Abstract

This article analyses a Supreme Court case in which Burns & Associates Solicitors acted for the plaintiff/lessor, who successfully obtained an order for possession of the leased premises and a debt for arrears of rent and interest. The Supreme Court case was Highpoint Pty Ltd & Anor v Quicknet Internet Provider Pty Ltd & Anor [2000] QSC 359. This case highlights the importance of preparing and executing lease documents within a reasonable time and the importance of the implied duty to cooperate.

Key points

1. In commercial contracts, the courts imply a duty to cooperate on all the parties to the contract.
2. Where there is an agreement to enter into a lease requiring the preparation and execution of lease documents, the implied duty to cooperate requires the parties to finalise the lease documents within a reasonable time.
3. If one party fails to prepare or execute a lease document within a reasonable time, this will constitute a repudiation which, if accepted by the other party, entitles the other party to terminate the agreement to lease.
4. The exercise of an option to purchase land will be ineffective unless the person exercising that option is the person empowered to do so.

The facts

1. Highpoint, the plaintiff, owned commercial premises at Springwood.
2. The Defendant, Quicknet, held possession of the premises from June 1997 to October 2000.
3. On 15 April 1997, Highpoint sent a letter containing the terms of the proposed lease and option to purchase the premises. The key terms of the proposal were:
   1. Quicknet was to enter into a three year lease commencing 1 July 1997 with rental of $20,000 per year payable annually in advance.
   2. Highpoint offered an option for Quicknet to buy the premises, which had to be exercised by Quicknet only on or before the end of the first year of the lease.
   3. If Quicknet exercised its option, the parties were to enter into a cash contract for $460,000 less rental paid to date, with settlement to be, at the latest, at the expiry of the third year of the lease.
   4. If Quicknet did not exercise its option to buy, a further amount of $10,000 was to be paid immediately by Quicknet and the net rent was to increase to $40,000 for the second year and $45,000 for the third year, with a further option to renew the lease for three years.
4. On 2 May 1997, Quicknet accepted the proposal (1997 Agreement) and requested Highpoint to arrange for lease documents to be sent to their lawyers.
5. On 30 May 1997, Highpoint’s solicitors sent the lease documents to Quicknet’s solicitors for execution.
6. Highpoint permitted Quicknet to enter into possession of the premises in June 1997 in the expectation that the lease would be executed without unreasonable delay.
7. On 19 June 1998, Beechdeen Pty Ltd, a company related to Quicknet, sent a letter advising ‘that we will be taking up the purchase option for Quicknet as agreed with the lease to be $20,000 per annum’.
8. Soon after, Highpoint and Quicknet had a discussion in which Quicknet advised that, when the other director returned from Sydney in the next month, the lease documents would be signed.
9. Also, Quicknet requested that a monthly invoice for July rent be sent pending the return of the other director.
10. Justice Helman held that this conversation did not constitute an oral variation of the 1997 Agreement.
11. Highpoint continued to issue monthly invoices for rent of $1,666.67, based on rental of $20,000 per year.
12. Quicknet continued to pay rent at the lower rate based on rental of $20,000 per year.
13. Highpoint and their solicitors made repeated demands over the years for the lease to be executed, but the lease was not executed and returned to Highpoint until August 1999, after the 1997 Agreement had been terminated.
14. Highpoint and their solicitors made numerous requests for an executed contract of sale, but no contract came until 6 September 1999, after Highpoint had terminated the 1997 Agreement.
15. On 6 August 1999, Highpoint sent two letters to Quicknet. In the first letter, Highpoint served a notice to remedy breach of covenant, requiring Quicknet to execute a lease pursuant to the 1997 Agreement within 14 days, failing which the lease would be terminated.
16. In the second letter, Highpoint provided a contract of sale to be executed by Quicknet within 14 days, advising that time was of the essence. If the documents were not received within 14 days, then Highpoint would consider such failure as evincing an intention by Quicknet no longer to be bound by the 1997 Agreement.
17. On 25 August 1999, Highpoint sent two letters advising that, as no response had been received to the 6 August letters, that Highpoint elected to terminate the lease and terminate the 1997 Agreement.
18. Subsequently, on 26 August 1999, Quicknet executed the lease and returned it to Highpoint and advised that, once the lease had been signed and stamped, they would enter into a contract of sale.
19. On 3 September 1999, Highpoint’s solicitors advised that Highpoint maintained its position that the lease was terminated and there was no contract for sale of the premises.
20. On 6 September 1999, Quicknet’s solicitors sent an executed contract of sale of the premises and requested Highpoint to execute the contract and return it.
21. On 9 September 1999, Highpoint’s solicitors confirmed that the 1997 Agreement had terminated.
22. Despite demands, Quicknet remained in possession of the premises.
23. At trial, Highpoint argued that it had validly terminated the 1997 Agreement and that it was not bound by any contract to sell the premises. Highpoint also claimed that it was entitled to possession of the premises and $55,000 outstanding rent, being the rental that should have been paid at the higher rate on the basis that Quicknet did not validly exercise the option to purchase the premises.
24. Quicknet argued that it had validly exercised its option to purchase the premises and it sought specific performance.

The decision

1. Highpoint was successful. The Supreme Court ordered that Highpoint was entitled to possession of the premises and to payment of $55,000, being the underpayment of rent. Further, the Court held that Highpoint was entitled to mesne profits for the period from 1 July 2000 to the date of judgment, being the profits lost from the expiry of the lease whilst Quicknet wrongly occupied the premises. The Court also held that Quicknet was not entitled to specific performance of the 1997 Agreement.
2. The Court held that the 1997 Agreement did not constitute the lease of the premises because, as a matter of construction, the 1997 Agreement contained the proposal which required Quicknet to ‘enter into a lease’. This construction was confirmed because Quicknet, when accepting the proposal contained in the 1997 Agreement, expressly asked for Highpoint to ‘arrange for lease to be sent to their solicitors’. Further, the subsequent dealings of the parties were consistent with the lease documents needing to be prepared and executed.
3. The Court held that, even if there was a lease, Quicknet could not rely on that lease to resist Highpoint’s claim to possession because the term of the lease would have expired on 30 June 2000.
4. Further, the 1997 Agreement required the parties to cooperate to ensure that a lease was executed within a reasonable time of the agreement. In this regard, the Court relied upon Electronic Industries Limited v David Jones Ltd (1954) 91 CLR 288 and Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623. The Court found that Quicknet’s failure to cooperate justified the conclusion that Quicknet had repudiated the 1997 Agreement and Highpoint accepted that repudiation by terminating the agreement on 25 August 1999.
5. Quicknet submitted that it was not obliged to execute the lease because the lease was not in accordance with the terms of the 1997 Agreement. Even though the Court accepted that there were discrepancies between the lease and the 1997 Agreement, the Court held that such discrepancies did not relieve Quicknet of its obligation to cooperate with Highpoint.
6. In addition, the purported exercise of the option to purchase was ineffective because the option was exercised by Beechdeen Pty Ltd. The 1997 Agreement required the option to be exercised by Quicknet and thus, the purported exercise did not comply with the 1997 Agreement (Duncan Properties Pty Ltd v Hunter [1991] Qd R 101).
7. Accordingly, there was no contract of sale of the premises.

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