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Unregistered Lease interest and the sale of a property

When an owner sells a property that is subject to existing tenancies, it is always preferable to have the relevant leases to the tenants registered on title. This ensures that the lease automatically, by virtue of the Real Property Act (NSW)transfers to the purchaser on settlement and the tenant’s leasehold interest is preserved in the subject property.

However, it is not uncommon for a lease not to be registered on title. Usually, this arises in circumstances when the term of the lease (and any option to renew) does not exceed three (3) years.

If a lease is not registered on title of the property, is it enforceable by the tenant against the purchaser of the property?

According to Scudooda Pty Ltd v K & E Property Pty Ltd [2018] NSWSC 1397, if the Contract for the Sale of Land contains for the appropriate provisions and notifies the purchaser of the leasehold interest held by the tenant, the purchaser will be found to be on notice of the tenant’s equitable interest in the land and be “bound by the equitable interest…”

Darke J came to this conclusion on the basis that “the [purchaser] agreed with the former owners that it would acquire its title subject to the existing tenancies… recognition of the continued enforceability of the [tenant’s] rights was one of the assumptions underlying the agreement by which the [purchaser] was able to obtain its title.

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