Key Practice Areas
Leases – To Register or Not to Register?
Tuesday, April 1, 2019
In dealing with leases I am regularly asked the question ‘Why do I need to register my lease?’
Whether or not you should register a lease depends on a number of factors and is dependent on the term of the lease and whether there is a mortgage over the property subject to the lease.
From a landlord’s perspective, having a lease registered is not that important (except in the case of selling a property with registered leases may add value to the property for investor buyers as such buyers may look for the leases to be registered on title). The person most likely to gain from having a lease registered is the tenant.
The Land Titles Act 1994 (The Act) provides that ‘an unregistered lease of a lot or part of a lot is not invalid merely because it is unregistered.’
If the term of the lease is for more than three years then the Property Law Act 1974 requires that the lease should be registered.
This is because registration provides the tenant with ‘indefeasible title’. Indefeasibility means that once a land title appears on the titles register it cannot be defeated by other proprietary claims contrary to the register. This simply means that if your lease is registered your right as tenant is recorded on the title and is protected in the event of a sale or transfer of the property.
The issue of registration of a lease was considered in the case of Friedman v Barrett. In that case a landlord sold the freehold to a buyer which was subject to an unregistered lease. The tenant subsequently sought to exercise his option to renew the lease on the buyer but the buyer claimed that he was not bound by the option to renew by virtue of the lease being unregistered.
The court found in favour of the buyer.
A short term lease (which is defined in the Act as a lease for a term of three years or less including any options to renew) need not be registered but may be registered. This is due to the statutory protection he Act provides to tenants for short term leases. It is important to note that a tenant will only receive statutory protection if the lease is for a term of no more than three years including options to renew.
Quite often commercial leases are for a term of three years with an option to renew for a further three years. In this case, the initial three years will receive statutory protection but the option period will not. In this example the lease should be registered.
Exceptions to the indefeasibility of title give adequate protection to short term leases where the tenant is in actual possession or entitled to immediate possession, so that a registered proprietor (the landlord) holds title subject to the unregistered tenancy.
As a tenant you want your lease to be validly recognised by third parties and by the landlord’s mortgagee.
Often the landlord will have a mortgage registered on the title that a tenant is leasing. Should the landlord default under its mortgage then the bank has the right to take possession of the property and may exercise its power of sale. If the bank has not consented to the lease it does not have to recognise the tenant’s right to occupy the property. However this does not apply to short term leases due to the statutory protection of the Act.
The cost to register a lease for the whole of a lot is minimal which as at the time of writing (15 February 2019) is $187.00. However in cases where a lease is for part of a building there must be a lease survey plan attached to the lease correctly identifying the leased area.
The Titles Office has strict requirements on how the lease survey plan is to be prepared and often a tenant will be responsible for the landlord’s costs in preparation of the survey plan. These costs can be expensive and should be negotiated at the time the lease is entered into. Furthermore, there will be costs for obtaining mortgagee consent which also needs to be factored into negotiations.
In summary, if you are a tenant then it is strongly recommended that you register your lease regardless of the term in order to obtain the best protection possible.
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