The Supreme Court of Western Australia in the recent case of Taboref Pty Ltd as trustee for the Penn Family Trust v Acquest Property (In Liquidation) as trustee for RPIT Development Trust No.2 [2024] WASC 313 considered the principle of indefeasibility, which underpins the Torrens Title system of title by registration in Western Australia.
The decision in this case resulted in an elderly couple having to vacate their home in Ravenswood after their unregistered lease was effectively ‘destroyed’ by a subsequent mortgagee exercising its power of sale.
In February 2017, Mr and Mrs Tayor entered into a residential tenancy agreement with Acquest Property Pty Ltd as lessor (Lessor) for the premises at 4B Wayside Court, Ravenswood (Premises), which forms part of the now failed Sterling New Life Lease Scheme. The tenancy agreement was for a fixed term of 5 years, and provided the Taylors with seven separate options to lease the Premises for five years each. The Taylors signed each option the day after entering into the tenancy agreement and moved into the Premises shortly thereafter. The rent for the total 40 year term was paid upfront.
The Taylors did not protect their lease by registration or the lodgement of a caveat.
In August 2017, the Lessor granted a mortgage to Taboref Pty Ltd (Taboref) who registered a mortgage against the title to the Premises.
Two years later, the Lessor defaulted on loan repayments to Taboref and liquidators were appointed to the Lessor. In November 2019, Taboref gave the Taylors notice to vacate the Premises, who did not comply and argued they were entitled to possession of the Premises.
The court had to determine whether the Taylors’ or Taboref’s claim for possession of the Premises would take priority by reference to the principles of indefeasibility of title.
Section 68 of the Transfer of Land Act refers to the ‘paramountcy of the estate of the registered proprietor’, meaning that a person who registers an interest in land does so subject only to those interests that are noted on the certificate of title to the land.
There is an exception in section 68(1A) for leases, which excludes from the rule an unregistered lease for a term not exceeding 5 years to a tenant in actual possession. Further, any option to renew contained in a lease will not be valid against a subsequent registered interest holder unless the lease is registered or protected by caveat.
The practical effect of this section is that a lease with a term exceeding 5 years will be ‘destroyed’ by a subsequent registered interest unless that lease is registered or protected by caveat. Any options of renewal for any length of time are also not binding on a subsequent registered interest holder unless they are protected by registration of the lease or caveat.
The Taylors’ tenancy agreement was not registered, nor were any of the options protected by a caveat. The Taylors argued that each of the options of renewal were separate leases of 5 years each, therefore falling within the exception contained in section 68(1A). If this were the case, then Taboref’s mortgage (which was registered after the lease and options were granted to the Taylors) could not defeat the Taylors’ interest in the Premises.
The court rejected the Taylors’ argument that each of the 5-year terms were an exception to indefeasibility. Instead the court held that because the Taylors had signed the tenancy agreement and the seven separate options simultaneously, the aggregate term granted to the Taylors was in fact 40 years.
As a result, the exception to indefeasibility of title in s 68(1A) did not apply and Taboref, as the registered mortgagee, had superior title to that of the Taylors.
The court explained that in order for the lease and the options to have priority over a subsequent registered interest, it was necessary for the lease (and the options) to be registered as an encumbrance on the title of the Premises, prior to the registration of Taboref’s mortgage (or otherwise protected by caveat). This did not occur.
This case highlights the importance of lease registration or caveat lodgement to ensure protection against the rules of indefeasibility. Leases for a term exceeding 5 years should always be registered or adequately protected by caveat to avoid the outcomes presented by this case.
Further, while the initial term of a lease may fall within the exception under section 68(1A), any options of renewal should be protected to secure a tenant’s continuity of tenure.
For many commercial tenants, the lease agreement underpins the entire operation from which the tenant employs its staff, conducts its business and, ultimately, makes its money. For the Taylors, the lease represented their investment in the rest of their lives, and cost them their life savings. For these reasons it is critical that tenants take steps to protect their lease interests, and should take legal advice on how best to do so.
