Our challenging economy & property transactions

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1 Seminar Notes Our challenging economy & property transactions Seminar Date 31 March 2009 T F E law@cbp.com.au I Level 42, 2 Park Street Sydney NSW 2000 Australia DX 280 Sydney Advoc Asia member Colin Biggers & Paisley LAWYERS

2 Contents Mortgagees exercising power of sale 1 Topic 1 You becoming a mortgagee 1 Topic 2 Sale by mortgagee 2 Topic 3 If buying for a mortgage exercising power of sale 3 Conclusion 4 Conveyancing issues on default 5 Introduction 5 So, how good is your contract? 5 What matters give rise to default. 5 Notices to complete. 6 Deposits 7 GST 8 Split deposits 9 Other remedies 9 Leasing terminating leases, bonds and relief against forfeiture Introduction Essential and non-essential terms Notices in leases Other considerations when exercising re-entry Some practical matters on exercising re-entry Retail lease legislation Security bonds 14 Colin Biggers & Paisley

3 Mortgagees exercising power of sale Topic 1 You becoming a mortgagee 1. In what circumstances should your mortgage be registered? Priority depends on registration for the torrens title properties. You should always have your mortgage registered. Difficulties if you are a second or subsequent mortgagee. 2. Whose rights come before yours? If torrens title property, priority depends on registration. Statutory charges (council charges, rates, land tax) take priority. 3. Enforcement rights and limit on enforcement rights Subject to statutory requirements, can exercise power of sale. Other rights (eg appointment of receiver) depend upon terms of mortgage. Second or subsequent mortgagee can exercise their rights even if first mortgagee does not, but the entitlements of the first mortgagee still take precedence. 4. Mortgage setting out monies due Recent decisions highlighted the need to actually specifically set out in the mortgage document the monies due or how these monies are to be calculated. Affect of "all monies" clauses in mortgages. 5. Perpetual Trustee of Victoria Limited v Van Den Huevel Forged mortgage on behalf of one of the joint owners. Mortgage still effective. Whether proper service of notices. Innocent mortgagor's claim against statutory fund. No Contract Review Act remedy (as no contract entered into by innocent mortgagor). Colin Biggers & Paisley 1

4 Mortgagees exercising power of sale Topic 2 Sale by mortgagee 6. Section 57(2)(b) notices Need to give a section 57(2)(b) notice before exercise power of sale where default is nonpayment of money. Section 58A states you can dispense with a section 57 notice in mortgage (provided it does not relate to payment of monies). Section 57(2)(b) notice must specify the following: > that it is a notice pursuant to section 57(2)(b) > > > that the mortgagor is required to observe a covenant under the mortgage or, if payment of monies is due, payment of those monies if the costs and expenses of preparing and sending a notice are to be demanded, payment of a reasonable amount for those costs and disbursements is required and specifying that amount notifying the mortgagor that unless the mortgagor complies with the notice within one month of service of the notice, it is proposed to exercise a power of sale in respect to the mortgaged land Who can execute section 57(2)(b) notice (eg officer of mortgagee, solicitor). Court will overlook "minor or trifling defects" Who must be served with section 57(2)(b) notice? > Must be mortgagor, but when happens if the mortgagor is under external administration? > Note requirement under section 57(2)(b1) to serve a notice on each subsequent mortgagee and each caveator. > Service has to take place in accordance with section 170 of the Conveyancing Act. > The requirements of section 107 are: a) b) c) d) e) personal delivery left or sent by post to the last known residential business of the person to be served in the case of a mortgagor in possession, left or sent by post to any occupied house or building comprised in the mortgage delivered to the facilities of a document exchange or which the person on whom it is to be served is a member serve it in such a manner as the Court directs. Noted judicial pronouncements on whether notice should be served on two or more mortgagors separately. This is the safest and best course to follow. The one month period runs from date of service (or deemed service) not date of notice. Colin Biggers & Paisley 2

5 Mortgagees exercising power of sale 7. Power of sale is in section 58. Wide power of sale. Purchaser not answerable for loss, misapplication or non-application of the purchase monies. Special form of transfer for mortgagee exercising power of sale. Must specify mortgage and mortgage date under which the power of sale is exercised. Effect of section 59 - shall pass title to the purchaser free from all liability on account of the mortgage or any mortgage, charge or covenant charge registered subsequent to that mortgage. Only defeats limited interests. Does not (as per common misapprehension) defeat all other interests. For example, does not talk about interests pursuant to a joint venture, pursuant to a purchase contract or other contractual relationship. Overriding duty of mortgagee to act in good faith and obtain best price in all the circumstances. Need to consider: > valuations > auction sale > efforts to maximise return (for example continue process and get DA on development). Possible waiver of notice by mortgagee and its conduct. If no notice given or power of sale not properly exercised, mortgagee may be liable for damages or mortgagor may get an order to have the sale set aside or an injunction stops a sale concluding. Topic 3 If buying for a mortgage exercising power of sale Additional risks: a) Mortgagee may not be fully aware of all issues with regards to a site and will seek pass the risk to the purchaser. b) Competing claims - delays. What does the purchaser expect to get with a site (eg inclusions, plant and equipment, benefit of DA)? Where does title come from and who might have a priority interest? More extensive due diligence (especially before contract) is necessary to establish additional risk. There is less likely to be an issue with buying an individual residential property for a mortgagee exercising power of sale (c.f. development site). If buying a substantial property (for a development or income producing purposes) need to consider who else may have claims (eg builder, joint venture partner, purchasers from the defaulting mortgagor), how long it is likely to take to resolve these claims, differing priorities and the financial impact of delays caused by any such competing claims. Need to carefully consider and assess mortgagee's clauses seeking to delay the settlement date if claims arise or giving the mortgagee/vendor only a right of rescission of termination of the contract where competing claims arise or court action is taken. Colin Biggers & Paisley 3

6 Mortgagees exercising power of sale Conclusion For a mortgagee greater attention to what it knows and what it does not know, don't make assumptions, what it needs to exclude in the contract and risk allocation. For a purchaser greater attention to the gathering of information, and assessing and pricing of risks in pre-contractual negotiations. Where necessary need to spend time and money engaging consultants to address unknown or unclear matters and to identify and make a risk assessment of problems before entering into the contract. Desirability of a short time between exchange and settlement to have the matter concluded and minimise chance of claims by defaulting mortgagor or others. Courts unlikely to unravel a transaction where an innocent third party has completed a purchase. Chris Rumore Partner T: F: D: E: acr@cbp.com.au Colin Biggers & Paisley 4

7 Conveyancing issues on default Introduction The opposing interests of vendors on the one hand who seek contracts that give them some flexibility in carrying out their developments, fast sales and maximum prices, and purchasers on the other hand who want certainty in what they are buying, and a bargain, are being pressure cooked in the tight financial markets we are currently faced with. The implications of these times for us all is that contracts are probably being scrutinized more closely than ever, with more parties choosing to litigate in order to try to save a deal, or get out of one. This paper touches on some of the things to be aware of in the event of default by either party under a contract for the sale of land. So, how good is your contract? What matters give rise to default. The consequences of a poorly drafted contract can be dreadful for both parties. Naturally, every contract will be different. Apart from the statutory annexures that must in included in a contract, the special conditions need to reflect the state of the property, particularly if it has not yet been built, and the anticipated titling structure. To exhaustively list the statutory requirements to be observed is impossible as obviously what will be required depends on the type of property you are selling. Vendors selling properties off the plan need to be very careful in making statements or expressing opinions, or allowing statements to be made or opinions expressed on their behalf, for example by their agent, to induce a purchaser to enter into a contract, which may not be able to be substantiated. In the 2009 New South Wales Supreme Court case of Zhang v VP302 SPV and others, the purchasers exchanged contracts to purchase a unit for $1.05 million in 2003 after the estate agent quoted a newspaper article titled the suburbs where values will double in 5 years and went on to express an opinion that the property was in an area which was going to double in value in 5 years. The inevitable happened. By the time the property was complete in 2005 house prices had fallen significantly and the purchaser was unable to arrange the finance necessary to compete the purchase. The vendor terminated the contract and forfeited the $107,000 deposit. In 2007, the purchasers took the vendors, then in voluntary liquidation, and the agent to Court alleging, amongst other things, that the agents misrepresentation of the true value of the property had induced them to enter into the contract. They sought a refund of their deposit. The Court noted that a statement of opinion implies that there are facts known to the person expressing the opinion that justifies it. For the following reasons, the Court found that the agents opinion could not have been reasonably held: Colin Biggers & Paisley 5

8 Conveyancing issues on default At the time of the representation, the newspaper article was well out of date, and related to growth of the area generally, not specifically the development comprising the property. The market was saturated by the construction of 6,000 new apartments in the area and above average increases in values had been occurring for 3 years at levels considered to be the greatest increases in property values in Sydney in a century. Naivete or carelessness on the part of the purchaser did not exculpate the agent. The developer was bound by the conduct of its agent and the purchasers were entitled to rescind the contract. The lesson here, particularly in the current uncertain financial climate, is to ensure that no-one makes any statements or expresses any opinions that can t be substantiated. Additionally, it is advisable to include a specific provision in the contract expressing that in entering into the contract the purchaser has not relied on any representations or warranties about the property. Although please bear in mind that if reviewed by the courts, it is likely that such a clause will probably only apply to the extent that it represents the true position. Notices to complete. Under the Law Society s Conditions for the Sale of Land Edition, used as a matter of convention for sales of land in New South Wales, time is not of the essence in a contract until a either party issues a notice to complete. Normal and established practice in New South Wales requires that a notice to complete must give the other party at least 14 days from the date of the notice in which to complete. In order to be entitled to serve a notice to complete, you must be ready, willing and able to complete yourself. If you are a vendor, this means that the title must be cleared of registered charges or that you have made arrangements for those charges, including land tax, to be cleared on completion. An undertaking to repay charges and land tax will not be sufficient, specific arrangements must have been made. As well as having complied with all of the terms of the contract posing an obligation on you to perform, you must have properly signed the Transfer and be in a position to attend settlement and deliver clear title to the purchaser. If you are a purchaser, you must have or have arranged sufficient finance to cover the balance of the purchase price, complied with the contract and otherwise be ready, willing and able to settle. The consequences of issuing a notice to complete before you yourself are ready to complete are disastrous. Doing so may amount to a wrongful repudiation of the contract which the other party will be entitled to accept, with the deposit being payable to that accepting party. The right to serve a notice to complete does not arise until the date specified in the contract has passed. This means that you cannot serve a notice to complete until the day after the completion date. This is an important point to note when your contract does not specify the completion date as being a particular date, but rather as a period of time after or from the date of the contract. Colin Biggers & Paisley 6

9 Conveyancing issues on default In calculating the completion date, the date of exchange should never be counted. In the 2008 NSW Supreme Court case of Proctor v Chahl, the contract specified that the completion date was to be 12 months after the date of the contract. The contract was dated 20 June 2006 and the vendor issued a notice to complete on 21 June The Court held that the completion date, being 12 months after 20 June 2006 was 21 June 2007 meaning that the vendor was not entitled to issue a notice to complete until 22 June In serving the notice to complete before the purchaser had actually defaulted, the vendor had wrongfully repudiated the contract and the purchaser was therefore entitled to its deposit back, plus interest. Similarly, the last day of a notice to complete period will be 14 days after, but not including the date on which the notice is served. It is only after that date that a party may forfeit the deposit if completion has not taken place. Deposits Except where varied by any special conditions, a deposit paid on exchange of contracts in connection with the sale of a property, except where that deposit is a guarantee or deposit bond, is normally held by the vendor s agent or solicitor as stakeholder. Any deposit released to a vendor or as a vendor directs is a charge on the land in favour of the purchaser until the contract is either terminated or completed. In this market, purchasers need to be very wary of releasing any deposit, or part of a deposit to a vendor before settlement. Any charge on the land securing a financial obligation including such a charge protected by a registered caveat, if subsequent to a mortgage will be scrubbed from the title in the event of a mortgagee exercising its power of sale of the property. Special conditions of contracts for the sale of residential property often provide for the deposit or part thereof to be released to the vendor in connection with the vendor s onward purchase of another property. The danger of releasing a deposit where there is a chain of transactions is that if any one of the parties in that chain is insolvent, the deposit may not find its way back to the original payer if the chain collapses. A further danger for purchasers is that a mortgagee in possession of a property has no obligations to a purchaser who has released deposit monies to the defaulting vendor mortgagor. A mortgagee in possession may have no obligations to deal with a purchaser at all. Where a purchaser defaults under a contract for the sale of land, a vendor with clean hands will be entitled, in addition to other remedies that may be available to that vendor, to forfeit the deposit paid on exchange after a valid and validly served notice to complete has been served and has expired. If this happens, the vendor is obviously in a much better position if the purchaser paid a full 10% deposit on exchange. Courts will almost never make an order for specific performance in the event of a default under a contract for the sale of land as damages are considered an adequate remedy. Colin Biggers & Paisley 7

10 Conveyancing issues on default Section 55(2A) of the Conveyancing Act 1919 provides the Courts with the power in cases where specific performance is not being ordered, to return a deposit to a purchaser, with or without interest, if it thinks fit. It is well settled law in New South Wales since at least 1963 that a 10% deposit will not constitute a penalty on the purchaser. However there is no current authority in New South Wales that a deposit of more than 10% will always be reasonable, and therefore beyond the court s clutches under section 55(2A). Where the court finds that a deposit is a penalty rather than a deposit and returns the money to the purchaser, the vendor will be left to establish the actual quantum of its loss and claim that loss as damages from the purchaser through the courts. From a practical perspective, the cost of undertaking this exercise is usually prohibitive. GST In the 2008 case involving the Commissioner for Taxation v Reliance Carpet Co Pty Limited, the High Court agreed with the Commissioners interpretation of the GST legislation and found that GST is payable on a deposit forfeited under a contract for the sale of land. However this only applies where the subsequent transaction, that is: the sale, would have been taxable. The fact that the contract states that the margin scheme will be utilised does not affect the vendors liability to pay GST on a forfeited deposit. In those circumstances, GST will still be 1/11th of the deposit forfeited being the security for performance of an obligation which itself is the taxable supply. This means that a GST registered vendor forfeiting a deposit will be liable to pay 1/11th of his 10% deposit to the tax department, leaving him with something closer to 9%. To add salt to the vendor s wound, a GST registered purchaser may be able to claim an input tax credit for the GST paid by the Vendor on the deposit and benefit, to an extent, from their misdeed. However, because of the danger a vendor exposes him or her self to in asking for more a deposit of more than 10%, it would be a brave vendor who sought an 11% deposit from a purchaser, particularly in the current litigious financial climate. For many years standard conveyancing practice where you are preparing a contract for the sale of taxable property has been to specify the GST exclusive price on the front page of the contract and include a GST gross up clause in the special conditions. In order to ensure you are not out of pocket the GST component on a forfeited deposit, sensible practice would be to gross up the purchase price on the front page on the contract to include GST. The 10% deposit collected on exchange will therefore include the GST component you might later have to pay to the ATO. Obviously, this will not be appropriate where the transfer contemplates the sale of a going concern, and the market will determine the GST inclusive price of a new residential property. Colin Biggers & Paisley 8

11 Conveyancing issues on default Split deposits If a purchaser has not paid a full 10% deposit and defaults, there is almost no prospect of a vendor being able to recover the balance of a ten percent deposit at that stage. In the 2007 NSW Supreme Court case of Ianello v Sharpe, the Court found that a contractual requirement to pay the balance of a 10% deposit in the event of default under the contract could never be a true instalment of the deposit because the balance of the 10% deposit was only ever going to be payable on completion or on default. Accordingly, in the case default, it amounted to a penalty and as such was unenforceable. The decision focuses on the heart of the purpose of a deposit, which from the purchaser s perspective is a significant commitment to the bargain, and from the vendor s perspective amounts to reasonable compensation in the event of the purchaser later failing to complete. The decision ultimately means that split deposits will not be enforceable unless they constitute a genuine arrangement to pay the deposit in instalments. For example, a contract requiring 5% on exchange and an additional 5% in, say, six weeks, in order to accommodate a date at which time a purchaser is assured of coming into additional funds, or some other similar and genuine arrangement is acceptable. Other remedies In addition to entitlement to the deposit, the vendor may also sue the defaulting purchaser to recover the vendor s reasonable costs and expenses arising out of the purchaser s non-compliance as damages where the loss suffered by the vendor amounts to more than the deposit or where the property has been resold within 12 months for less that the original contract price. The practical downside of this right is that these costs must be proved in court, which is itself expensive and takes time. However the vendor s right to sue a purchaser who defaults because they have no money is of little comfort and is likely to be an exercise in throwing good money after bad. So, some important points to note are: have CBP prepare all of your contracts, or vet them if you are purchasing, pay particular attention to dates when issuing notices to complete, gross up the price on the front page of your contracts to ensure you obtain a GST inclusive deposit where the transaction is taxable, be extremely careful of asking for or accepting deposits of more than 10%, and get a 10% deposit on exchange wherever possible. Helen Quade Senior Associate T: F: D: E: heq@cbp.com.au Colin Biggers & Paisley 9

12 Leasing terminating leases, bonds and relief against forfeiture 1. Introduction In the current market, it is important for both landlords and tenants to be aware of their respective rights and obligations under their leases, particularly in relation to default and termination. When there has been a breach of the lease there are factors that need to be considered before a lease is terminated. It is these factors that I will be addressing today. They include: a) b) c) d) e) firstly Identifying the breach, ie is it a breach of an essential or non essential term of the lease what are the notice requirements relief against forfeiture the procedures to follow when exercising rights of re-entry and termination. retail leases 2. Essential and non-essential terms 2.1 What is an essential term? An essential term or condition is a term which is: a) b) so fundamental to the nature of the contract that the contract would not have been made without the term and any breach of it gives rise to an immediate right to terminate by the party which is not in breach. To determine whether a lease provision is an essential term you need to look at the lease. Depending on the terms of the lease where a tenant has breached an essential term or fundamental term of a lease, the landlord may terminate the lease and sue for loss of bargain damages. Loss of Bargain Damages are the damages assessed by reference to the difference between the value of the contract at the time of breach and the price expressed in the contract. For example, where a lease is for a term of 10 years with rent calculated per annum and paid monthly and that lease is terminated in the 3rd year of the term, loss of bargain damages would be equivalent to the amount payable for the whole term, as opposed to the rental provided up to the time of default. Colin Biggers & Paisley 10

13 Leasing terminating leases, bonds and relief against forfeiture 2.2 Shevill s case The importance of ensuring that a lease clearly classifies payment of rent as an essential term in a lease is demonstrated in the case of Shevill v The Builders Licensing Board (1982). In this case the High Court of Australia looked at a lessor s entitlement on termination for breach of lease obligations by the lessee. In this case the lessee had failed to pay rent for a period of 14 days. The lease provided the lessor with a right to re-enter the premises and terminate the contract where rent was outstanding for 14 days. The payment of rent was not classified as an essential term of the lease but notwithstanding the lessor exercised its right of re-entry and sued for loss of bargain damages for the remainder of the lease term. The High Court found that as there was no breach of an essential term, no repudiation or no serious breach on the part of the lessee, the lessor could only recover nominal damages as it had on its own initiative elected to terminate the contract. Example of essential terms In practice the following are usually considered as essential terms of a lease: payment of rent payment of outgoings permitted use restrictions on dealings, assignment, subletting or parting with possession bank guarantee. 3. Notices in leases 3.1 Notice before right of re-entry for breach other than failure to pay rent If a landlord wishes to re-enter and re-take possession of the premises and thereby bring the lease to an end) following a breach by the tenant (other than failure to pay rent), Section 129(1) of the Conveyancing Act 1919 generally requires notice to be given. Such notice must allow a reasonable time for the tenant to rectify the breach before the rights of the landlord to re-entry (and termination) may be exercised. The notice should: a) b) c) specify the particular breach complained of if the breach is capable of remedy, require the lessee to remedy the breach, and if the lessor claims compensation for the breach, require the lessee to pay such compensation. The provision for giving the notice is mandatory and cannot be excluded by lease provision. Re-entry or forfeiture can only occur after the service on the lessee on an effective notice and after the lessee has failed to remedy the breaches properly relied on in the notice within a reasonable time. Colin Biggers & Paisley 11

14 Leasing terminating leases, bonds and relief against forfeiture There is however one statutory exception which applies to all jurisdictions except Queensland, is when the breach is non-payment of rent. In this situation, no prior notice is required. This is important in practice because the most significant and frequently occurring breach of lease obligations by commercial lessees relates to rent payments. When rent is in arrears by more than the period specified under the lease the lessor may terminate the lease without prior formal notice, except in Queensland. 4. Other considerations when exercising re-entry 4.1 Relief against forfeiture Where a lessor has terminated a lease by forfeiture by either re-entry or by legal proceedings, the lessee may still seek relief from the Court even where the lessee has failed to make payment of rent. 4.2 Relief for non-payment of rent The judicial approach is that relief should be given for non-payment of rent if the lessee is able to pay the arrears, interest and legal costs unless the lessee s financial position is irretrievable. The grant of relief is discretionary and may be refused in appropriate circumstances. In the case of Constantine v Saunders (2007): A tenant was operating a café from the leased premises and he was persistently late in the payment of rent and after about 12 months in possession was approximately $16,000 in arrears. After a series of unsuccessful attempts by the landlord to evict the tenant the landlord sought court permission to execute a writ of possession. However the tenant was granted relief against forfeiture. The New South Wales Supreme Court noted that relief against forfeiture for non-payment of rent is normally granted if the tenant remedies the default. It was noted: While it was true that relief against forfeiture is a discretionary remedy and may be refused if there is a sufficiently serious risk that the tenant will not be able to perform its obligations under the lease and the tenant s history of late or non-payment of rent did indeed raise concerns about his capacity to pay the arrears, the trial judge having given the matter consideration decided to exercise its discretion in favour of the tenant - albeit on strict terms. His Honour found that the tenant would have a more reliable and sufficient income from other sources in the future, that he would no longer be burdened by a certain financial liability that had affected his ability to pay rent in the past and that he had not deliberately neglected his obligations under the lease and was optimistic about making the café profitable. 4.3 Relief for breaches other than payment of rent Generally the court will grant relief for breaches other than for non payment of rent but the judges have placed more emphasis in recent years on the gravity of the breaches and the seriousness of a lessee s deliberate and blatant disregard of lease obligations. Colin Biggers & Paisley 12

15 Leasing terminating leases, bonds and relief against forfeiture For example, in the case of Stieper v Deviot (1977), relief was refused when the lessee s failure to pay rent was accompanied by lack of care in the use of the premises, including the storage of inflammable liquids in contravention of legislation, which resulted in the lessor s fire insurance being cancelled. However, the purposes of exercising the discretion to grant relief against forfeiture, generally the court should only consider those breaches of the lease covenants included in the lessor s notice of breach of covenant. The Court of Appeal of the Supreme Court of New South Wales in the case of Tutita Pty Ltd v Ryleaco Pty Ltd (1989), it was held that even such other breaches could be taken into consideration when there are special circumstances but fail to indicate the criteria of such circumstances. It can then be followed from the decision in this case that care should be taken when drafting notices of breach of covenant to incorporate all breaches no matter how minor which can be taken into account should a lessee be seeking relief against a forfeiture in the circumstances. 5. Some practical matters on exercising re-entry If the landlord s right to re-enter and take physical possession has been determined following the guidelines above, any re-entry by the landlord should be done carefully to avoid the tenant seeking damages for wrongful retention of goods or for loss of profit due to the business being closed down. Generally the following procedures should be followed: a) b) c) d) Representative of the landlord should be at the premises at the time the locksmith attends to change the locks. A notice should be placed in the windows of the premises advising that the business is temporarily closed and providing your details in the event that someone wishes make enquiries. A notice to the tenant should also be prepared and The notice should also specify that the tenant s goods are available for collection upon making arrangements with the landlord. This is to prevent any claim by the tenant that the bounds have been overstepped by the landlord exercising its rights. Immediately on termination a landlord should carry out the steps required to find a new tenant, including necessary make good to the premises, and the marketing normally undertaken by the landlord for vacant premises. Evidence of this process will be required if proceedings are brought against the tenant this is the requirement to mitigate the landlord s loss. 6. Retail lease legislation When there has been a breach of a retail lease, the parties need to be aware of not only the terms of the lease but also the provisions of the Retail Leases Act. When there is a dispute between the parties relating to a lease covenant then usually the parties must attend a mediation before any claim may be made. Colin Biggers & Paisley 13

16 Leasing terminating leases, bonds and relief against forfeiture Section 63 of the Retail Leases Act 1994 defines a retail tenancy dispute as: Any dispute concerning the liabilities or obligations (including any obligation to pay money) of a party or former party to a retail shop lease or former lease, being liabilities or obligations which arose under the lease or former lease or which arose in connection with the use or occupation of the retail shop to which the lease relates and (without limiting the generality of the foregoing) includes a dispute about a security bond. Accordingly this covers claims for rent and damages and claims for repudiation of the lease and relief against forfeiture and other claims which might arise from a termination of lease. Before any kind of right of termination may be exercised for non-payment of rent the parties must attend a mediation. If the mediation fails then a claim can be made to the Administrative Decisions Tribunal who has jurisdiction to determine retail tenancy claims. This only relates however to disputes. Accordingly if there is no dispute (that is the tenants just fail to pay rent or something else has led to the termination of lease) it may be that the Tribunal will not have jurisdiction to entertain a retail tenancy claim. 7. Security bonds Where a lessee has paid a security deposit in lieu of a bank guarantee under the terms of a lease, the lessor is required to comply with the Retail Leases Act 1994 which requires the deposit to be deposited with the Director General of the Department of State and Regional Development within 20 business days after the date of receipt or the date when the lease became binding, whichever is the latter. The money must be accompanied by a duly completed approved form. Payment out of security bonds requires an application to the Director General jointly by both the lessor and the lessee or by the lessor or by the lessee (requiring payment to the other one of them). However if the lessor or the lessee seeks payment to itself without the other s consent there is provision for notice to the other party and payment out can occur unless within 14 days after service of the notice the other party has commenced prescribed proceedings and notifies the Director General. Payment can then occur after a judgment order on those proceedings or after a successful mediation. As it can be seen, the legislation sets out quite restrictive provisions for any payment to be claimed from the security deposit such as overdue rent. The process is quite rigorous and will need court action if the other party does not approve the release, which in most circumstances will be the case, especially in the current market. In many instances it is arguably better for a landlord to seek a bank guarantee in lieu of a security deposit from a tenant so as to avoid the difficulties in claiming the full amount or any part of the security deposit. Carolina Gomez Senior Associate T: F: D: E: cmq@cbp.com.au Colin Biggers & Paisley 14