The Previous “BEWARE” … Has Now Become LAW!

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High Court Ruling

THE LANDMARK DECISION of Willmott has recently been upheld by the High Court. The decision confirms that a liquidator has the ability to disclaim a lease, meaning that the tenant will no longer hold a leasehold interest in the land.

In our article published in September last year, a case summary was provided of the Victorian Supreme Court of Appeal decision. This article will focus on the reasons provided by the High Court.

Case: In the Matter of Willmott Forests Ltd (in liquidation) [2012] VSCA 202 (‘Willmott’)

The Facts of the Case

The facts of the case can be summarised as follows:

  • The landlord owned land that was leased to a number of individual forestry plantations used to grow and harvest trees.
  • Liquidators were appointed to the landlord.
  • Under s.568 of the Corporations Act 2001 (Cth), a liquidator can disclaim property that consists of land burdened by onerous covenants.
  • The liquidators sought directions from the Court as to whether they were able to disclaim the leases (to effectively bring the leases to an end and therefore extinguish the lessees’ leasehold interest in the premises). This would enable the liquidator to sell the land without being subject to the leases.
  • At first instance, the Court held that the liquidator was unable to disclaim the leases.
  • The liquidators then appealed the decision.
  • The Court of Appeal overturned the original decision and held that the leases could be disclaimed by the landlord’s liquidator in accordance with s.568 therefore extinguishing any rights and interests that the lessees held in the land.
  • The matter was then appealed to the High Court.

The Decision

The High Court held that ‘property of the company’ extended to a landlord’s rights and duties under a lease.

In other words, a lease is a type of contract to which the ordinary principles of contract law apply.

Therefore, the powers available to liquidators pursuant to s.568(1) extend to the disclaiming of leases.

What this Means For You as a Tenant

Under s.568B of the Act, if a you receive a notice of disclaimer from a liquidator pursuant to s.568, you have 14 days to apply to the Court for an order setting aside the notice — in this case, it is important that you seek immediate legal advice.

Also, it is now even more important to undertake due diligence in relation to the solvency of your landlord BEFORE entering into a lease.

Disclaimer: If you think a similar situation may apply to you, then you should contact us for detailed legal advice relating to the particular facts and circumstances of your property or lease agreement. This article is not intended to provide such detailed and specific advice and you should not act on the basis of any matter contained in this article without first obtaining more comprehensive professional advice.

Xenos

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