REAL PROPERTY EXAM SEPTEMBER 2014
Examiner’s Comments
Question 1 (20 marks)
Christine was the owner of a large block of land under the Torrens system in Wooli, a
remote fishing village in NSW. The land was extremely valuable because it had the
potential to be developed into a resort. The land was being leased to Bruce, a local, who
ran some cattle on the property. The lease with Bruce was informal, but Bruce and
Christine had agreed to a 2-year term, and Bruce had quickly taken possession and paid
rent.
Christine owed some money on the property secured by way of a deed of mortgage to
Rosalind. The mortgage was not registered and no caveat was lodged.
Christine’s solicitor Roger, had possession of the certificate of title. Roger was in
trouble with his local drug dealer, Robert, and owed enormous amounts to the dealer
caused by his addiction to cocaine. Roger decided to use Christine’s property to pay off
his debts. He forged Christine’s signature and gave the certificate and the transfer to
Robert. While Robert was not expressly told about the fact the transfer was forged he
knew that the circumstances were highly suspicious and he decided to make no further
inquiries.
Before Robert registered the transfer he decided to on sell to property his neighbor,
Matthew. Matthew had no idea about Robert’s business dealings but he had often
spoken to Robert about his love of the Wooli and how he would like to buy a house
there one day. Robert approached Matthew and Matthew very quickly agreed to buy
the property and exchanged contracts. Matthew arranged to make an inspection of the
property but on the week he was to go a cyclone hit and all the dirt roads into Wooli
were washed away and he never got a chance to get there.
At settlement of the property Matthew received the certificate of title, the forged
transfer from Christine to Robert, and a transfer from Robert to Matthew. However
when Matthew finally got the Land and Property Information he discovered that a
caveat had just been lodged by Christine, who had discovered that her CT had gone
missing from Roger’s office.
(a)
Explain Matthew’s legal position with regards to Christine’s claim of
ownership, the lease to Bruce and the mortgage to Rosalind (15 marks
Matthew’s interest is as an unregistered purchaser. He has the CT, a forged transfer from
Christine to Robert and a transfer from Robert to himself. Students should have discussed
the requirements of s 43A and the need for the transfer to be immediately registrable and
for the transfers to be unaffected by fraud. Good students referred to the Jonray case
where these issues were discussed at length. At best Matthew’s interest is equitable but it
cannot defeat Christine’s registered interest ad she will; be able to prevent the registration
of the transfers. Bruce’s leave is equitable: s 23Dbut earlier in time and unaffected by
Matthew’s claim. The mortgage to Rosalind is equitable: Walsh v Lonsdale. But is
remains unaffected by Matthew’s claims. Most student answered this poorly, showing
little working knowledge of s 43A.
(b)
How would your answer differ if Matthew had become registered? (5 marks)
If Matthew became registered he would have an indefeasible interest. Students should have
discussed s 42 and s 43. He would be able to use those section to defeat Christine and
Rosalind but he would still be subject to the lease via s 42(1)(d).
Question 2 (20 marks)
Ken was the owner of Torrens system land. Ken agreed to rent the house to Anthony for
two years with an option to renew the lease for a further two years. The lease contained
a covenant which stated that ‘the lessor shall not fail to keep the gardens free from
Patterson’s curse.’ Patterson’s curse is a type of weed. Anthony requested this term as
he was violently allergic to this weed. The lease also stated that the lessee could only
assign the leasehold with the lessor’s permission, which would not be ‘unreasonably
withheld.’
The lease was registered. Ken allowed Anthony to take possession and Anthony paid his
rent monthly. After taking possession Anthony installed a gas stove connected to the gas
supply by way of a pipe through the floor. He also fastened valuable canvas paintings to
the walls, by first fastening wooden strips to the walls, stretching the paintings over the
wooden strips, and holding them in position by moldings fastened to the wooden strips.
One year later Ken sold his interest to Tracey. In the meantime there has been an
outbreak of Patterson’s curse on the land. Anthony’s reaction to the weed meant that he
is considering the drastic option of agreeing to assign the lease to Maree, his sister, who
has a history of bankruptcy. Anthony is unsure of whether he can enforce the covenant
regarding the weed against Tracey. Similarly Maree is concerned that if she becomes an
assignee that she be able to exercise the option to renew the lease.
(a) Can Anthony assign the leasehold to Maree? Could Ken withhold his permission
given Maree’s financial history? (5 marks)
This question was about the right to assign and the limitation that permission not be
unreasonably withheld as per s 133B of the Conveyancing Act. The main authority is
International Drilling Fluids. On the basis of that case, permission could be withheld because
of the prior history of bankruptcy. This was done poorly, with many students treating this as a
case of freehold covenants.
(b) If the reversion were assigned would the covenant regarding the removal of
weeds be enforceable against Tracey? (5 marks)
This was concerned with the passing of the burden of a leasehold covenant. There is no
equivalent of Spencer’s case for lessors but s 118 allows the covenant to run with “reference
to the subject-matter of the lease” which has been taken to be the equivalent of the touch and
concern test. It was arguable that the weed removal does improve the use of the land although
it could also be argued that the only reason for the term was to suit a personal desire of the
original contracting party.
(c) If the leasehold were assigned would the option to renew the lease be available to
Maree? (5 marks)
This was about the passing of a leasehold covenant that benefitted the tenant. The rule in
Spencer’s case requires the covenant to touch and concern the use of the land. An option does
satisfy that requirement.
(d) When Anthony leaves can he take the stove and the canvas paintings? (5 marks)
This was a question about leasehold fixtures. The presumption should have been discussed
and the application of the intention test. The right of tenants to remove fixtures should also
have been discussed.
Question 3 (20 marks)
Fred was the co-owner of an estate in fee simple in Redbend, a property under old
system title, which was run as a holiday resort. It had beautiful views of the Northern
Valley. The other owner was Kerrie, Fred’s sister. They were registered as tenants-incommon in equal shares. The land had been inherited by Fred and Kerrie under their
late father’s will. Kerrie had had nothing to do with the establishment of the hotel or its
running costs, as she lived in the United States. Fred had outlaid $2 million of his own
money in setting up and improving the resort.
Fred agreed to pay his next door neighbour Charles $20,000 so that Charles would
promise that he and his heirs would not build a structure on their land higher than 20
metres. Fred did this to preserve the resort’s valley views. The agreement also provided
for a drain to run stormwater overflow from one of Fred’s dams down through Charles’
property. Charles’ land was also in the old system of title. The agreement was in writing
in the form of a deed. Charles registered the deed under the general register of deeds.
Unfortunately not long after the agreement being finalised Charles died and his son
Chris arrived to take over Charles property as his heir. He hated Fred as they had
previously been in a relationship that had ended sourly. He told Fred that he had no
intention of honouring the agreement concerning building height and was going to erect
a large screen to block out Fred’s views. He also dug up the drain from the dam.
To make matters worse Kerrie arrived from the United States wanting her share to be
paid out of the land. She also is claiming amounts for occupation rent and a share of the
profits made by the resort. Before Fred built the resort the land was worth $1 million. It
is now worth $4 million. A valuer has estimated the value of rent over the period to be
$50,000 and the resort has made $500,000 profit over its lifetime of operation.
(a)
Can Fred insist that the agreement concerning building height be honoured by
Chris? (6 marks)
This question was concerned with the passing of the benefit of a freehold covenant. The
burden cannot pass at law but may pass in equity under the rule in Tulk v Moxhay. That rule
has been satisfied here so the restriction should bind Charles. The rule should have been
discussed in detail
(b) Can Fred insist that the agreement concerning the drain be honoured by Chris?
(6 marks)
This agreement is a legal easement: s23B, Ellenborough Park. The four elements of an
easement should have been discussed.
(c) What rights does Kerrie have to claim for occupation rent and share of profits?
Can Fred ask for compensation for the costs of creating/running the resort and
for the agreement with Charles? (8 marks)
Kerrie has a right to an equitable accounting for the profits made from 3rd party use of the
land. Fred also has a right to an account of the money he spent in making capital
improvements he would normally be limited to the lesser amount of the expenditure or the
capital improvement but given Kerrie is after a profit share she must pay the total cost of the
capital outlay: Squire v Rogers. Fred would also have to account for 50% of occupation rent.
Question 4
Carmel was the registered proprietor of land under the Real Property Act. She sold the
land to Lex for $100,000.
On completion of the sale, Carmel was paid $75,000 in cash and given a mortgage over
the land to secure the balance of $25,000, which was payable one year after completion.
With Carmel’s knowledge, her mortgage was in fact a second mortgage. On completion
of the purchase Lex granted a first mortgage to Brian in order to raise moneys to buy
and develop the land.
Both mortgages were registered. The second mortgage (Carmel’s) was registered
without Brian’s knowledge and consent.
Under the first mortgage, Brian advanced Lex $50,000 on completion of his purchase
and covenanted to advance a further $25,000 if and when Lex finished stage 1 of his
multi-staged development on the land. The first mortgage also provided that Brian
could, in his discretion, advance additional moneys from time to time.
Eighteen months after completion of his purchase Lex, who had not paid out Carmel in
the meantime, finished stage 1 of his development and called upon Brian to advance him
more moneys. Brian, sensing that the land would be "worthless" if not fully developed,
advanced Lex $100,000, taking his total advance to $150,000.
All this was to no avail. Lex was unable to finish all stages of his development, and he
became unable to pay the mortgages.
Brian moved quickly and proceeded to take possession of the property for sale. He only
advertised the sale for 2 weeks in a local newspaper. At the auction, (which was poorly
attended) Brian’s brother-in-law Tim bought the property for $150,000. They exchange
contracts but the settlement date is not for another 5 weeks.
(a)
Can Lex prevent the sale to Tim from being completed? (10 marks)
This question was concerned with s 111A which sets the standard of reasonable care in the
sale of a mortgaged property. This has clearly been breached and the issue then arises as to
what can be done after exchange and before settlement of the purchase. The traditional law is
set out in Forsyth v Blundell but the new subsection(4) says that the “title of the purchaser
cannot be challenged.” If that is correct then this raises the issue of whether Tim’s equitable
interest can be taken away. Very few students dealt with these issues in any detail.
(b)
Discuss the priorities as between Carmel’s and Brian’s mortgages (10 marks)
This was a question about the doctrine of tacking for further advances: Hopkinson v Rolt.
That rule prevent tacking when there I actual notice but in Matzner Holland J was prepared to
allow tacking even with notice if the original mortgage had contracted for further advances
and money went towards capital expenditure. Again this was done poorly.