When will a land contract be binding without being evidenced in writing? Part performance, estoppel, and the NSWCA taking a walk down old Waltons Stores (Interstate) Ltd v Maher lane

Published 02 Nov 2016
Dominic Maley

Writing is not ordinarily a necessary element to a contract. This prima facie principle can, however, be modified by statute.

In the case of land contracts, England famously implemented the Statute of Frauds 1677, which required that agreements relating to land be evidenced in writing. Where there was an absence of written evidence of the agreement, the contract would be voidable (albeit not void)./p>

A strict application of this rule has the potential to lead to an unjust result. Thankfully, there are two doctrines which can be of assistance to prevent a pending or potential miscarriage of justice: estoppel and the equitable doctrine of part performance./p>

• Writing and agreements of land.

Section 54A(1) of the Conveyancing Act (a carryover of the Statute of Frauds) states:

"No action or proceedings may be brought upon any contract for the sale or other disposition of land [e.g a lease] ... unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed..."

Subsection (2), however, quickly reiterates that the above does not extinguish the doctrine of part performance.

Residential Leases, moreover, have departed from the s 54A approach to leases, with the Residential Tenancies Act 2010 making an obligation for Landlords to provide a written agreement [s 14], but with s 13 confirming that a residential lease can be established where it is "express or implied and may be oral or in writing, or partly oral and partly in writing". The Retail Leases Act 1994, too, has removed the element of writing as a bar to enforceability of the lease [s 3].

• Degree of writing required.

The whole land contract does not need to be in writing to satisfy s 54A: merely a sufficient degree of writing to evidence the contract.

In Pirie v Sauders (1961) 104 CLR 149, the High Court deemed a solicitor's preliminary as notes as insufficient.

• Part Performance.

The doctrine of part performance is a doctrine developed by the Courts of Equity to circumvent the Statute of Frauds in order to prevent unjust outcomes, by declaring a verbal contract to be enforceable in relation to land if it could be said that the contract had been carried out to such an extent as to 'necessarily imply' the existence of the contact.

Acts which are usually demonstrative of the existence of a land contract include taking possession, paying rates or improving the property. If such actions have occurred, and the court is persuaded of the existence of the oral contract, the court can enforce that contract notwithstanding s 54A [see Regent v Millett (1976) 133 CLR 679].

Oddly, the payment of money is not a sufficient act to enliven the doctrine of part performance – even though this is an actual obligation of the contract, whereas taking possession, for instance, is not. This anomaly was recognised by the NSWCA in Khoury v Khouri (2006) 66 NSWLR 241, but Bryson JA at [267] – [268] felt the High Court was the appropriate forum to recognise this anomaly and address a change to the current law.

• Equitable Estoppel

One form of equitable estoppel – promissory estoppel – can too be of assistance in preventing unjust outcomes, and can be utilised in addressing the issue of when the parties do not yet have a contract in the technically strict sense (where there is for example an absence of an intention to be bound at contract at that stage), but the use of such a technicality would be unjust.

Where a contract has not technically exchanged, but where the promisor created an assumption which the promisee reasonably relied on, "in circumstances where departure from the assumption by the [promisor] would be unconscionable" and a detriment would be suffered, equitable estoppel can operate as a declaration that the promise (or encouragement) is binding.

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 provides a classic example. Here, Waltons had encouraged Maher to construct a building in Nowra with the view of taking up a lease. A proposed lease was sent by Maher in October. By November, Maher made Waltons aware that the existing building was being demolished. Waltons began to cool on the idea, and deliberately delayed the submission and exchange of the lease documents. In January of the following year, with construction in the process of completion, Waltons informed Maher they no longer wished to proceed with the lease, and sought to rely on the argument that no contract had come in to existence by virtue of there being no exchange of contracts. The matter went all the way to the High Court, whereby Waltons were 'estopped' from denying the existence of the legally binding lease.

• Doueihi v Construction Technologies Australia Pty Ltd (2016) NSW ConvR56-365 – Waltons revisited.

In this matter, Doueihi and others purchased a property in Seven Hills in 2008, with the view of accommodating CTA (known then by a different name) and another company Marble Plus. CTA occupied part of the premises, but, as the parties and directors of the companies were connected via family, a formal lease was never initially drawn up.

About mid-2009, CTA had informed Doueihi that they were intending to install a manufacturing plant, but would need a 5 x 5 year lease to justify the expenditure. Doueihi said words to the effect of "that sounds fair".

By late 2010, CTA went on to install the plant at a cost of $943,000 plus GST.

The relationship between the CTA director and one of the registered proprietors broke down in 2011, and CTA quickly sought to formalise the lease agreement (albeit in the form of a sublease with Marble Plus). "Significantly", CTA did not assert at this point that a lease was in existence. By 2012, a formal proposal was put to CTA which contended for a 40% rent increase, and only a short term lease. In October, the co-owners issued a Notice to Quit to CTA in relation to the lease, and CTA in reply commenced proceedings in the NSWSC.

Unfortunately, CTA could not establish a contract, as the court could not be satisfied that there was the requisite "intention to create legal relations".

Fortunately, while failing in the contract claim, CTA was able to succeed in an equitable estoppel claim, as it would have been unjust and unconscionable for the co-owners to depart from the encouragement they had created to CTA.

With monetary relief not being a sufficient remedy for CTA in the circumstances, the NSWSC held that equitable estoppel established a 5 x 5 year lease. The NSWCA agreed, and rejected an appeal from this order.

Contrast the High Court's recent decision of Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26, whereby a Landlord offered a 5 year lease with no Option, and at that time made the statement that they would ‘look after the tenant at renewal time’. Here, the estoppel claim failed, with the majority contending the statement was equivocal, not sufficiently certain, and that “the statement that the tenants would be "looked after at renewal time" is not capable of conveying to a reasonable person that the tenants would be offered a further lease.” This case emphasises the principle that the language relied on in an estoppel claim must be clear and unambiguous.

For professional advice in relation to property law, contact Maclarens Lawyers on 9682 3777.