common, with the main significance of this being that there is now no right of survivorship.

Regarding the third issue, the general rule is that one co-owner cannot claim occupation rent from another (Luke v Luke) unless there has been an agreement or a co-owner has been wrongfully excluded from the property, since the unity of possession entitles each co-owner to occupy the whole property. There has clearly been no agreement, so in order to claim occupation rent Quia would need to prove that she was wrongfully excluded. In Dennis v McDonald occupation rent was charged since the co-owner had left because of violence and it was therefore unreasonable to expect her to stay and exercise her rights as a co-owner. In Beresford v Booth, occupation rent was also charged because a co-owner was excluded from a house after the locks on the doors were changed. However, in the present case Quia has only left because of the 'frosty relationship', which appears to have been present since their childhood, which Quia was used to. She has therefore voluntarily left the co-owned premises and has not been wrongfully excluded; therefore she is not eligible for any occupation rent.

As a co-owner Quia has an interest in the property and can use this as security to obtain a mortgage from the bank.

Likewise, Peace and Rosa own the property in fee simple and can therefore lease the property. The only issue is whether they have to give Quia a third of the income from the rental returns. Under common law there is no requirement for one co-owner to account for profits that are made to any other co-owner. However, under equity there is a duty to account for profits with this also having been enacted as s 43 of the Property Law Act 1974 (Qld). In Henderson v Eason, it was held that for a co-owner to claim a share of the profits they had to contribute to the capital and labour. Quia has contributed to the capital simply by having a share in the house, and as the labour involved in renting out the property is very minimal, it is likely that she will be able to claim a third of the rental income.

As to the issue of inheritance, even if a joint tenancy had been created under the will, this had been severed by Peace and Quia. There is therefore no right of survivorship and each of their one-third share in the property will be inherited by their heirs. However, both Peace and Rosa have died intestate, that is, they have not made a will, and therefore their interests in the property will be inherited by their next-of-kin. From the facts given this is likely to be Quia since there does not appear to be any other next-of-kin.


Comments on the answer
In this problem, all the issues have been listed at the beginning of the answer due to the fact that there were a number of them. Having them listed at the beginning provides you with a checklist and informs the marker that you have recognised all the issues, even if you did not have sufficient time to address all of them. Since all the issues are effectively separate in this problem, the rules for each issue have been presented, then applied and a conclusion in regard to that issue has then been made. The answer to the problem therefore effectively consists of a number of 'little IRACs'. Note, too, that after reaching a conclusion to the first issue of whether the ownership was a joint tenancy or a tenancy in common, a good answer would have explored both possibilities when looking at the second issue. Thus, even if you had concluded that it was a tenancy in common for the first issue, your answer should still have explored the severance issue. Another perfectly acceptable structure for the answer would have been to discuss survivorship, or the lack of it, on the deaths of Peace and Rosa immediately after this severance issue. In this problem no headings have been used and instead the first sentence of each new paragraph has essentially contained the words that would have been in headings had they been used. Given the nature of this problem, this is probably the better approach than splitting the answer up with headings.



Problem Example 3

The problem
Two friends, Arthur and Terry, entered into negotiations concerning the sale of Arthur's plot of land. Upon conclusion of a contract of sale, a deed of conveyance was drawn up for the parties to sign. Without actually receiving the agreed purchase price of $150 000 from Terry, Arthur signed a receipt on the deed of conveyance acknowledging that he had received the agreed purchase price. The transfer was completed and Terry became the registered owner of the property. Six months later Terry used the title to the property as security to obtain a loan of $100 000 from All Star Banking Services, with the intention being to use the money to build a house on the land. This mortgage, however, was not registered by All Star Banking Services. Terry is now in financial difficulty, having squandered the money gambling, with his only asset being the block of land he had bought from Arthur.

Discuss who should have priority in the dispute that has now arisen in regard to the property.


Suggested answer
The two issues in this problem are who has what interest in the property and who should have priority in any dispute in relation to the property.

Arthur originally had the legal interest in the property since he was the owner of the land. This legal interest was passed over to Terry, who obtained the legal interest in the property when it was transferred to him. Arthur, however, can argue that he has retained an equitable interest in the property by means of a vendor's lien as he is yet to be paid in full for the purchase of the land. The bank has meanwhile given Terry a mortgage, which is an equitable interest as it has not been registered.

The issue now is whether Arthur or the bank should have priority in regard to being repaid by Terry, which means that it involves a dispute between two equitable interests. The facts here are similar to Rice v Rice, where George Rice sold land to his cousin, Michael, and signed a document stating that the purchase price had been paid in full when it had not. This allowed Michael to obtain a mortgage on the basis that he owed no money on the property. The later equitable interest was then held to have priority due to the conduct of George in signing the document stating that he had been paid in full. It was also held in that case that with competing equitable interests what needs to be examined first is whether the equities are equal and this involves looking at:

1    the nature and condition of the equitable interests
2    the circumstances of the case
3    the conduct of the parties.


If, after examining the equities, it is decided that they are equal, the maxim of last resort, that is, the first in time will prevail, is then applied. The facts here also have some similarities to Heid v Reliance Finance, where Heid signed documentation stating that he had been paid in full when he had not, and for this reason a later equitable interest had priority. Barry v Heider also involved a vendor's lien, and in that case Barry's equitable interest in the property, which arose from this vendor's lien, was held to have priority over one later equitable mortgage, but had lost priority to another later equitable mortgage.

Applying the principles of Rice v Rice to the present case would therefore indicate that Arthur's conduct in signing the document stating that he had been paid in full when he had not been paid means that the equities are not equal. It is therefore likely that the later equitable interest of All Star Banking Services would prevail over Arthur's earlier equitable interest. This would mean that the bank would have priority in regard to the proceeds of the sale of Terry's land should it be sold off, which seems likely.


Comments on the answer
The two issues that exist in a priorities question are first of all who has what interest in the property, and then who should have priority in any such dispute in relation to the property. Most of the rules, or the law, will therefore probably pertain to the second issue. This problem also illustrates how cases should be used to illustrate both general principles and specific principles. Rice v Rice is a case that sets out the general principle relating to the question of priorities between two equitable interests and should therefore be used in relation to any problem relating to a priority dispute between two equitable interests. However, in this particular problem it is also a case on point, since the facts stated in the problem are very similar to Rice v Rice. This is why a brief outline of the facts from Rice v Rice should be mentioned, though when it is being used just as a general principle case, the facts will usually not be as relevant and do not necessarily have to be included in the answer. It is also a good idea to include some Australian cases in the answer to illustrate how the principles from Rice v Rice have been applied in Australia.



Problem example 4

Problem question
Frank was an executive for a large corporation who had bought a $3.5 million bayside mansion in 2006. However, he became a victim of the global credit crisis and lost his job in January 2009. He was given a redundancy package that enabled him to keep up with the mortgage repayments until the 30 June. Unable to secure another job, he then fell two months behind on his mortgage repayments. Aqua Bank, with which he had a mortgage, informed him by letter of his default on 31 July. After a further month without any repayments it informed Frank that he wanted to exercise its power of sale on 1 October. An auction was therefore arranged to take place in an inner city hotel at 12pm on Wednesday 30 October. An advertisement was placed in the metropolitan paper every Saturday in the weeks leading up to the auction, which was also advertised on the internet. October proved to be unseasonably cold and wet, which meant that not many people attended the open day inspections, and those that attended did not see the location at its best. At the auction a reserve of $3 million was placed on the property on the advice of the bank's property valuators. Ten bidders participated in the auction with the best offer being $2.8 million from an interstate investor. This was accepted by Aqua Bank, which considered this a good price in the economic climate. It meant that Frank still owed the bank $500 000. Frank now wants to have the sale set aside on the grounds that Aqua Bank has not fulfilled its statutory power of sale properly. He claims that the bank did not advertised the auction properly; that the auction was held at a bad time; that it should have held at the house not at a city hotel; and that due to the unseasonable weather, the auction should have been postponed for a month to allow people to see it at its best.

Discuss.


Suggested answer
The issue in this particular problem is whether Aqua Bank has fulfilled all the requirements in regard to a power of sale.

A mortgage involves a contract to repay a loan that uses the property as security for that loan, and if there are defaults in the repayment then the mortgagee has a number of remedies, including the power to sell the property. However, before this power can be enforced, the relevant statutes (Real Property Act 1900 (NSW) ss 109, 111; Property Law Act 1974 (Qld) ss 77, 83–84; Real Property Act 1886 (SA) ss 6, 47–48; Land Title Act 1980 (Tas) ss 21–22; Property Law Act 1958 (Vic) ss 86, 101–103; Transfer of Land Act 1893 (WA) ss 57, 59) require notice of the default that continues for a period of 30 days to be given. The facts in this problem indicate that this has occurred as Frank was notified he was behind on the repayments on 30 July and the bank then waited until the 1 October to exercise its power of sale.

Under the common law, as well as Property Law Act 1974 (Qld) s 85 and Transfer of Land Act 1958 (Vic) s 77, there is a requirement that reasonable care be taken to ensure that the property is sold at market value. In Spencer v Commonwealth it was stated that the test for value of land was to be determined by asking the question: 'What would a man desiring to buy the land have to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?' This indicates that the sale must not be a forced one but must be a voluntary bargain between the vendor and the purchaser.

In the present case, Aqua Bank sold the property by auction. Latec Investments v Hotel Terrigal also involved an auction sale, with the sale being overturned on the grounds that it was not held on a suitable day, and that the property was sold below market price to a wholly owned subsidiary of Latec Investments. Similarly, in ANZ Bank v Bangadilly Pastoral, property was sold at an auction that was held on 23 December after being advertised only once in the metropolitan paper. Further, the mortgagees told the auctioneers to set the reserve price at $250 000 and Bangadilly Pastoral were successful with a $265 000 bid. The sale was set aside as it was not the result of an independent bargain since the transaction came about primarily through the deciding minds of the mortgagees, with the auction not being timed and advertised to best attract potential buyers. It was also sold to a close associate of the vendors, with Bangadilly Pastoral having been set up just eight days before the auction.

In the present case Aqua Bank advertised over a four-week period. The fact that the buyer came from interstate indicates that the advertising was successful in reaching potential buyers, unlike in Latec Investments and ANZ v Bangadilly Pastoral. There were also ten bidders, which indicates there was a competitive tendering process, unlike in Jovanovic v Commonwealth Bank where the bank was in breach of its obligations as it had been sold by private tender and there was effectively just one bidder. There also seems to be no reason why a Wednesday auction in late October in a city hotel was not a suitable time and place, unlike the day before Christmas Eve, which is when the auction in ANZ v Bangadilly Pastoral took place. The fact that October was an unseasonally cold month was out of the control of the bank and there is no reason why the sale should be overturned because of this. The fact that it was bought by an interstate investor also suggests that it was not sold to a close subsidiary of Aqua Bank. Therefore Latec Investments and ANZ v Bangadilly Pastoral can be distinguished on the facts.

In conclusion, it would appear that Aqua Bank has fulfilled its obligations in regard to the power of sale and has done all that can be reasonably expected in trying to obtain market value for the property, with the sale having been a voluntary transaction between the vendor and the purchaser. The fact that it was below what Frank had paid for it a number of years earlier was simply a reflection of the downturn in the market. Frank appears unlikely to be able to have the sale set aside and would also remain liable under the mortgage contract for the money still outstanding, namely the $500 000.


Comments on the answer
This problem has one main issue with a number of components, which could be considered sub-issues. These sub-issues, for example, whether the bank sufficiently advertised the auction, could have been listed at the beginning of the answer. However, these can also be left to be raised when addressing the main issue, as has been done here. The other main feature of the answer is that there were a number of cases on point that could also be distinguished on the facts. These need to be discussed with sufficient detail in regard to the facts in order to show that they can be distinguished.



Problem example 5

Problem question
Jill and Mary are sisters who want to open up their own floral business. In the local paper they see an advertisement for a shop that sounds suitable for them and they arrange a meeting with the owner, Bob, who also owns the adjacent shop where he runs a newsagent. Both Jill and Mary are very happy with the premises and make an oral agreement to lease the premises for two years at a monthly rent of $1600. Bob then has a written agreement drawn up that includes clauses containing the agreed duration and rent. The lease agreement also states that Jill and Mary are only licensees, though it also gives a written assurance that Bob will not enter the premises without Jill or Mary's permission. It also contains a clause that the lease can be subleased or assigned, though Bob's permission is required. The lease is signed by all of them, though it is never registered.

Twelve months later, Jill and Mary receive news that their father is seriously ill. As they are the only living members of his family they decide they will look after him at home, rather then moving him into a nursing home. They then ask a friend, Georgina, to look after the business for them while they are caring for their father. No written agreement is made with Georgina as Jill and Mary know her well and fully trust her. It is orally agreed that Georgina will take over the total running of the business, be responsible for all the costs, including the rent, and also keep all the profits. It is also agreed that the arrangement will last for as long as Jill and Mary are required to look after their father. Bob is informed of this and verbally agrees to the arrangement. Soon after Jill and Mary leave the business to Georgina she finds that Bob is continuing entering the premises without any reason or permission, and just seems to be always checking up on her. She informs Jill and Mary, who now want to stop Bob from entering their premises.
Discuss.

Suggested answer
The issues in this problem are:

1    Is there a lease between Jill/Mary and Bob?
2    Has there been an assignment of the lease to Georgina?
3    Can Bob be prevented from coming onto the premises?


A lease involves a grant of the right of exclusive possession for a fixed period of time. In Radiach v Smith it was held that whether the transaction creates a lease or licence depends on the intention of the parties regarding what relationship the lessee shall have to the land. If there is a written document, the intention must ascertained by examining the terms in the document. It does not matter whether the terms 'licensee' or 'tenant' are used, as it is a matter of substance rather than form. In the present case, there is a written document that gives the duration of the tenancy as two years and the rent as $1600 a month. Thus, two requirements of a lease––certainty of duration and rent––are clearly outlined in the document. It is therefore a matter of whether the right of exclusive possession has been granted. Jill and Mary are described in the document as being licensees. However, it also contains a clause stating that Bob is not allowed onto the premises without Jill and Mary's permission. This would indicate that exclusive possession has been granted, which is the most important characteristic of a lease. The conclusion is that Jill and Mary are lessees, not licensees. The lease is not registered and while not relevant to the question at hand it should be noted that, being a two-year lease, it would be protected as an exception to the indefeasibility principle as a short-term lease under the relevant statutes except the Law of Property Act 1936 (SA).

As lessees, Jill and Mary can sublet or assign the lease. An assignment involves the original lessee getting out of the lease and someone else taking over what remains of it, while a sublease is a transfer of less than the whole of the tenant's interest in the property (Milmo v Carreras). There is also the possibility that Georgina is just managing the place and is therefore just a licensee. The facts indicate that the agreement was for Georgina to take over the running of the business, including paying the rent and keeping all the profits. It is not in writing but as it is a short-term lease, it is still a legal interest, except under the Law of Property Act 1936 (SA). Permission was required from Bob but this was requested and granted. It also appears that Jill and Mary are not going to be on the premises, which suggests that Georgina may have exclusive possession of the property. In that case she may be considered to be the lessee. However, the agreement was for Georgina to take over the business for as long as Jill and Mary needed to look after their father. It should be noted that in Lace v Chantler, 'the duration of the war' was held to be an uncertain duration and therefore did not create a leasehold interest. Thus, the term of the arrangement in the present case would also appear to be too uncertain to create a leasehold interest. It would appear therefore that Georgina is only there as a manager on a license, as was the case in Issaac v Hotel de Paris. This is also supported by the fact that there does not appear to be an intention to transfer the lease over to Georgina.

The significance of Georgina being a licensee is that she does not have the right under either the privity of contract or the privity of estate to take action against Bob. This is because, respectively, she was not a party to the original contract, and as a licensee she has no interest in the land and therefore cannot claim privity of estate with Bob. Bob had agreed not to enter the premises without permission, which means that he covenanted for quiet enjoyment. It should also be noted that if this was not a term of the contract then it would be implied under common law (Lavender v Betts). Thus Bob is in breach of the lease agreement since a lease grants exclusive possession to the lessee. Jill and Mary, both as the original parties to the agreement and also as parties with an interest in the land, can therefore take legal action to prevent him from coming onto the premises. The only way that Bob would have been lawfully able to come onto the premises would have been if there was no lease, but just a licence for them to be on the premises, which does not appear to be the case. If there had been breaches of the lease agreement then he could also have entered the property but that does not appear to be the case here.

In conclusion, Jill and Mary had a valid lease with Bob and appointed Georgina as a manager on license to run the business in their absence. Since Bob is in breach of a covenant of the lease, Jill and Mary can prevent him from entering the premises without permission.


Comments on the answer
At the end of the second paragraph it was stated that the agreement was a short-term lease, except in South Australia, which means that it did not need to be registered to be an exception to the indefeasibility principle. As was noted, this was not actually relevant to the question, but it is an example of what can be briefly mentioned to provide a complete and comprehensive answer. However, the emphasis needs to be on the word 'brief', as you should not then be writing a longish paragraph on material that is not directly relevant to the question.