Subleases and Privity of Contract and Estate
Discuss about the Property Law & Real Estate Construction Law.
Issue
There are two issues in this question. The first one regards Transfers and the privity contract, and the privity of the estate. In particular, the transfer of interests in sublease, and the legal position of both the original Landlord, the tenant, and the sublease. The second issue regards whether a party can withdraw its obligation to perform as per the covenant when if the other party has not provided satisfactory performance.
Rule of Law
A tenant may transfer his property interest to a third party; i.e. a new tenant, unless the lease agreement forbids it. The tenant can transfer his interest in two ways either the entire interests or temporary. The transfer of the interest temporarily is considered a sublease while the transfer of the entire interest is called the assignment.[1] Both of these transfers change the legal relationship between the landlord and the tenant. This paper would be centered on the issue of the sublease. For the sake of avoiding confusion, this paper will refer to the landlord as the “lessor,” the tenant “sublessor,” and the new tenant as the “sublessee.”
Since the lease agreement is a contract, there is a contractual relationship known as privity of contract. And since there are property interests, there is a property relationship called the privity of the estate. They two types of privities exist whenever there are two parties dealing with each other directly in matters of lease and estates.[2] A lessor and sublessor have privity of the estate since their interests are successive. The lessor has the leasehold interest which is followed by the landlord’s reversion. In a sublease, only the lessor and the sublessor have the privity of the estate because their interests are successive. Under privity of contract, the parties can sue one another for all of the covenants in the lease. Under privity of estate, the parties can only sue one another for the covenants in the original lease. Some examples of covenants in the original lease are the rents, taxes, repairs, etc. In a sublease, the lessor and the sublessee are not in privity of contract and not in privity of the estate since they have no direct relationship.[3] These parties cannot sue each other. Only subleasor and the sublessee are in privity of contract and in privity of estate, and so they can sue each other.[4]
Tenant’s Obligation to Pay Rent
On the second issue, the tenant’s obligation to pay rent or other obligations do not depend on the landlord’s satisfactory performance. The Government of Western Australia states that the tenants must continue paying the rent as they wait for the landlord to do the repairs.[5] On the same, the NSW Fair Trading states even when the repairs are not done, a tenant should never stop paying their rent for whatever reason.[6] The failure to pay rent or its withdrawal puts the tenant in breach and the owner has the right to terminate the tenancy.[7]
In the case of Amsprop Trading Ltd v Harris, the court rejected the plaintiff claim that it could sue the defendant even though the claimant was not a party to the sublease agreement. The court held that persons who are not parties to the covenant could not benefit from it. In this case, the court was considering whether someone (original) who was a third party in regard to the subtenant and the original tenant could derive their benefits by bringing the fact that the tenancy covenant is made for the purpose of the owner’s benefit (reversion).
The same reasoning has also been applied recently in the decision of In 2129152 Ontario Inc v Pliamm.[8] In this case, the lessor leased the commercial space to a lessee who then subleased to sublessors. After some time of the trade, the sublessees left the premises before the expiry of their sublease terms. The lessor then brought an action that the sublessees had some rent arrears. The Court refused to allow the Landlord to claim the arrears stating that he never had such rights. The cases match Jane’s case and there is no way would the court allow Rogers Rentals to recover any money from Sim as there is no privity of contract and no privity of estate. Rogers Rentals can only recover its rent by following it up with Jane.
The law prohibits the tenant from withholding rent. One of the recent decision in this nature was ruled in the case of Cakirgoz v Crouch.[9] In this case, the NSW Supreme Court affirmed that landlord’s breach to undertake its obligations did not allow the tenant to take the action of withholding the breach. Therefore, the tenant was in breach, and the fact that the landlord is supposed to pay damages for failure to respond to the tenant’s notice does not still allow the tenant to withhold the rent. On application, Jane is under no obligation to withhold any part of the rent while waiting for the Rogers Rental to repair the heat lamp.
Recent Court Cases Related to Subleasing
Conclusion: Should MPP pursue Jane or Sim for the $750?
They can only pursue Jane.
Reason. A claim to pursue Sim would fail as there is no privity of contract and and no privity of the estate. They should pursue Jane as there is the privity of contract and privity of estate. Jane has privity of the estate because she is the one in contractual relations with the Rogers as the agents of the landlord. She also has the privity of the estate because both Jane and the Landlord have successive interests. This means that they are liable to each other for the original leases’ covenants which run with the land. Jane can then recover her money from Sim as they have both the privity of contract and privity of estate.
Issue
A determination whether Sam’s representations were intentional or just a sales “puff” remedies might be available ultimately to Kohn against Sam?
Rule of Law
A trader’s puff are gimmick statements used just for the advertisement. These statements are so unreliable since they are so vague.[10] For example, a trader can say that a car “understands the driver.” In law, puffs are not regarded as misleading.[11] On the other hand, a representation is a statement made in the course of the negotiations which is not a term but can convert to a term based on the other party’s reliance and the intention of the party giving the statement.[12] Any untrue representation that misleads the other party is called a misrepresentation.[13] The section 18 of the Australian Consumer Law prohibits any action that is meant to mislead or deceive a party in a contract.[14] An untrue mere representation has remedies for misrepresentation.
The court will use four factors to determine whether the statement will amount to a term or a representation. Where a statement had a major role for the other party to determine whether to enter into an agreement or not, the statement will become a term.[15] Where the interval between when the statement was given and when the actual contract took place is long, the statement remains as a representation, else becomes a term.[16] Where the given statement is oral and the contract is written, the statement is usually a representation.[17] And where the party providing the statement has more knowledge that the other party that relies on the statement to make a decision, the statement becomes a term.
Pufferies are exaggerated statements that are provided during the normal course of dealing while selling products or services. In the Australian Consumer Law, the law grants people in business the permission to sell their products or services making impressive claims to invite consumers. Since the ruling of Carlill v Carbolic Smoke Ball Company, the courts have more often applied the rules against using misleading statements asserting that they are pufferies.[18] In this case, the defendant had invented a device that it claimed was functional in preventing influenza. The defendant had also conducted advertisements stating that whoever catches the flue having used the device would be rewarded with £100. However, the claimant bought the device but still contacted influenza even after following the required procedure. The defendant sought to rely on the defense that the promise for a reward of £100 was just a puffery but the court denied the claim.
Difference Between Sales Puffs and Representations
Australian courts have applied the law relating to pufferies extensively. The ruling of in Australia was the case of Stuart Alexander & Co (Interstate) Pty Ltd v Blenders Pty Ltd is one of the cases where puffery was found to be misleading.[19] The court stated that a robust approach would be needed in the situations where the court has to determine whether statements provided in the televisions are deceptive, misleading or false as the public is already accustomed to using of puffery in products advertising. In this case, the respondent had used a television advertisement comparing its coffee product with another coffee brands which the court found misleading. The court stated that the comparison was too fine to look true to a reasonable person. One point put in this law is that where a person giving the statements of comparison between one aspect and another, such statements are likely going to be held representations but not pufferies.
Another ruling in this nature was entered for the Everyday Australia Pty Ltd v Gillette Australia Pty Ltd where the court held that a statement provided that the batteries could last up four times longer was more of a misleading that a puff.[20] The court stated that the words in the advertisement were deceptive and misleading to make their appearance to reasonable television viewers who are invited to rely on that information.
These same rules have been applied extensively in the Australian real estate businesses. Courts have also maintained the same stance that if the fascinating or flamboyant statements would be used to explain the quality of the real estate and houses, such will become representations if they will be statements of actualities, untrue, deceptive and misleading. For instance, in Collier Constructions Pty Ltd v Foskett Pty Ltd, the issue arose for the determination whether a statement from the builder [“If you don’t get Collier to build your home you won’t be getting the best deal.”] was a puffery or a representation.[21] As this statement was common in the building industry, the court found that the term was in line with the Australian consumer law. The key facts here is that the statement provided by the builder was just a statement used by builders and was recognized as a hyperbole in trade. Another comparison between a puffery and a representation was held in the case of Byers v Dorotea Pty Ltd.[22] The statement under question was provided by the agent stating that one apartment was bigger and better when compared with another. The court viewed that the agent was influencing that the other apartment was of better in aspects of quality than the other present one.
A similar reasoning where a tenant was induced was ruled in Prosperity Group International Pty Ltd v Queensland Communications Company Pty Ltd.[23] The court found that there was indeed a statement which encouraged the applicant to make a rental agreement with the respondent, and this statement was more of a representation than a puffery. Before the entrance to the agreement, the Respondents had told the Applicants that payments for the provided services were not going to exceed $6,000 per month irrespective of the number of calls they made. Since the applicant relied on this statement to enter into the agreement, the court found that the statement could not be a puffery.
On analysis of the case between Sam and Kohn, the court will have to examine the whole context of the agreement. The first question goes to what Sam said to Kohn, whether he intended Kohn to rely on it, and whether Kohn did rely on it in fact. By analyzing any instances of comparison, north or south can be matters of quality and preference. These fact makes the Sam and Kohn case similar to the cases of Stuart Alexander & Co (Interstate) Pty Ltd v Blenders Pty Ltd; and Everyday Australia Pty Ltd v Gillette Australia Pty Ltd; Byers v Dorotea Pty Ltd.[24]
Therefore, if Kohn informed Sam that it was a requirement that the apartment should be facing north, the importance of this statement will make it a term. For example, in the case of Carlill v Carbolic, the reliance on the device to prevent the flu, and the assurance of the money, these made the statement a representation.[25] Similarly, in Prosperity Group Int v Queensland Communication, the assurance that payments would not go beyond $6000 was presentation since it induced reliance.[26] On the part of Kohn, the statement that the apartment was facing north, and assurance of returning the keys if the utterances were untrue amounts to representation.
Secondly, the court will look for the instances of comparison. The case of sam and Kohn is also comparing an aspect of a house facing north or south. After finding that there is a comparison, the next point would be finding whether the comparison is true which was also the step taken by the judges in the mentioned case above, where the comparison was not true, the representation would be false. The judges ruling on the mentioned cases were viewing them in the context of the viewers who would be viewing them on the television. Similarly, this context is the same to Kohn as the presentation is made on a media, while the reality is examined in a real context. Therefore, since the apartments were not facing north, the statements were misleading and deceptive.
Conclusion
As there was a promise that the apartment was facing north and the assurance that assurance that Kohn could return the apartment keys and discontinue the sale if this was false, Kohn would be allowed the remedies for the rescission.
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Byers v Dorotea Pty Ltd (1986) 69 ALR
Cakirgoz v Crouch [2008] NSWSC 1124
Carlill v Carbolic Smoke Ball Co Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1
Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 19 IPR
Energizer Australia Pty Limited v Gillette Australia Pty Limited (2001) 1887 FCA
Prosperity Group International Pty Ltd v Queensland Communication Company Pty Ltd (2011) 1122 FCA
Stuart Alexander & Co (Interstate) Pty Ltd v Blenders Pty Ltd (1981) 37 ALR
Trade Practices Amendment (Australian Consumer Law) Act 2010 18
Australian Competition and ConsumerCommission, False or Misleading Statements (11 September 2012) Australian Competition and Consumer Commission <https://www.accc.gov.au/business/advertising-promoting-your-business/false-or-misleading-statements>
Government of Western Australia, Rental Home Maintenance and Repairs (12 February 2014) Department of Mines, Industry Regulation and Safety Western Australia <https://www.commerce.wa.gov.au/consumer-protection/rental-home-maintenance-and-repairs>
2129152 Ontario Inc v Pliamm [2018] ONCA 338
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