Case Study: Is it a Licence or a Lease?
The Litigation Team at Merton Lawyers recently acted for the Respondent in the Supreme Court of Appeal matter of Lanshan Pty Ltd (ACN 159 606 818) v F3 Enterprises Pty Ltd (ACN 163 104 578) [2024] VSCA 59. This proceeding was heard on appeal following our client’s success in the earlier County Court of Victoria Proceeding (also conducted by Merton Litigation Head Nick McKenzie-McHarg) Lanshan Pty Ltd v F3 Enterprises Pty Ltd [2022] VCC 1850.
The main issues in the case were:
- Whether a document titled “Licence Agreement” (Agreement) was correctly construed by the trial judge as a lease; and
- Whether the Agreement had been validly terminated by the Applicant.
The Agreement related to parking bays of a motel located on the Applicant’s land (Motel). The Motel sits adjacent to a restaurant and reception room owned by the Respondent (Restaurant). The prior owners of the Motel and Restaurant had entered into the Agreement to fulfill the requirements of a planning permit which allowed the Restaurant to operate in that capacity on the condition that the Restaurant owner enter into an Agreement with the Motel owner for the use of the parking bays for a period of 99 years.
Is the Licence Agreement a lease?
Ground 1
The longstanding precedent, that an Agreement which grants exclusive possession over an area of land is a lease, was succinctly upheld by the Court of Appeal despite the title of the Agreement being Licence Agreement.[1]
Clause 1 of the Agreement granted the licensee the right to use to the exclusion of all others the car parking spaces and facilities at all times during the continuance of the Agreement.[2] Secondly, it ‘licensed’ the right of ‘ingress and egress over the driveways’ to the licensee for the purpose of accessing the car parking facilities but the driveways did not form part of the ‘facilities’ of the car park.[3] The features in this clause 1 suggested that the parties intended to create a lease of the car parking spaces and facilities.[4]
The Court held that the granting of the right to exclusive possession is consistent with that of a leasehold proprietary right as it is intended to be enforceable against ‘all others’.[5] The language suggested an intention by the parties to ‘do something more than “licence” the car parking spaces and facilities’ to the licensee,[6] and the grant made ‘at all times’ is consistent with a more permanent proprietary right, rather than a personal right to be exercisable from time to time.[7] The subject matter of the Agreement confers a grant of rights to a substantial part of the property in question,[8] and the way in which the Agreement was executed (as a deed) is ‘consistent with the conferral of a proprietary right’.[9]
Finally, the conclusion that the Agreement was intended to confer exclusive possession on the Licensee is supported by the purpose of the Agreement, being that the licensee (an owner of a Restaurant) would be assured that its customers would have access to car parking spaces over the ninety-nine year period,[10] an important feature which it previously lacked.
Therefore, it was considered that the trial judge was correct in making the declaration that the Agreement constituted a lease of the car parking spaces.[11] Thus, proposed ground 1 failed.[12]
Whether the Agreement had been validly terminated
Grounds 2 and 3 of the appeal were considered together, with the Respondent conceding that both grounds needed to be successful to be entitled to a declaration that the Agreement be terminated.
Ground 2
The Applicant alleged that the judge erred in finding that the Respondent had maintained public liability insurance ‘with respect to the car parking area’ as required by clause 4 of the Agreement[13] and had instead maintained it ‘with respect to the respondent’s business activities’. In oral argument, the Applicant sought to extend proposed ground 2 by amending its written case to further submit that being identified as an ‘interested party’ in the insurance policy was insufficient given that the Respondent was the only party identified as the ‘insured’ party.[14] It was submitted by the Applicant that said extension was encompassed within ground 2 because it alleged that things that could happen in the car park, which would have nothing to do with the Respondent’s business, was not covered by the Respondent’s policy.[15] Ultimately, this extended complaint was now the ‘sole basis for this proposed ground’.[16]
It was considered that this argument, freshly raised, constituted ‘a new matter raised for the first time in oral submissions’.[17] The judges applied Water Board v Moustakas (1988) 180 CLR 491 in considerations that ‘A party will not be permitted to rely on an argument on appeal that was not put before the judge at first instance if the argument might have been met by calling evidence below.’[18] Proposed ground 2 is determined to be without merit, given that in order to address the new point further evidence might have been adduced and therefore the Applicant ‘ought not be permitted to raise it’.[19]
Ground 3
As a result of the failure by the Applicant to establish proposed ground 2, it was not entitled to a declaration that the Agreement be terminated. Irrespective of that fact, the Judges did go on to discuss in obiter a brief summary of their views.[20] Albeit unnecessary for the judge to consider and decide whether the Applicant had been entitled to terminate the Agreement, they stated that they would have found that the Applicant was not entitled to terminate the License Agreement in reliance upon the default notice served on the Respondent.[21] The issue being that the Applicant failed to particularise the alleged breach in the default notice.[22] This failure resulted in the default notice not being compliant with clause 6 of the Agreement which required that the notice identify the default and the intention to determine the licence ‘unless the default is remedied within 14 days’.[23] A reasonable person in the shoes of the Respondent would not have been able to understand what the alleged default was and therefore could not possibly remedy it.[24] For these reasons, it was found that the judge was correct in finding that the default notice was defective.[25]
Conclusion
The judges concluded that the Agreement constitutes a lease of the car parking spaces, the term facilities of a car parking space did not include the driveway and that the Agreement had not been terminated.[26]
How can we help you?
To discuss how we can assist you, please contact Nick McKenzie-McHarg, Head of Litigation, at 03 9645 9500 to arrange an initial consultation.
[1] Lanshan Pty Ltd (ACN 159 606 818) v F3 Enterprises Pty Ltd (ACN 163 104 578) [2024] VSCA 59 at [19].
[2] Ibid [55].
[3] Ibid.
[4] Ibid [56].
[5] Ibid [57].
[6] Ibid [58].
[7] Ibid [59].
[8] Ibid [60].
[9] Ibid [63].
[10] Ibid [63].
[11] Ibid [64].
[12] Ibid [65].
[13] Ibid [66].
[14] Ibid [70].
[15] Ibid [71].
[16] Ibid [72].
[17] Ibid [77].
[18] Ibid [82].
[19] Ibid [85].
[20] Ibid [88].
[21] Ibid [92].
[22] Ibid [94].
[23] Ibid [97].
[24] Ibid [99].
[25] Ibid [101].
[26] Ibid [102].
