Property Law

What is the difference between a Lease v. A Licence to Occupy?

Lease v. Licence to Occupy

Commercial Distinctions

A lease is quite often a significant obligation on the part of businesses. It is both a financial commitment, and a time commitment.

Traditionally, the majority of the time, a business would look for security of tenure, and a landlord for a long-term tenant.

The lease was an appropriate arrangement suiting the needs of both parties equally.

However, an insistence on occupancy by way of a lease on the part of landlord prevents businesses from engaging in more experimental ventures.

With smaller or newer businesses particularly, risks cannot be taken with their business model when they have rent to pay for the coming fortnight; and so rental obligations may push them into a certain conservatism with their business, a reluctance to try different things and be different, for fear of insolvency.

Such risks are often mitigated with a Licence to Occupy affords an occupant many of the same rights as a lessee or tenant under a Lease, though usually for the short-term.

There are other legal distinctions between a lease and a licence, a summary of which can be found below, though the primary difference of interest in a commercial sense is the greater scope of risk-taking a business may undertake with a licence to occupy.

Legal Distinctions

Summary of the Legal Distinctions between a Licence to Occupy v. Leases

For a more detailed discussion of the commercial and legal differences between these two types of property law agreements please refer to our blog article “Licences to Occupy - A viable Alternative to Leases?" by Suk Jae Chung | Virtual Intern at Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.

Is a Licence to Occupy a "Lease" for the purposes of AASB 16 Leases? Can it stay off-balance sheet?

The answer to this FAQ will ultimately be a question for your Accountant

Before you brainstorm the bricks n' mortar portion of your business plan, we strongly recommend you read + consider this FAQ to learn how adopting a more nimble business model which includes the use of a short-term Licence to Occupy (might be used to provide your business with a strategic advantage).

Other business benefits could also accrue, such as the opportunity to combine multiple + adaptive physical store presence with online eCommerce sales.

Why is this important?

If an agreement does not meet the definition of a "Lease" under AASB 16 Leases, then it is not accounted for on-balance sheet.

Why is this especially important for Commercial + Retail Property tenants?

The following observations have been extracted (emphasis added) from the PWC report entitled: Why the new standard matters to the Retail and consumer industry

The retail industry is likely to be one of the most affected by the new standard, given the significant use of rented premises for their stores. The PwC Global Lease Capitalisation study indicated that there would be a median debt increase of 98% for retailers, and 41% median increase in EBITDA.
Most of such leases are in the form of medium term leases (generally 3-5/9 years),whether in premium locations (flagship stores), shopping centres or ordinary outlets …
Historically such leases have been considered as operating leases, and have not therefore had any impact on the balance sheet.
The amount recorded in the income statement was typically on a straight line basis and entirely included in operating expenses. The new lease standard will not only have an impact on the balance sheet, but also on the operating costs, with a split of the expense between operating and finance costs.
The exemption for short-term leases and small assets is unlikely to provide any significant relief to retailers.

A Licence to Occupy is prima facie caught by the definition of "Lease" under AASB 16?

Under AASB 16, a "Lease" is defined as an agreement, or part of an agreement, that conveys the right to control the use of an identified asset.

The definition does not refer to an agreement labelled as a Lease.

Agreements not labelled as a Lease may meet the definition of a lease under AASB 16; conversely, an agreement labelled as a Lease may not meet the accounting definition of a Lease.

In assessing whether an arrangement is, or contains, a Lease, 3 key assessments need to be made.
These are presented diagrammatically below …
Source: AASB 16 Leases - A Guide published by HLB Mann Judd

Where the lawyer's role becomes clear The exemption for short-term leases!

In the majority of cases, the use of a Licence to Occupy (typically being a short-term arrangement) will qualify for the short-term lease exemption, meaning that it represents an alternative method to circumvent the application of AASB 16 which means that such arrangements can potentially (subject to confirmation from your accountant!) remain off-balance sheet.

The use of a Licence to Occupy is therefore an increasingly important proactive strategic legal tool to consider when your business plans for the control or use of any property.

The technical details of the exemption

The following summary (in technical speak) has been extracted (emphasis added) from the KPMG article AASB 16 Check: Short-term and low value exemptions

The low value and short-term lease exemptions are available to lessees (tenants) only.
*A short-term lease is a lease that, at the commencement date, has a lease term of 12 months or less.
A lease that contains a purchase option is not a short-term lease.
The election for short-term leases shall be made by class of underlying asset to which the right of use relates [AASB 16: 8].
***The following lease expenses are not required to be disclosed:
Expenses relating to leases with a term of one month or less; and
Expenses relating to leases which are both low-value and short-term [AASB 16:53(c-d)].

Accounting Humour

I stumbled upon the following quote in conducting research for this FAQ and thought it worthy of further dissemination.

Extracted (emphasis added) from the article by David H. from the Queensland Audit Office: Do you have any ‘lease agreements’ that are not leases, or any hidden leases?

When discussing leases, it is useful to refer to the quote by Sir David Tweedie, the then Chairman of the International Accounting Standards Board (IASB) on April 25, 2008 when he said:
"One of my great ambitions before I die is to fly in an aircraft that is on an airline’s balance sheet."

Credits:

This FAQ was written by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.

Why you need to seriously consider Title Insurance for all your existing or newly acquired properties?

What is Title Insurance?

For an initial up-front fee (no annual premiums + no excess on claims) Title Insurance provides coverage for unknown risks which could impact your home, strata apartment, vacant land, rural-residential, +/or commercial property for the entire period of your ownership of the property.

Title Insurance can be purchased at anytime, before or after you acquire the property.

While Title Insurance is common in the United States, it's still a relatively new product to the Australian market.

Title Insurance also protects you from risks that may arise in the future, such as forgery +/or fraud, encroachments and unregistered easements on your property.

Who offers Title Insurance in Australia?

There are only two Title Insurance companies in Australia: First Title and Stewart Title Limited.

Note: Insurance premiums are subject to change at anytime, please contact us to organise accurate quotes.

The premiums provided below are provided as examples only in order to give an indication of the quantum involved in securing this kind of insurance coverage.

These amounts do not reflect nor are in anyway represented as current premium prices.

First Title

First Title quotes its policies from $225 (one-time fee) for strata properties and from $300 (one-time fee) for standard residential properties.

Stewart Title

Stewart Title quotes its premiums specific to the state or territory in which the property resides.

For example: NSW residential Title Insurance premiums start at $330 while premiums for strata titles start at $247.50.

The premium (including stamp duty and GST) for a $500,000 property is around $500, and for a $750,000 is around $625.

"What isn’t covered by Title Insurance?
Like all insurance policies, Title Insurance policies will contain a number of exclusions.
You will need to read these carefully and take legal advice about their meaning before deciding whether Title Insurance is for you.
It is especially important to understand that title insurance policies do NOT provide cover in respect of destruction of or damage to a building on your land – title insurance is not the same as, or a substitute for, home building or home contents insurance.
Common exclusions (i.e. things NOT covered) in the policies we have seen include:
❌ Dilapidation or pest infestation of buildings;
❌ Buildings that fail to comply with proper building standards e.g. the Building Code of Australia;
❌ Environmental contamination;
❌ Things that are known to you at the date your purchase of the land settles (for example, it is already contained in the contract of sale as a known issue)."

The above topic "What isn't covered by Title Insurance" was extracted from the Financial Rights Legal Centre - Insurance Law Service Factsheet regarding Title Insurance.

What does Title Insurance cover?

Title insurance covers different risks depending on the type of property being insured.

Existing Residential Homeowner:

✅ Illegal building work;

✅ Title defects and planning errors;

✅ Fraud and forgery; and

✅ Survey and boundary defects.

Residential Home Buyer:

✅ Title defects and planning errors;

✅ Illegal additions and building work;

✅ Outstanding council rates and water rates;

✅ Non-compliance with existing zoning and planning laws;

✅ Third-party claims on the land;

✅ Registration gaps;

✅ Fraud and forgery; and

✅ Survey and boundary defects.

Residential Strata Buyer:

✅ Unapproved alterations;

✅ Outstanding council rates and water rates;

✅ Registration gaps;

✅ Fraud and forgery;

✅ Title defects and planning errors; and

✅ Unmarketability of title due to existence of a covered title risk.

Vacant Land:

✅ Incorrect boundaries;

✅ Planning and zoning;

✅ Encroaching structures built on your land;

✅ Errors on property searches and enquiries;

✅ Adjustment of taxes and various land charges; and

✅ Fraud.

Rural-Residential Buyer:

✅ Unapproved building works;

✅ Incorrect boundaries;

✅ Encroaching structures built on your land;

✅ Errors on property searches and enquiries;

✅ Adjustment of taxes and various land charges; and

✅ Fraud.

Commercial Property Buyer:

✅ Unapproved building works;

✅ Encroaching structures built on your land;

✅ Taxes, charges and levies;

✅ Legal right of access; and

✅ Competing interest claims.

Credits:

This FAQ was written by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Disclosure: Blue Ocean Law Group℠ is an authorised representative of both First Title + Stewart Title.

We may be paid a commission as an affiliate to compensate for the work involved in obtaining quotes + preparing & submitting an application on your behalf as part of the conveyancing process or after acquisition if you were not offered Title Insurance by your lawyer/conveyancer at the time you purchased your property.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.

What legal rights do I have if my neighbour/s are creating a Nuisance?

Nuisance

"The essence of the tort of nuisance is interference with the enjoyment of land".
- RP Balkin; JLR Davis. “Law of Torts 5th Edition.”

When the word nuisance is brought up in colloquial use, we think first of some form of bother or annoyance coming from somewhere. The nuisance is to me, to my person; my neighbour practicing the saxophone at midnight, or the smell coming from a nearby stable, are nuisances, as the noise / smell is offensive to me.

But the way the law sees it, at least with regards to private nuisance, for any action for the tort of nuisance to be actionable (meaning: to have legal grounds for suit), the plaintiff must have an interest in land, first and foremost. A nuisance (according to the law) occurs when an annoyance or bother interferes with my enjoyment of my land, not merely when I have been annoyed or bothered without any connection to land.

In practical terms, this means that you must either own land, or have leased land to be able to sue for nuisance.

When you are repeatedly woken up by bad jazz coming from your neighbour's apartment downstairs, you have an action in nuisance, not simply because you've been disrupted in your sleep, but because in doing so, your neighbour has interfered with your right to enjoy your land as you see fit.

Types of Nuisance

Nuisance can fall into one of two categories:

1️⃣ Nuisance by unreasonable physical injury to land; or

2️⃣ Nuisance by unreasonable substantial interference with the right to enjoyment of land.

Physical Injury to Land

The first of the two categories is perhaps easier to identify, as it involves physical damage. Balkin and Davis, the authors of a distinguished book on torts, gives the examples of a neighbour setting up vibrations which cause your building to collapse, or the fumes from a nearby factory damaging plants and vegetables being grown by a plaintiff. The damage is plain to see, as it is to property, and it is equally plain to see why physical damage to property amounts to an interference with your enjoyment of your land.

Substantial Interference

If you cast your mind back to the example of the saxophonist neighbour, for all your lost sleep, there is no damage to your property which you could show before a court. The damage, in this example, is to your ability to make use of your land, to your right to use your land for rest. Fortunately, the law does recognise this as a form a nuisance, though the interference with your rights must be substantial.

This means that trivial interferences will not constitute nuisance, though what is trivial is a matter for the courts to decide. In general, substantial interference as determined by the courts, seems to have a lower bar than what we might consider substantial in an everyday sense. As per Andreae v Selfridge & Co Ltd [1937] 3 All ER 255, lost sleep through excessive noise is substantial, as can be other activities such as a neighbour's use of their land as premises for prostitution, or the installation of floodlights, which ends up bleeding light onto an adjacent piece of land (again examples cited in Balkin and Davis, “Law of Torts 5th Edition”).

Unreasonableness

Any nuisance must also be unreasonable, a concept which has not been given a clear definition by the courts.

The reasons as to why reasonableness is relevant to liability in nuisance does, however, give some guidance: my neighbour also has the right to make use of his or her land, including for the practice of musical instruments. Unfortunately, acoustics pays little heed to human subdivisions of space, no matter human attempts to erect walls with sound-proofing. The interference with my right to enjoyment of my land has started from my neighbour's land; he or she has not stepped foot in my apartment (which would make things a lot easier, being an act of trespass).

Reasonableness looks to balance the nature and circumstances of my neighbour's activity which has given rise to the nuisance, against the nature and circumstances in which I have suffered interference.

As noted above, we do not have a clear definition for what makes a nuisance reasonable or unreasonable, and so we don't have a definitive list of considerations, though we can look to certain things courts took into account in previous cases.

For example, residents who have moved into industrial areas have diminished prospects of success for nuisance from industrial by-products given that courts will look to locality; unfortunately, industrial production often involves by-products, and in areas designated for such use, it is not unreasonable for run off to affect neighbouring land, unless there was something unreasonable about the production process in the first place.

Another such consideration is the hypersensitivity of plaintiffs. An action in nuisance is unlikely to succeed where the plaintiff has suffered interference on account of particular sensitivity requiring exceptional freedom from interference. If my neighbour has consistently awoken me, for I am in fact awoken by any sort of noise, my claim may well fail.

Note, however, that once unreasonable substantial interference has been made out, in the process of calculating damages, the particular hypersensitivity of a plaintiff will not diminish the quantum of any damages. The defendant must find the plaintiff as they were in this regard. The Privy Council in McKinnon Industries Ltd v Walker [1951] 3 DLR 577 noted that the particular vulnerability of orchids to industrial fumes became irrelevant once it was proved that the damage to the orchids were the consequence of a non-trivial interference with land.

Credits:

This FAQ was written by Suk Jae Chung | Practical Legal Training (PLT) Placement, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.

What Steps are required to register Powers of Attorney (and Revocations) with NSW Land Registry Services

Q: Do I have to register my Power of Attorney?

A: No.

Registration is not essential, unless the proposed actions of the Attorney involve certain types of land +/or share transaction (see below).

It is highly recommended to register your Power of Attorney so that it is:

➲ On record as a public document;

➲ Safe from loss or destruction; and

➲ More easily accepted as evidence that your Attorney is allowed to deal with your legal + financial affairs.

Q: When must a Power of Attorney be registered in NSW?

A: A Power of Attorney must be registered for:

✅ Land transactions, except for a lease with a term less than 3 years including any option of renewal (s163 Conveyancing Act 1919);

✅ Land transactions involving Torrens Title land, except for a lease with a term less than 3 years including any option of renewal (s36(2) Real Property Act 1900); and

✅ Share transactions (Australian Stock Exchange practice).

Registering a Power of Attorney in NSW

To register a Power of Attorney, you must:

1️⃣  Lodge the Power of Attorney at NSW Land Registry Services, Level 30, 175 Liverpool Street, Sydney 2000; together with a

2️⃣  Completed Deeds Index Particulars form

Registering an Interstate Enduring Power of Attorney in NSW

An Enduring Power of Attorney made under the legislation of another State or Territory of Australia may be accepted for registration providing it is accompanied by a certificate from a Legal Practitioner (that is, a Lawyer) from that State or Territory stating:

➲ The Power of Attorney was made in accordance with the formal requirements of the law of that State or Territory; and

➲ He or she has been admitted, holds a practising certificate and practices in that State or Territory.

A Power of Attorney written in a foreign language must be accompanied by a translation and be verified by the interpreter.

Revocation of a Registered Power of Attorney in NSW

If the Power of Attorney is registered, although you are not legally required to do so, in an abundance of caution, we recommend you take the additional steps summarised below required to register the revocation.

If you wish to register this revocation, you must:

1️⃣  Lodge the revocation at NSW Land Registry Services, Level 30, 175 Liverpool Street, Sydney 2000; together with a

2️⃣  Completed Deeds Index Particulars form.

Notes for Completion of a Deeds Index Particulars Form

(A) Lodging Party - Must be completed.

(B) Instrument - Power of Attorney / Power of Attorney - Revocation of

(C) Locality - Not required.

Link Conveyance - Not required.

Principal Deed - The affected Power of Attorney if registered.

(D) Indexing - The Principal.

(E) Certification - Required.

NSW Land Registry Guideline Pages

Registration of a Power of Attorney [after 16.2.2004]

Revocation of a Power of Attorney

Credits:

This FAQ was written by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.