Property Law Review
Sample Pages
GENERAL EDITORS
Professor Brendan Edgeworth
Head of School, School of Law, University of New South Wales
Dr Lyria Bennett Moses
Senior Lecturer, Faculty of Law, University of New South Wales
Ms Cathy Sherry
Senior Lecturer, Faculty of Law, University of New South Wales
PRODUCTION EDITOR
Jodie Lee
EDITORIAL BOARD
Professor Gregory Alexander, Cornell University
Professor Susan Bright, University of Oxford
Professor Roger Cotterrell, Queen Mary, University of London
Professor Susan Fletcher French, University of California, Los Angeles
Professor SH Goo, University of Hong Kong
Professor Kevin Gray, University of Cambridge
Associate Professor Larissa Katz, Queen’s University, Canada
Associate Professor Pamela O'Connor, Monash University and Victorian Law Reform Commission
Dr Christopher Rossiter, formerly Professor of Law University of New South Wales
Professor Joseph William Singer, Harvard University
Mr Jeremy Stoljar SC, Barrister, New South Wales bar
The Honourable Justice Margaret Stone, Federal Court of Australia
Professor André van der Walt, Stellenbosch University
Associate Professor Eileen Webb, University of Western Australia
Professor Michael Weir, Bond University
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PROPERTY LAW REVIEW
Volume 1, Number 1
February 2011
EDITORIAL ............................................................................................................................
3
ARTICLES
Property law and the mortgage crisis: Libertarian fantasies and subprime
realities – Joseph William Singer
Libertarian thinking is on the rise in the United States, but libertarians wrongly
characterise regulation as a deprivation of both freedom and property rights and an
inefficient interference with the free market. While libertarians are correct to praise the
value of freedom, they fail to appreciate how regulations promote liberty, property and
efficiency. The subprime crisis reminds us that neither property nor liberty nor the market
can exist without law. Laws establish minimum standards for economic and social
relationships appropriate to a free and democratic society that treats each person with
equal concern and respect. Property rights are structured by law to protect consumers from
unfair practices and to ensure that economic relationships comply with minimum
standards of decency. ..............................................................................................................
7
Using relational contract principles to construe the landlord-tenant relationship:
Some preliminary observations – Luke Villiers and Eileen Webb
Can the understanding and interpretation of leases be enhanced by relational contract
considerations? In this article the authors explore the pertinence of relational contract
theory, particularly in relation to retail leases. The article outlines the nature of leases, the
contractualisation process and the influence of certain statutes on leasing transactions. It
then focuses on relational contract theory and the extent to which different types of leases
may be regarded as relational. The main focus of the article is on retail leases; considering
the terms of the lease “contract” but also examining whether relational analysis may
inform the interpretation of statutes relevant to retail leasing transactions. .........................
21
Is an email account “property”? – Hannah Yee Fen LIM
Although email is a modern-day communication necessity, the current landscape in respect
of ownership of email accounts is quite unclear in most English-speaking common law
jurisdictions. This article argues that an email account can, in some circumstances, be
regarded as a unique kind of property for the purposes of testamentary disposition; but its
legal protection as an inheritable probate asset is currently uncertain. Despite the fact that
an email account, unlike a bank account, does not usually have a monetary value, this is
not an insignificant issue. .......................................................................................................
59
COMMENT
Joint ownership and the family home – Mark Pawlowski .................................................
68
BOOK REVIEW
Property and Community by Gregory Alexander and Eduardo Peñalver (eds) ....................
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1
Editorial
There is nothing which so generally strikes the imagination, and engages the affections of mankind, as
the right to property – William Blackstone, Commentaries On The Laws Of England
As editors of the Property Law Review we welcome readers to this first edition. In this editorial we
explore some of the ideas that have provided the impetus for the journal. Many readers would find
themselves in agreement with Blackstone’s celebrated sentiments above, while others might need
convincing. This represents our first objective: to publish scholarship that explores and identifies the
critical role of property law in social, economic and political life. In most legal fields there are
journals dedicated to in-depth critical analysis of core issues, where a community of scholars can share
ideas, concepts and values. By contrast, while the law of real and personal property is the subject of
many articles, and a few journals, there has not to date been a journal focused on fundamental
questions. The Property Law Review aspires to fill this void. While the journal is published in
Australia, our editorial board includes distinguished members from the United States, the United
Kingdom, Canada, South Africa and Hong Kong.
This international and polyglot board reflects a second aim of the journal: it aspires to be a forum
where scholars from different jurisdictions and traditions might exchange ideas for mutual benefit and
enlightenment. Again, it is notable that no existing journal fulfils this role. Of course there are reasons,
legal and otherwise, that might explain this. Unlike intellectual property, for example, there are no
supranational treaties and instruments in real and personal property law that would provide common
ground for discussion. Property law is essentially more resistant to unifying international
developments than other areas. This has fuelled a tendency for property lawyers to confine their
analyses to their own jurisdictions and to speak overwhelmingly to a local audience.
In spite of this pervasive, autochthonous dimension of property law – its ingrained and seemingly
inescapable localism – there is arguably much more to unite property law scholars than to divide. The
relationship of human beings to land, to place, is one that transcends specific national or cultural
traditions. Equally, the struggles between individuals and groups for property are questions with
universal resonance. The distinctive role that law plays, among the range of available normative codes,
to regulate property, is one that transcends national boundaries. Finally, questions concerning the role
of the state as alternatively the protector, the provider or even the expropriator of property, are
common to all jurisdictions. Accordingly, the journal is intended to be a forum for an international
interpretive community of property lawyers for “interactive rhetorical engagement within a college of
expert opinion” (K Gray and SF Gray, “The Rhetoric of Realty” in Getzler J (ed) Rationalizing
Property, Equity and Trusts: Essays in Honour of Edward Burn (LexisNexis, 2003) p 237), where all
of these ideas can be explored in a global context, and from a range of perspectives. To this end, we
encourage submissions from all jurisdictions and all intellectual and political traditions.
At least four themes seem to suggest themselves as focal points for extended examination in
forthcoming issues of the journal. They are: first, the definition of property, particularly in the face of
technological change; second, the interaction between property law and the broader built environment;
third, the impact of social and political change on concepts of property; and fourth, the value of
studying property law from a range of disciplinary perspectives.
While an outsider might think that a question such as “what is property?” would be simple, the
truth is that there are differing approaches to constructing a definition and even controversy around
whether the attempt to do so is worthwhile. Despite this, the question remains important for a range of
practical problems across jurisdictions – from the scope of constitutional or human rights restrictions
on interference with “property” to the applicability of property concepts in particular contexts. For
instance, questions surrounding property in trade secrets, virtual assets, human tissue including
gametes (taken from living or dead persons) and even in vitro human embryos remain controversial in
most jurisdictions despite their increasing relevance. In all of these cases, controversy is not the result
of difficulty applying law to diverse sets of facts, but rather the lack of agreement on how property
should be defined. Approaches range from judicial “definitions” such as that offered in National
Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1247-1248, to links with commercial practice, to
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Editorial
emphasis on one or more property rights (such as the right to exclude or the exclusive right to use), to
a focus on the in rem character of property rights, to the use of philosophical or economic
justifications for property rights in particular contexts. Such diversity may be an inevitable
consequence of normative differences, or property may indeed be a “vacant concept” (Gray K,
“Property in Thin Air” (1991) 50 Cambridge Law Journal 252), but the social significance of
“property” makes continuing discussion around its meaning an important topic for scholarship.
The second theme, being the link between property law and the broader built environment, gains
much of its significance from the fact that land and the structures on it are our means of survival. Land
is our livelihood, homes our physical and emotional shelter. In countries where entire groups of people
have been forced from their land or have never had sufficient access to land, property rights are deeply
contested. Loss of land threatens people’s physical, cultural and linguistic existence. We hope that
these big questions of land ownership faced by nations in conflict or recovering from past conflict are
addressed in the journal.
Even where land rights are not so contested, the existence of a property right in one person means
a corresponding lack of right in another. Land is a limited resource and whatever we control for
ourselves leaves less for others. The concentration of freehold land in the hands of a minority leaves
nothing but leasehold land for the majority. The widespread use of single dwelling covenants excludes
from entire sections of cities all those who cannot afford freestanding housing. What might appear
private, autonomous choices facilitated by property law, when multiplied across a physical and legal
landscape, become a social and political system.
The role that property law plays in creating our physical landscape, particularly the landscape of
cities, is an increasingly important area for research. Urban planners have long studied the effect of
urban development on individual and community well-being, but the centrality of property law is
often overlooked. High rise buildings and master planned communities require complex property law
for their legal existence and the choices made by lawyers, developers, policy makers and governments
profoundly affect the kinds of communities they create.
Large-scale master planned communities and mega-high rise buildings have become a global
phenomenon. From Dubai to Shanghai, Denver and beyond, developers are creating mini cities within
cities, with their own infrastructure, services and rules. Property disputes abound, with conflicts
arising between residents, commercial occupants, developers and the ubiquitous management
companies that have emerged to service the development’s physical structure and facilitate resident
interaction. In the booming property markets of the immediate past, purchasers around the world
rushed to buy with little appreciation of the complex web of relationships they were about to enter or
of the larger political forces at play requiring them to privately fund services that might otherwise be
publicly provided. These developments are rich fodder for property research.
The enormous scale of new property developments and their mix of residential, commercial, retail
and service-providing properties attract public comment and intervention. Governments have resumed
private land for the specific purpose of facilitating these developments, purportedly for the public
benefit. Scenarios similar to the case of Kelo v City of New London 545 US 469 (2005) have occurred
in most countries which rely on the private sector to build the bulk of their new residential and
commercial property. Resumption or taking cases have fascinated property scholars for centuries.
What are the appropriate limits to private property rights? At what point must individual rights give
way to community welfare or is that very question a contradiction in terms? What protection should
constitutions, written or otherwise, provide individuals or the community? In societies where
regulation has become indispensible or excessive, depending on one’s perspective, at what point does
regulation amount to a taking or acquisition of property? We hope to see robust debate on these
questions in future issues.
Regulation of land use by government has become an entire area of property practice for many
lawyers and a complex field for academic research. As we write this editorial the city of Brisbane is
inundated with flood waters, many houses and new apartments having been built on flood-prone land.
Questions will inevitably be asked. Is this the responsibility of government, developers or merely an
illustration of caveat emptor? Remediation of contaminated land in brownfields redevelopments raises
4
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(2011) 1 Prop L Rev 3
Editorial
similar issues. Who is responsible for righting the damage? The contaminating companies, developers
who seek to make money from the land or those who wish to live or work on the land in the future?
Can governments go further and compel land owners to not only remediate poisoned land but make
positive changes to their land that will benefit the wider community? The interaction between property
law and environmental or ecological economics is of great interest to scholars across the globe.
The third theme we have identified, the impact of social and political change on concepts of
property, was brought to the fore almost half a century ago by Charles Reich. Reich identified how
developments in the pattern of legal entitlements and obligations in the post-war welfare-regulatory
state posed significant conceptual challenges for the traditional liberal ideals of property law (Reich
CA, “The New Property” (1964) 73 Yale LJ 733). At the time of publication of his article the size and
reach of governmental functions appeared to indicate that the central social function performed by
private property in securing individual privacy and autonomy was under threat. Although Reich’s
arguments were specifically focused on the United States, his analysis also proved pertinent to the
property law of most other Western nations given analogous social change in those jurisdictions.
These changes implied a new agenda for law reform. Critically, Reich’s approach emphasised the
historical contingency of the meaning of property. But now, almost 50 years on, do the same questions
remain relevant? After almost three decades of deregulation and privatisation that have represented an
ideological and practical assault on much of the “big government” that Reich identified, is it
meaningful to talk about “new property” and the proposed solutions to the problems it was alleged to
create? More recently still, do the various state responses to the global financial crisis signal another
shift in prevailing ideas about property? Do the many legislative reforms across the world prefigure a
return to greater levels of state regulation of economic activity, and more widespread public
ownership, as opposed to a temporary bail-out of the financial sector so as to allow it to continue as
lightly regulated as before? More fundamentally, could it be that the recent neo-liberal consensus is
itself unravelling, with the tighter regulation, control and public ownership in the financial services
sector merely the first step in this process? Whatever the answers, it is important to recognise the
extent to which concepts of property remain contingent.
Finally, in order to analyse these and many other issues fully, the journal encourages inter- and
multidisciplinary research. Empirical or contextual analysis in the field of property law appears to be
less prominent than in other areas. Traditional doctrinal approaches have tended to dominate. While
we still see the internal analysis of legal rules and principles as essential for property law scholars and
we welcome such research, it is important to emphasise the value of other perspectives. The journal
seeks property scholarship from economic, historical, socio-legal, ecological, anthropological and
philosophical perspectives, as well as more orthodox doctrinal research.
We begin the first edition of the Property Law Review with an essay by Joseph William Singer.
Singer applies a theoretical perspective that he has developed in his other scholarly writing to the
subprime mortgage crisis in the United States. Singer has long argued that libertarian calls for less
government regulation are untenable in communities where we routinely expect to be protected from
exploitation and unfair business practices. While free-market thinking, in particular freedom of
contract, has a valuable place in our society and economies it is never sufficient. We assume certain
minimum standards in our dealings with other people, and property law, whether the traditional
doctrine of estates, ancient equitable protection of mortgagors or contemporary legislation, is an
indispensable part of maintaining those minimum standards.
Our second article by Luke Villiers and Eileen Webb is an example of the way that
jurisdictionally-specific property scholarship can still speak to scholars across the globe. While Villiers
and Webb are writing about retail and residential leases in the Australian context, common law
countries, with our roots in the English legal system, all share a common leasehold tradition. Further,
the framework that Villiers and Webb use, the relational theory of contracts, is relevant to all legal
traditions. The question of how people who are in a relationship of exchange do or should behave
towards one another transcends all jurisdictional boundaries.
The final article in this first issue, by Hannah Yee Fen Lim, goes back to the first theme we
introduced, namely the meaning of property and the scope of property law. Lim addresses the question
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Editorial
of whether email accounts can be treated as objects of property, in particular in the context of
testamentary disposition. The article describes some of the history of defining property and by
considering email accounts, one of our newest and most pervasive candidates for property status, will
become part of that history.
It is with great enthusiasm that we launch the first issue of Property Law Review. We look
forward to vigorous and diverse debate, disagreement and conversation within its pages and to a long,
fruitful relationship with our readers and contributors in the international community of property law
scholars and practitioners.
Brendan Edgeworth, Lyria Bennett Moses and Cathy Sherry
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Property law and the mortgage crisis:
Libertarian fantasies and subprime realities
Joseph William Singer*
Libertarian thinking is on the rise in the United States, but libertarians wrongly
characterise regulation as a deprivation of both freedom and property rights
and an inefficient interference with the free market. While libertarians are
correct to praise the value of freedom, they fail to appreciate how regulations
promote liberty, property and efficiency. The subprime crisis reminds us that
neither property nor liberty nor the market can exist without law. Laws
establish minimum standards for economic and social relationships appropriate to a free and democratic society that treats each person with equal
concern and respect. Property rights are structured by law to protect
consumers from unfair practices and to ensure that economic relationships
comply with minimum standards of decency.
A THOUGHT
EXPERIMENT
What would markets look like if there was no law? In his satirical novel Jennifer Government, Max
Barry answers this question. He brings to life a libertarian dystopia where deregulation has run amok.1
In Barry’s world, governments have been privatised and the free market is almost entirely unfettered
by laws or rules. Freely negotiated contracts and competition among market actors determine the kind
and level of services rendered in the economy. Laws exist that prohibit force or fraud but people have
to pay to have those laws enforced. If you want government services, you have to pay for them. Laws
prohibiting murder, for example, are enforced only if the victim’s family or friends hire government
employees to bring the murderer to justice. People get the police protection they are willing and able
to pay for. The system is thought to be efficient; if you cannot afford government services, then the
benefits to you of government outweigh the costs and it makes sense for government to refuse to help
you. Bribery of the police is not only tolerated but encouraged, again for efficiency reasons. If you hire
the police to find a murderer, the murderer can offer the police more money to leave him alone.
Competition between murderers and victims results in the efficient level of investment in justice. In
this land of liberty, there are no limits on freedom of contract, so people are free to agree to any terms
they like. Moreover, it is customary for written contracts to be enforced to the letter – no matter what
they say. Contracting parties are free to hire either private or public agents to enforce the terms of
those contracts.
The book begins when the hero signs an employment contract without reading it. Big mistake.
That contract was dreamed up by the marketing department of his company, which believes that the
company could sell more sneakers if consumers thought the sneakers were so cool that people were
willing to kill – or be killed – to get a pair. The marketers create a successful advertising campaign to
drum up demand for the sneakers until it reaches a frenzy. But they severely limit the supply of the
shoes until their potential customers are chomping at the bit. The company is now about to release the
shoes for sale and seeks to increase demand even further.
The contract obligates our hero to kill a few customers as they clamber outside the store eager to
get a pair of the shoes. Because our hero has already signed the contract (remember he forgot to read
it…), he is bound by its penalties if he fails to perform – penalties that would make Shylock look
generous by comparison. And those penalities, like all contract terms, are unregulated. It’s a free
market after all. Our hero has nothing to complain about because we all have duties to read our own
*
Bussey Professor of Law, Harvard Law School. Thanks and affection go to Martha Minow, Mira Singer and John Rattigan.
1
Barry M, Jennifer Government (Doubleday, 2003). An earlier description of Barry’s book appears in Singer JW, “Things That
We Would Like to Take for Granted: Minimum Standards for the Legal Framework of a Free and Democratic Society” (2008)
2 Harv L & Pol’y Rev 139.
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Singer
contracts, don’t we? If the contract has terms we don’t like, it’s our own fault for signing, isn’t it? And
although killing is technically illegal in Barry’s parallel universe, the police will aid the family of a
murder victim in finding the murderer only if the family is willing and able to hire them to do so. The
marketers of course choose poor victims to kill; their families will be no threat because they cannot
afford police protection.
At the climax of the novel, the marketing director copies the Founding Fathers and issues a
declaration of independence, freeing the corporation from the evil bonds of government dictatorship
so that even the remaining laws against murder no longer apply. Economic competition slides
inexorably into military conflict. Thomas Hobbes’s nightmare comes true: a “time of Warre, where
every man is Enemy to every man … and which is worst of all, continuall feare, and danger of violent
death; And the life of man, solitary, poore, nasty, brutish, and short”.2
Barry’s novel teaches that freedom without law is not liberty, and the free market without a legal
structure is not a market in any sense we would recognise. Liberty is not possible without regulation;
paradoxically, the liberty we experience in the private sphere is only possible because of the regulation
we impose in the public sphere. Indeed, it is fair to say that when we talk about liberty, we are talking
about the benefits of living within a just regulatory structure.
SUBPRIME
MORTGAGES
We do not have to look far to see what happens if markets have inadequate legal structures. The
subprime mortgage crisis has much to teach us in this regard. It seems that Barry’s world of
unregulated market relations is one with which we have come to have some unpleasant familiarity.
Remember what happened. Some lenders targeted low-income communities or customers and
marketed unaffordable loans to buy homes. Mortgage brokers steered those buyers to these subprime
loans because they got higher commissions from selling these loans than others. Some new home
buyers were duped into taking out these loans because they had adjustable rate mortgages with low,
affordable payments up-front and higher, unaffordable rates later. The sales tactics either misled the
borrowers about these facts or reassured the buyers that they could refinance when the time came to
pay the higher rates. Some buyers lied about their incomes in order to buy homes to flip them later.
The mortgage brokers and lenders may even not have checked to see if borrowers were telling the
truth about their stated incomes. Some lenders gave loans without asking the borrowers what their
income was.
All of this depended on the assumption or belief that home values would continue to rise. If those
values did rise, then the whole deal would be beneficial for all participants. When the higher interest
rate kicked in, the borrower would either sell the property at its higher value or refinance the loan by
finding a bank that would pay off the earlier loan and grant a new one. Even if the buyer failed to pay
the higher interest rate and the bank foreclosed on the property, the buyer might still be better off than
if he or she had not bought the property because property values had increased so much. If the
property were sold at foreclosure, the bank would get its money back with interest and the home buyer
would get the excess. Everyone would be happy and wealthy. Whether they were wise was something
they were to find out.
The whole thing was profitable enough by itself but was made more so by the magic of
securitisation. Mortgages were great investments but they did carry risks of non-payment, especially in
the case of subprime mortgages sold to buyers who probably could not pay them back at the
contracted-for interest rates. So sophisticated financial actors packaged lots of mortgages together and
“securitised” them, giving buyers bits and pieces of bundled mortgages. The hope was that this would
“spread the risk” and that the safety of more secure mortgages would outweigh the risks of the less
secure ones. This hope was touching but appears to have been misplaced; if you spread garbage on the
lawn, it may be less visible than if you put it in a big pile but it is nothing more than thinly-spread
garbage.
2
Hobbes T, Leviathan (Tuck R (ed), Rev Student Ed, Cambridge University Press, 1996), Pt 1 Ch 13 at pp 88-89 (originally
published 1651).
8
© 2011 Thomson Reuters (Professional) Australia Limited ABN 64 058 914 668
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Property law and the mortgage crisis: Libertarian fantasies and subprime realities
Efficiency was supposedly achieved by dividing the pools of mortgages into groups called
“tranches”, distinguished by how much risk they posed. The lower-risk tranches were thought to be
more secure since they would be paid first out of whatever money was available if foreclosures
occurred; it simply did not occur to anyone that everyone would default at once. The higher-risk
tranches were more likely to result in defaults but paid higher interest rates in the meantime to
compensate for the higher risk. This mechanism allowed buyers who tolerated less risk to purchase
more secure pools of mortgages and those willing to risk default in exchange for higher returns in the
short run to purchase the less secure pools of mortgages.
The effect was magnified by another form of magic called “leverage”. Instead of using one’s own
money to buy securitised mortgages, one could borrow money to do so, passing the risk on to others.
And lenders emerged to satisfy this market given the high profits to be earned by these mortgages as
the value of real estate kept going up and up and up and the riskier loans paid higher and higher
interest rates – an effect of the federal deregulation of usury in the 1980s.
The whole thing was a beautiful sight to behold and made a lot of people a lot of money – until
two things happened. First, many people stopped paying their mortgages because they could not afford
the higher interest rates when the mortgages moved from the initial low rates to the adjusted higher
rates. Second, the housing bubble burst. Like all markets in the past, the price of housing did not keep
going up forever. It stopped rising and began to fall. Since the whole system was premised on the
continuing rise of real estate values, the combination of defaults in mortgage payments and lower
housing prices brought the system to a screeching halt. Because the mortgages had been securitised
and sold to millions of investors, the subprime crisis quickly became a financial crisis. And because of
the increasing globalisation of commerce and finance, the United States crisis became a world crisis.
The world was posed at the edge of a cliff with the prospect of another Great Depression clearly in
view. What was to be done?
LIBERTARIAN
FANTASIES
One option would have been to do nothing. Let the market take care of it. As President Ronald Reagan
famously said, “government is not the solution to our problem; government is the problem”. This was
the libertarian solution. Libertarians want limited government. One version of the libertarian position
is that the only things that government should do is to protect us from force, theft and fraud.3 There
should be laws against battery and murder and the like and there should be laws protecting private
property from invasion, harm or involuntary seizure. The only duties we have to others are to refrain
from physically harming them, taking their things against their will, or refusing to do what we have
voluntarily promised to do. Other than that, people should be free to act as they like, to use their
property as they wish, and to sell their services and their property on terms they have chosen.
On this view, the subprime crisis was not a crisis at all. There would have been a period of
adjustment but the market would have solved the problem without government assistance. The
government should have responded by doing nothing. Foreclosures would have happened; people
would have gone bankrupt; businesses would have failed. But eventually, everything would have
righted itself. This view had some popular appeal because any government action to respond to the
crisis appeared to subsidise the very people (the borrowers and the lenders) who had created the crisis
in the first place. Why save them from their own bad investments? Why reward their folly? Why take
taxpayer money to help the miscreants who acted so foolishly?
This position is not a fringe position in United States politics. By a vote of 228 to 205, on
29 September 2008, the House of Representatives initially voted against bailing out bankrupt
American financial institutions.4 Although the Senate voted for the bill a couple of days later, 25
Senators voted against it.5 The bailout bill eventually passed, but popular anger over it is believed to
3
Sandel M, Justice: What’s the Right Thing to Do? (Farrar, Straus and Giroux, 2009) p 62.
4
Hulse C, “House Rejects Bailout Package, 228-205; Stocks Plunge”, http://www.nytimes.com/2008/09/30/business/
30bailout.html (29 September 2008).
5
“Senators Who Voted No”, http://www.politico.com/blogs/thecrypt/1008/senators_who_voted_no.html (1 October 2008).
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$UWLFOHFRQWLQXHGRQS
© 2011 Thomson Reuters (Professional) Australia Limited ABN 64 058 914 668
Published in Sydney
Using relational contract principles to construe
the landlord-tenant relationship: Some
preliminary observations
Luke Villiers and Eileen Webb*
Can the understanding and interpretation of leases be enhanced by relational
contract considerations? In this article the authors explore the pertinence of
relational contract theory, particularly in relation to retail leases. The article
outlines the nature of leases, the contractualisation process and the influence
of certain statutes on leasing transactions. It then focuses on relational
contract theory and the extent to which different types of leases may be
regarded as relational. The main focus of the article is on retail leases;
considering the terms of the lease “contract” but also examining whether
relational analysis may inform the interpretation of statutes relevant to retail
leasing transactions.
INTRODUCTION
Although the High Court has confirmed that principles of contract law are applicable to leases,1 to
date there has been little analysis as to the way in which theories of contract law may assist in, or
impact upon, our interpretation and understanding of leases. In particular, given the complex and often
long-term nature of leases, it seems a consideration of relational contract theory is pertinent. This
proposition raises, however, several contentious questions. The obvious threshold issue is whether
leases, or certain kinds of leases, can be regarded as relational contracts? If so, what, if any, are the
consequences of such a classification? Moving even further, can relational considerations extend
beyond the lease/contract itself and inform “relational laws” impacting upon leasing transactions?2
The aim of this article is to trigger debate as to whether an understanding and interpretation of
leases can be enhanced by relational contract considerations. Although we focus upon retail leases,
and use relational considerations to “test” the consistency of decisions considering unconscionable
conduct pursuant to former Trade Practices Act 1974 (Cth), s 51AC, now Competition and Consumer
Act 2010 (Cth), Sch 2 The Australian Consumer Law, s 22,3 there are, in our view, many instances
where a relational analysis could provide a useful dimension to real property discourse. We do not
aspire to address every “angle”; indeed we probably raise many more issues than we provide answers
to. Nevertheless we anticipate that, by proffering our initial and somewhat tentative proposals,
discussion and debate regarding this potentially fertile topic will ensue.
RELEVANCE
OF RELATIONAL CONTRACT THEORY
If parties are guided by contract norms, enforced through relational laws (based on the relational
method and applied with principled discretion), then solidarity and harmonisation with the social matrix
will increase and the parties’ behaviour will better conform with contract norms.4
*
Faculty of Law, The University of Western Australia. The authors would like to thank the two anonymous referees for their
constructive feedback on this article. Any errors or omissions are, of course, the responsibility of the authors.
1
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; Gumland Property Holdings Pty Ltd v Duffy Bros
Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237; 244 ALR 1.
2
Lees M, “Contract, Conscience, Communitarian Conspiracies and Confucius: Normativism through the Looking Glass of
Relational Contract Theory” (2001) 25 MULR 82 at 89.
3
Trade Practices Act 1974 (Cth), s 51AC, is, as of 1 January 2011, Competition and Consumer Act 2010 (Cth), Sch 2 The
Australian Consumer Law, s 22. Throughout this article, where relevant, joint reference is made to the former and new
provisions as s 51AC/22.
4
Lees, n 2 at 89.
(2011) 1 Prop L Rev 21
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Published in Sydney
21
Villiers and Webb
“Relational contract theory” (RCT) as developed by Macneil5 challenges the transactional approach of
classical contract scholarship. Relational contract theory posits that contracts do not necessarily
involve discrete “one off” transactions and contractual dealings can be positioned on a spectrum
where, depending on the circumstances, transactions range from discrete to relational transactions.
Contracts of a relational nature are, to varying degrees, ongoing, independent and cooperative.6
Commonly cited examples are marriage,7 employment,8 supply9 and, more recently, franchising10
contracts. Pivotal to RCT is the view that obligations arise, not just from the written contract, but also
from the role of contractual and societal norms11 in determining the way in which continuing
commercial exchanges operate in practice.12
In our view, an emerging area in which RCT may be of considerable relevance is in relation to
real property leases. Despite the debate regarding the “contractualisation” of leases,13 to date there has
been little consideration by property lawyers as to whether residential and/or commercial leases are
relational contracts and thus subject to relational analysis. This dearth of discourse can perhaps be
explained by one or a combination of factors. For example, leases do not fall squarely into any one
category being somewhat duplicitous in character: “a curious hybrid which hovers between the worlds
of property and contract”.14 Until relatively recently, however, leases were placed firmly within the
property classification thus making contractual analysis unnecessary. Or, it may be that even if
relational analysis was deemed appropriate, any scrutiny may fail at the outset because some leases, or
some categories of lease, may simply not fit within the description of a relational contract. Another
factor may be the influence of specific15 and generic16 statutes which impact upon leasing
“relationships” which, on some views, may render considerations of RCT gratuitous. Whatever the
reason or reasons, there is now a need to reconsider leases, and in particular retail leases, as relational
contracts.
5
See generally: Macneil IR, “Contracts: Adjustment of Long-Term Economic Relations Under Classical, Neoclassical, and
Relational Contract Law” (1977-1978) 72 Nw U L Rev 854; Macneil IR, The New Social Contract: An Inquiry into Modern
Contractual Relations (Yale University Press, 1980); Macneil IR, “Relational Contract Theory: Challenges and Queries” (2000)
94 Nw U L Rev 877 at 894; Macneil IR, “Values in Contract: Internal and External” (1983) 78 Nw U L Rev 340 at 342;
Macneil IR, “Relational Contract: What We Do and Do Not Know” (1985) Wis L Rev 483; Macneil IR, “Contracting Worlds
and Essential Contract Theory” (2000) 9 Social and Legal Studies 431 at 432.
6
Terry A, “Franchising, Relational Contract and the Vibe” (2005) 33 ABL 289; Terry A and Di Lernia C, “Franchising and the
Quest for the Holy Grail: Good Faith or Good Intentions?” (2009) MULR 19.
7
Scott ES, “Marriage as Relational Contract” (1998) 84 Va L Rev 1226; Leckey R, “Relational Contract and Other Models of
Marriage” (2005) 40 Osgoode Hall Law Journal 1.
8
Bird RC, “Employment as Relational Contract” (2005) 8 Journal of Labour and Employment Law 1; Rock EB and
Wachter ML, “The Enforcement of Norms and the Employment Relationship” (1996) 144 U Pa L Rev 1913.
9
Macaulay S, “Non-contractual Relations in Business: A Preliminary Study” (1963) 28 American Sociological Review 55;
Macaulay S, “An Empirical View of Contract Law” (1985) Wis L Rev 465; Terry, n 6 at 291.
10
See generally Dixon W, “What is the Content of the Common Law Obligation of Good Faith in Commercial Franchises?”
(2005) 33 ABLR 207; Terry, n 6; Hadfield GK, “Problematic Relations: Franchising and the Law of Incomplete Contracts”
(1990) 42 Harv L Rev 927.
11
Note the discussion above concerning the contractual and external norms, in particular Feinman’s scholarship: Feinman JM,
“Relational Contract Theory in Context” (2000) 94 Nw U L Rev 737.
12
Terry, n 6 at 290.
13
Smith PF, The Law of Landlord and Tenant (6th ed, Oxford University Press, 2002) p 96. See too Pearce D, Property and
Contract: Where are We? in Hudson A (ed), New Perspectives on Property Law, Obligations and Restitution (Routledge
Cavendish, 2004); Gray K and Gray SF, Elements of Land Law (5th ed, Oxford University Press, 2008) at [4.1.13]-[4.1.16].
14
Gray and Gray, n 13 at [4.1.4].
15
For example, Property Law Act 1974 (Qld); Landlord and Tenant Act 1899 (NSW); Landlord and Tenant Act 1958 (Vic);
Conveyancing and Law of Property Act 1884 (Tas); Landlord and Tenant Act 1936 (SA); Property Law Act 1969 (WA); Law of
Property Act 2000 (NT).
16
For example, the former Trade Practices Act 1974 (Cth). Equivalent provisions are now located in the Competition and
Consumer Act 2010 (Cth), Sch 2 The Australian Consumer Law.
22
(2011) 1 Prop L Rev 21
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Published in Sydney
Using relational contract principles to construe the landlord-tenant relationship
The remainder of this article is comprised of four parts. First, we outline the nature of leases, the
process of contractualisation and the influence of certain statutes on contemporary leasing
transactions. We then focus on RCT and consider the extent to which long-term commercial leases,
retail leases and/or residential leases may be regarded as relational. The article then moves to focus
squarely on retail leases, which, in our view, are ripe for relational analysis. This analysis will consider
terms of the lease “contract” itself but also diverge from the purely contractual focus to examine
whether relational analysis may also inform the interpretation of statutes relevant to retail leasing
transactions, in particular the prohibition of unconscionable conduct in business transactions in the
former Trade Practices Act, s 51AC, now Competition and Consumer Act, Sch 2 The Australian
Consumer Law, s 22.17 In the final part, our deliberations are summarised and concluded.
THE
NATURE OF LEASES
A lease is “chameleonic in both character and function”.18
Leases evolved from a “status” to a contractual right, and later to a proprietary interest in land.19
Initially leases were not incorporated within the feudal system of estates and tenures and were
therefore regarded merely as personal interests attracting remedies in contract.20 “Real” remedies,
those available to persons holding an estate in land, were unavailable. Therefore, a dispossessed tenant
could seek damages but could not recover possession of the land itself. This position was rectified
gradually, commencing in the middle ages.21 From the 13th century, the law permitted an action to
recover possession from a landlord or the landlord’s successors in title. By the 15th century, a
proprietary remedy for eviction by a third party was acknowledged.22 Leases were classified as
“chattels real”, a category which stood between a mere personal interest and a proprietary interest,23
but were regarded as conveying a grant, albeit on some views a “strange sort of grant”, of an interest
in land.24 At common law, contractual doctrines were not regarded as applicable to leasehold estates.
For example, a breach of a leasehold covenant did not entitle the landlord to bring the lease to an end,
a principle which was overcome by the common drafting practice of inserting a term in the lease
giving the lessor the right to re-enter the land and forfeit the lease for breach of covenant.25
The contractualisation of leases
Despite initial reservations on the part of the courts, leases are “both an executed contract and an
executed demise”.26 From a proprietary perspective, the lease results in the landlord conveying to the
tenant exclusive possession of the demised premises27 for a certain or calculable duration28 for an
ascertainable fee.29 From a contractual perspective, a lease involves a contract which stipulates the
covenants which govern the particular landlord/tenant relationship.30
17
Trade Practices Act 1974 (Cth), s 51AC is now, as of 1 January 2011, Competition and Consumer Act 2010 (Cth), Sch 2 The
Australian Consumer Law, s 22.
18
Gray and Gray, n 13 at [4.1.7] citing 219 Broadway Corp v Alexander’s Inc 38 NE2d 1205 at 1207 (1979).
19
Bradbrook A, MacCallum S and Moore A, Australian Real Property Law (4th ed, Lawbook Co, 2007) at [14.14].
20
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 per Deane J at 51.
21
Effron J, “The Contractualisation of the Law of Leasehold: Pitfalls and Opportunities” (1988) 14 Mon LR 83 at 83.
22
Bradbrook et al, n 19 at [14.14]; Edgeworth B, Rossiter C, Stone M and O’Connor P, Sackville and Neave: Australian
Property Law (8th ed, LexisNexis Butterworths, 2008) at [1.76], [8.1].
23
Refer generally Halsbury’s Laws of Australia at [315.10].
24
Effron, n 21, particularly the discussion at 83-84.
25
Per Neave JA in Natwest Markets Australia Pty Ltd v Tenth Vandy Pty Ltd [2008] VSCA 207 at [31].
26
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 51 per Deane J.
27
Radaich v Smith (1959) 101 CLR 209.
28
Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386 at 390.
29
Simmons v Lee [1998] 2 Qd R 671 at 675.
30
Effron, n 21 at 83-84.
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Published in Sydney
Is an email account “property”?
Hannah Yee Fen LIM*
Although email is a modern-day communication necessity, the current
landscape in respect of ownership of email accounts is quite unclear in most
English-speaking common law jurisdictions. This article argues that an email
account can, in some circumstances, be regarded as a unique kind of
property for the purposes of testamentary disposition; but its legal protection
as an inheritable probate asset is currently uncertain. Despite the fact that an
email account, unlike a bank account, does not usually have a monetary
value, this is not an insignificant issue.
INTRODUCTION
Email has become a modern-day communication necessity, yet the fate of such a personal digital item
upon the death of its holder is still an unresolved issue. In the physical world, the general rules of
property and ownership are, on the whole, clear and defined; but in the digital realm the same cannot
be said for ownership rights in relation to personal email accounts. In the United States, for example,
the right to dictate the disposition of one’s property at death has been held to be one of the most
powerful rights granted to citizens.1 However, the current landscape in respect of ownership of email
accounts is quite unclear in most English-speaking common law jurisdictions. This article will argue
that an email account can, in some circumstances, be regarded as a unique kind of property for the
purposes of testamentary disposition; but its legal protection as an inheritable probate asset is currently
uncertain. It may seem that this issue is unimportant because an email account, unlike a bank account,
does not usually have the requisite monetary value. However, as it will be shown in the next section,
it is not an insignificant issue.
THE
PROBLEM
In early 2005, John Ellsworth requested permission to be allowed access to his deceased son’s email
account.2 His 20 year-old marine son, Justin, was killed in Iraq on 13 November 2004, by a roadside
bomb.3 While serving in Iraq, Justin’s primary correspondence with his friends and family was
through an email account he held with Yahoo! and, further, Justin had expressed a wish to have a
scrapbook made of these emails.4 Initially Yahoo! declined the father’s request, citing privacy and
contractual reasons. Justin’s father, however, argued that an email account is personal property that
passes through the laws of wills and intestate succession. Justin had died intestate, unmarried and
without children, hence his father claimed that the email account should pass to him as Justin’s next of
kin. Yahoo!’s response was: “While we sympathize with any grieving family, Yahoo! accounts and any
contents therein are non-transferable, including when the account holder has passed on”.5 The
situation was particularly acute at the time as Yahoo!’s Terms of Service stipulates that if an account
is inactive for a certain amount of days, it will be closed and deleted and irrecoverable.
*
BSc, LLB, LLM(Hons). Visiting Professor of Law, Faculty of Law, National University of Singapore. The author thanks
Professor Kevin Gray for insightful discussions on the law of property and his encouragement on writing in the area of property
law. The author is also grateful to the anonymous reviewers who provided valuable feedback. All errors and omissions are of
course the sole responsibility of the author.
1
Hodel v Irving 481 US 704 at 716 (1987) (“In one form or another, the right to pass on property – to one’s family in particular
– has been part of the Anglo-American legal system since feudal times.” (citing United States v Perkins 163 US 625 at 627-628
(1896))).
2
See Cha AE, “After Death, A Struggle for Their Digital Memories”, Washington Post (3 February 2005) at A1.
3
Cha, n 2. See also Chambers J, “They Win Right to See Late Son’s Messages”, The Detroit News (21 April 2005) at 1A.
4
Cha, n 2.
5
Chambers J, “Family Fights to See Soldier’s Last Words; A Fallen Wixom Marine’s E-mail Messages from Iraq Are Held Up
by Yahoo! over a Privacy Issue”, The Detroit News (21 December 2004) at 1A.
(2011) 1 Prop L Rev 59
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59
Lim
The matter was finally resolved when a Michigan probate court issued an order requiring Yahoo!
to provide the Ellsworth family access to Justin’s email account.6 Yahoo! complied with the court
order but maintained that its compliance was in no way indicative of its stance on its legal title to the
account information.7
To look at the question of whether email accounts can be the subject of testamentary disposition,
the first issue to consider is whether there is property in the email account, or whether it is merely a
non-proprietary and contractual licence to access the email account which comes to an end upon the
death of the account holder. If there is property in the email account, then the next question is who is
the owner of that property. Traditional paper mail would undoubtedly have been regarded as part of
Justin’s personal belongings and would have been passed to his family. Should email accounts be
treated differently? Are email accounts property that can be divested?
It should be made clear that what is at issue here is not the status of individual emails. Individual
emails, if original, raise a different set of issues. If the emails are original, they have some protection
under copyright law; but, in any event, the aim of copyright law has traditionally been to protect the
right of reproduction and distribution and not access.8 So, in this situation, if the email service
provider decides to delete the account and all emails in the account pursuant to its terms and
conditions, copyright law will not assist the family in restraining the email service provider from
doing so, nor will copyright law assist in helping the family access the emails. Copyright law will only
provide the family with recourse if the copyright in the emails is infringed, eg when they are further
reproduced or communicated in some way. The more appropriate course of protection under the
circumstances is to pursue protection of the email account as a whole, as property.
In order to determine if there is property in an email account for testamentary purposes, the
contract creating the relationship and access needs to be analysed. It is these clauses in the contract
that will determine whether an email account can be categorised as property.
EMAIL
PROVIDERS’
TERMS
OF
SERVICE
The contract between the email service provider and the email account holder is usually contained in
the Terms of Service. As these vary from service provider to service provider, the relevant clauses of
three of the largest free email services will be examined, namely Yahoo!, Gmail and Hotmail.
There are thousands of other email services and it may be necessary to look at individual
contracts on a case-by-case basis to determine the existence of property rights. Nevertheless, even
where many Terms of Service are silent on whether property rights exist, they often do contain clauses
that hint at the nature of the relationship between the email account holder and the email account.
Yahoo!’s refusal to disclose Justin’s email account to his family was based on the argument that
such disclosure to a third party would violate its privacy policy. At the sign-up process, all users must
agree and consent to Yahoo!’s Terms of Service and Privacy Policy. The relevant clause in Yahoo!’s
Terms of Service is cl 27 which reads:
You agree that your Yahoo! account is non-transferable and any rights to your Yahoo! ID or contents
within your account terminate upon your death. Upon receipt of a copy of a death certificate, your
account may be terminated and all contents therein permanently deleted.9
It is very clear from this clause that the account is non-transferable during the lifetime of the
account holder and any rights whatsoever, including access rights, cease upon the account holder’s
death. The clause seems to imply that Yahoo! is the only one who may continue to have access to the
6
See Cha, n 2; Chambers, n 3.
7
See Cha, n 2; Chambers, n 3.
8
This statement may be somewhat controversial as the protection of technological protection measures under the WIPO
Copyright Treaty and enacted in many countries could be said to protect access, something which was not in the original purview
of copyright law protection. However, this issue is beyond the scope of this paper. See generally, Lim YF, Cyberspace Law:
Commentaries and Materials (2nd ed, Oxford University Press, 2007) Ch 9.
9
See http://info.yahoo.com/legal/us/yahoo/utos/utos-173.html viewed 17 January 2011.
60
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