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Leases between Related Parties – Recent case reinforcing the need to have a formal lease in place – Landlord & Tenant – Leases



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Olde English Tiles Australia Pty Ltd v Transport for New
South Wales [2022] NSWCA 108
1

Introduction

This recent case is a reminder for parties in lease arrangements
to ensure that they have a formal lease in place documenting the
arrangement.

Common related party arrangements that include leases are:

  • A self-managed super fund leasing a commercial property to the
    beneficiary’s business

  • A trust or trustee leasing to the beneficiary or the
    beneficiary’s business

  • A company leasing land from the company directors and/or
    shareholders

  • Leases between family members

Because the parties are related, these lease arrangements may
survive for many years on an expired lease or without any
formalised lease at all. But while the lease arrangement can
survive without a formal lease, often regulation will require
formal lease documentation.

The case details

The recent case (Olde English TilesAustralia Pty Ltd v
Transport for New South Wales [2022] NSWCA 108
)
2 about a family business on Parramatta Road at
Annandale reinforces the need to always have formal lease
documentation in place, even if the parties are related.

In the case, the land was owned by the sole directors and
shareholders of a company operating a tile shop. Although the same
people that owned the land also owned and controlled the company,
the company is a separate legal identity.

The land was compulsorily acquired by the NSW Government and the
owners were awarded compensation for the land. The company was
initially also awarded about one million dollars for business
relocation costs.

However, as a result of appeals to the NSW Supreme Court, the
business relocation costs have been taken away because the company
did not hold any ‘interest’ in the land. The business
occupied the land under a bare licence which was terminable at will
by either party and could not be transferred to another entity. As
a result, the NSW Government was not obliged to provide
compensation to the company for its business relocation costs. The
decision affirmed previous caselaw that found that any relationship
between the owner and occupier of the land (such as being the
directors and shareholders of the company) is irrelevant for the
purposes of determining compensation for compulsory acquisitions.
If there had been a lease in place establishing the company’s
interest in the land at market value, then the result may have been
different.

The owners have indicated that they will appeal this case to the
High Court.

What you can do

The case highlights important considerations for those involved
in any common related party arrangements. The requirements for each
situation will be different, however usually, a formal lease at a
market rent will need to be drafted, signed by both parties and
registered. Carroll & O’Dea Lawyers are able to assist with
formalising lease arrangements between related parties. You should
contact us today to discuss your leasing arrangements, particularly
if this article has raised issues for you.

Footnote

1-2
https://www.caselaw.nsw.gov.au/decision/181a2936464cc853f511f15b

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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