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Lease negotiations can often be lengthy and take place over a number of weeks and months. It’s not unusual for there to be an abundance of emails back and forth, telecons, face to face meetings between the parties (and their representatives) from the early initial commercial discussions to the time that the lease is signed up.

A recent High Court case (Crown Melbourne Limited v Cosmopolitan Hotel (VIC) Pty Ltd & Anor [2016] HCA 26) has considered whether an informal verbal assurance from the landlord to an arguably anxious tenant during negotiations was sufficient to bind the landlord to grant a further 5 year lease once the initial term had expired.

 

The facts

• In early 2005, the tenant (Cosmopolitan) and the landlord (Crown) entered into negotiations for new leases of 2 restaurant spaces in the Crown Casino complex.
• The new leases offered by Crown were limited to a term of 5 years only and did not contain any option for renewal. They also required Cosmopolitan to undertake major refurbishment works at commencement.
• During lease negotiations, Cosmopolitan requested a longer lease term having regard to the substantial cost of the refurbishment works Crown required it to carry out. Crown refused, but evidence indicates they assured Cosmopolitan that they would nevertheless be “looked after at renewal time”.
• Under clause 2.3 of the leases, Crown was required to give at least 6 months’ notice before expiry stating whether:

“(a) the Landlord will renew this Lease, and on what terms (this may include a requirement to refurbish the Premises or to move to different premises…);
(b) the Landlord will allow the Tenant to occupy the Premises on a monthly tenancy after the Expiry Date; or
(c) the Landlord will require the Tenant to vacate the Premises by the Expiry Date.” 

• In December 2009, Crown gave notice pursuant to clause 2.3(c) that it would not be renewing the leases and required Cosmopolitan to vacate in August 2010.
• In July 2010, Cosmopolitan brought proceedings alleging that Crown, by the representations made by its representatives during lease negotiations, was bound to grant a further 5 year lease. The case was heard by VCAT in the first instance which determined there was both a collateral contract and an estoppel argument in favour of Cosmopolitan, and then subsequently appealed to the Supreme Court of Victoria, Court of Appeal and then ultimately the High Court.

 

High Court’s decision

 

There were 2 main issues that the High Court had to consider, namely:

1.  whether there was a collateral contract created by Crown’s representations under which Crown was obliged to offer Cosmopolitan a further 5 year lease; or

2.  alternatively, whether Crown was estopped from denying an obligation to grant a further 5 year lease.

Having regard to the assessments carried out by the lower Courts, a majority of the High Court determined that:

• there was no collateral contract as, in the circumstances, Crown’s statement that Cosmopolitan would be “looked after at renewal time” could not have objectively been understood to amount to a binding contractual promise. In short, this statement was no more than “vaguely encouraging”
• the estoppel claim could not succeed as the Court found that Crown’s statement was not capable of conveying (to a reasonable person) an expectation that a further lease would without doubt be granted (on the same or substantially similar terms).  In any event, the Court was unable to satisfy itself on the evidence available that Cosmopolitan had relied and acted upon such an expectation.

 

Implications for Landlords and Tenants

 

Although in this case the landlord’s statement was not of sufficient quality to amount to a contractual promise, this case is a good reminder for landlords (and leasing agents) to be careful about the statements or assurances made to tenants during lease negotiations.  An “entire agreement” clause in the HOA or the lease itself is not “bulletproof”, and a Court will look beyond this to consider objectively (not subjectively) whether a party intended for its separate promise or assurance to be contractually binding.

Likewise, it is important for tenants to ensure that any assurance given by the landlord is adequately reflected in the lease documentation.  Failure to do so may have significant financial consequences – in this regard, we note that Cosmopolitan entered into external administration shortly after the leases ended in 2010.

For further information, please contact Leisha De Aboitiz or Ben Malone.

 

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Disclaimer: This article is intended to provide commentary and general information.  It should not be relied upon as legal advice.  Formal legal advice should be sought having regard to any particular facts or circumstances.

1. Why are these new laws being introduced?
1. 为何有新法律出台？

The new laws are intended to assist in the collection of foreign resident CGT liabilities in relation to both direct and indirect Australian real property interests. Historically voluntary compliance has been very low, and enforcement procedures have been costly and difficult to undertake. The new laws (quite cleverly) push responsibility for implementation and enforcement onto purchasers, making purchasers responsible for withholding the non-final CGT amount from the purchase price (ie 10%) and paying it directly to the Australian Taxation Office (ATO). This will force foreign resident vendors to comply with their CGT liabilities, and will prompt them to either take preventative steps to reduce or avoid the 10% withholding tax before it occurs, or to seek an adjustment or credit when they lodge their income tax return (eg similar to pay as you go withholding from salary and wages in Australia).

新法出台后，海外居民在澳置业的直接或间接获利，都会被政府强制收缴增值税税。过去自愿纳税的人不多，政府又监管不力，旧法的执法程序困难，执法成本很高。新的法律（非常聪明地）资本增值税的收缴任务推给了买房人。买家从房屋购买价中直接缴纳税款，并转交给澳大利亚税务局（ATO）。这一规定将迫使海外居民履行其纳税义务，之前减少缴纳，甚至逃税的伎俩从此失效。10%的预扣所得税，或者在进行收入退税的时候进行调整（比如从工资中扣税）。

2. How does it work?
2. 如何操作？

The purchaser of a relevant CGT asset must withhold 10% of the market value of the asset from the purchase price and pay that amount to the ATO on or before the day that the asset is acquired (ie the day of settlement), unless the purchaser is in receipt of a clearance certificate, a notice of variation, or a vendor declaration.

如果没有免税凭证、税收变更通知或者卖家声明，买家必须在购买价中支付房产市场价值10%的增值税，并在交易当天或者之前转交给ATO。

What types of transactions will be affected?
哪些交易会受到影响？

The new regime will apply to:

新的制度将实施于：

(a) direct transactions relating to taxable Australian real property (eg land, buildings, lease premiums, mining, quarrying and prospecting rights), including options or rights to acquire taxable real property interests; and
与澳大利亚不动产（如：土地、建筑、租赁保证、矿产、采石和探矿权）纳税相关的交易，包括不动产期权的获利，以及

(b) indirect transactions relating to interests in Australian entities where the majority assets of the relevant entity consist of the kinds of real property interests identified in part (a) above.
与澳大利亚公司相关的，包括以上各不动产类型的间接交易。

3. What types of transactions are excluded from the regime?
3. 哪些交易不包含制度之内？

Some examples of acquisitions not caught by the new regime are:
一些案不包含在新法律之内：

(a) real property transactions where the “market value”[i] is below AUD 2 million;
不动产的“市场价值”在澳币200万以下；这里需要注意，政府会评估物业市场价值，不会允许买卖双方私下压低价格的逃税行为。

(b) transactions listed on an approved stock exchange; and
房产交易是获批的股票交易的一部分；

(c) acquisitions where the foreign resident vendor is under external administration or in bankruptcy.
海外住户在面临外部管理或破产情况下，房产交易是清算收购的一部分。

4. What happens if the purchaser doesn’t withhold the tax?
4. 买家不缴税会怎样？

If a purchaser fails to withhold the correct amount and pay it to the ATO on completion, then the penalty payable by the purchaser will be equivalent to the amount that it should have withheld had it acted appropriately (eg 10% of the purchase price).
如果买家没有以正确的方式将代缴的增值税转给ATO，那么买家将要受到与应交税额一致的罚款（如购买价的10%）。

5. What does the vendor need to do?
5. 卖家需要做什么？

If the vendor does not agree that a standard withholding amount of 10% is appropriate, it will need to either:

如果卖家不同意10%作为税款，那么就需要：

• obtain a clearance certificate (eg for Australian resident vendors);获得官方声明（比如，卖家是澳大利亚自主居民就不用交税）

• give a declaration to the purchaser in accordance with the statutory requirements. However, vendors should be aware that there are significant penalties for giving false declarations; or给买家法定要求的声明，然而卖家应当注意，错误的声明面临严重的惩罚

• obtain a notice of variation seeking a lesser withholding rate.获得寻求变更税率的通知

6. What kind of processes will be put in place and how long will things take?
6. 有哪些步骤，需要花多长时间？

The online systems are still being finalised, however, the ATO has advised that:

在线系统仍在敲定中，ATO建议：

• certificates and notices will be available via a simple online system, accessible via the ATO website;证明和通知将可以通过登陆ATO官网，通过简单的在线系统申请获得；

• clearance certificates should be available within a matter of days, will be valid for 12 months and can be requested well in advance of a specific transaction; and免税证明应该在一定的时间段内发送，有效期12个月。卖方如果满足免税条件，可以在房产交易前几天向政府提出申请；

• a notice of variation will be a much longer process (eg at least a month).税收变更的过程会更长（如至少需要一个月的时间）。

Some practical examples…
一些实际案例

 

Transaction 交易	Foreign resident action 外国居民做法	Purchaser’s withholding obligation 买家扣缴义务
Sale of real property with market value of AUD 1.1 million 市场价澳币110万的不动产销售	No action required 不需要做任何事	Nil. The market value is less than AUD 2 million, so it is an excluded transaction (see part 4 above) 市场价低于澳币200万的不包含在内
Sale of real property with market value of AUD 2.5 million 市场价澳币250万的不动产销售	No notice of variation or declaration provided to purchaser 不需要给买家更改通知或声明	Purchaser must withhold and remit to ATO full 10% (ie AUD 250,000) 买家必须给ATO提交10%完整税款（如澳币250,000）
	Notice of variation obtained and provided to purchaser prior to completion (eg showing variation from 10% to 6%) 获得变更通知，并在交易完成之前提供给买家（比如从10%变为6%）	Purchaser can rely on the notice of variation and will withhold and remit to the ATO the varied amount (ie AUD 150,000) 买家可以依靠更改通知给ATO提交更改后的税款（如澳币150,000）
	Appropriate vendor declaration provided to the purchaser prior to completion 在完成之前给买家提供恰当的卖家声明	Purchaser can rely on the declaration if it does not believe the declaration to be false. Purchaser can adjust the amount withheld on completion having regard to the declaration 买家可以以声明为准，可以根据声明调整缴税数额

 

For further information please contact Leisha de Aboitiz.

 

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Disclaimer: This article is intended to provide commentary and general information.  It should not be relied upon as legal advice. Formal legal advice should be sought having regard to any particular facts or circumstances.

The short answer is yes, GST will most likely be recoverable as part of the “compensation value” received by a dissenting owner.

 Who is a “dissenting owner”?

A dissenting owner is an owner of a lot which does not support a strata renewal plan prepared in accordance with Part 10 of the Strata Schemes Development Bill 2015.

What is the “compensation value”?

The “compensation value” is the value of a lot determined:

• pursuant to s55 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Acquisition Act) subject to any modifications prescribed by the regulations; or
• by any different valuation method prescribed by the regulations.

The regulations are yet to be published, so it is unclear whether the regulations will specifically regulate (or modify) the manner in which the “compensation value” is calculated, and in particular whether or not  GST will be recoverable by a dissenting owner as part of the market value of the dissenting lot.

However, if the “compensation value” is to be determined solely pursuant to the Acquisition Act, then it is most likely that any GST paid (or payable) on the sale of the dissenting lot would form part of the market value of that lot, meaning that a dissenting lot owner would then recover GST as part of the overall value it receives.

Is a dissenting owner entitled to “compensation value” for its lot?

Yes, at a minimum.

When making an order to effect to a strata renewal plan, a court must be satisfied in relation to the compensation being received by lot owners that:

• in the event of the sale of the entire strata scheme (a “collective sale”), each lot owner must receive not less than the “compensation value”; and
• in the event of a “redevelopment”, the amount to be paid to a dissenting owner must be the greater of the “compensation value” of the dissenting owner’s lot and the amount which the dissenting owner would have been entitled to had they supported the strata renewal plan.

For further information, please contact Leisha de Aboitiz or Ole Mitrevski.

An Owners’ Corporation must repair and maintain common property in accordance with section 62 of the Strata Schemes Management Act 1996 (NSW) (the Act). This is an absolute and strict liability duty, and is commonly misunderstood.

A duty of absolute and strict liability

The duty imposed under section 62 is a duty that goes beyond taking reasonable steps or using best endeavours, meaning that an Owners’ Corporation could be in breach of its obligations under section 62 despite:

• not being aware of the breach;
• using “best endeavours” to perform the duty; or
• another person causing or contributing to a breach[1].

This is because section 62 imposes a strict and absolute duty on an Owners’ Corporation to maintain and keep its common property and personal property in good repair; i.e. the obligation is not only to repair damage when it occurs, but to prevent it from occurring in the first place[2].

When there is a breach?

A breach will be taken to occur from the moment any part of the common property or personal property of the Owners’ Corporation (e.g. washing machines, exhaust systems) is not working properly or requires repair, unless the Owners’ Corporation determines not to repair it per section 62(3). It doesn’t matter if the Owners’ Corporation acts promptly in fixing the problem; theoretically, the problem should have never occurred.

What is required?

To comply with its duties under section 62, an Owners’ Corporation must:

• repair any personal property or common property that no longer operates effectively (or at all) or has fallen into disrepair[3]3; and
• properly maintain its personal property and common property, including by taking preventative measures (e.g. common property altered without consent should be restored to its original state)[4].

What are the extent of the obligations?

Compliance with section 62 does not require:

• replacement of inefficient systems with better systems (e.g. a functioning outdated air conditioning system does not need to be replaced with a more efficient system);
• “improvement” of facilities (i.e. replacement with an equivalent, but not better, system is sufficient); or
• repair or maintenance of anything specified in a special resolution made under section 62(3).

Resolving not to repair or maintain common property

Pursuant to section 62(3), an Owners’ Corporation may determine (by special resolution) that sub-sections 62(1) and (2) will not apply to certain property, provided that:

• it is inappropriate to maintain, renew, replace or repair the specified property; and
• its decision will not adversely impact safety or appearance at the scheme.

There is no need to provide reasons for passing the special resolution, however relevant considerations may include: cost of repair, interference or disturbance, suitability or usefulness etc.

What happens if there is a breach?

Recent case law suggests that a breach of section 62 would most likely give rise to statutory remedies (e.g. an order to comply, rather than damages). However, if malfunctioning or damaged common property causes loss, damage or injury (e.g. to a lot owner or visitor), then the Owners’ Corporation may be exposed to a common law claim for damages (e.g. in negligence).

Some ways to reduce risk associated with a breach, or potential liability flowing from a breach, include:

• establishing systems to regularly monitor the condition of the common property; and
• acting promptly to remedy a breach and prevent consequential damage (e.g. consider whether roof damage will cause further damage each time there is a storm).

Tips and traps for strata managers

Regardless of how the repair or maintenance issue arises (e.g. at a general meeting or by notification), it is important to recognise the obligations of an Owners’ Corporation under section 62 and to ensure that:

• the Owners’ Corporation (and its Executive Committee) understands that that the duty is mandatory and is a strict liability obligation, unless a special resolution is properly passed for affected property;
• the Owners’ Corporation is proactive and not reactive (e.g. recommend a regular inspection process); and
• there is no delay in remedying a breach or carrying out repair or maintenance works.

If the Owners’ Corporation or its Executive Committee does not fully appreciate the full scope of the duty, or it appears there is a breach, then consider whether legal advice should be obtained.

For further information, please contact Leisha de Aboitiz or Ole Mitrevski.

 

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DISCLAIMER:  This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought having regard to any particular facts or circumstances.

[1] Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 – contributory negligence is no defence to the breach of a statutory duty, but a cross-claim may be available.

[2] Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157

[3] Ridis v Strata Plan 10308 [2005] NSWCA 246.

[4] Owners – Strata Plan 21702 v Krimbogiannnis [2014] NSWCA 411.