Beware the Lonesome Lodger

Snapshot

• The old adage that ‘possession is 9/10ths of the law’ is borne out by some recent cases of lodgers refusing to budge.
• The owner can apply to NCAT for an order for termination of a ‘residential tenancy agreement’, which may be met with a life tenancy claim and lodgement of a caveat on title.
• Otherwise, or following that, application must be made to the Equity Division of the Supreme Court for a declaration of the termination of some form of life (or lesser) interest and a writ of posession.

There have been a number of recent decisions about people who come upon hard times, a friend or relative gives them shelter to help them out and then, after a while, when they should be back on their feet… they just won’t leave. What is the homeowner to do? This article examines some key hurdles you might encounter in such a case.

The typical scenario

Your client is the registered proprietor of a residential property. They have a loved one who fell on hard times years ago and they offered them a roof over their head to help them work through their problems. There was nothing in writing and very little said about when or how the arrangement would come to an end. No substantial lump sum payment was ever made, just some contributions to outgoings and domestic chores in return.

Eventually, your client wants them out, but they refuse to go. In these circumstances, labels abound: a life estate, life interest, right of residence for life, equitable lease, granny flat arrangement, residential tenancy agreement, or a mere licence among others. Let us use the legally neutral description of a ‘right of residence’ of an ‘occupant’ who resides in, but is not on title to, the property, and is resisting the owner’s efforts to have them move on.

The elder law scenario

Apart from feeling exploited, why might this become pressing for the owner? Perhaps he or she has lost capacity, has to move into residential aged care and an enduring power of attorney or financial manager needs to sell the house in order to pay the refundable accommodation deposit. Perhaps two years has elapsed since moving into care and the exemption of the market value of the home from the age pension assets test is about to expire. Perhaps the owner has died and the exemption of the home from capital gains tax is soon to lapse, or the executor just needs to get on with administering the estate.

DIY measures

Your client’s repeated and decreasingly polite requests of the occupant to leave continue to fall on deaf ears. As instructed, you send some stern correspondence which goes unanswered. Such was the case in Pluteus (No.81) Pty Ltd v O’Neil [2019] NSWSC 923 where a worker and his family had resided on land rent-free since 1997 as part of his employment contract. The employer owner allowed this to continue after the worker suffered a serious injury in 2004 and died in 2018. Subsequent correspondence with the widow was unfruitful.

To escalate the matter, you draft a letter using the language of statutory trespass by invoking ss 4 and 6 of the Inclosed Lands Protection Act 1901 (NSW). This states that the occupant is required to leave for want of lawful authority to remain because the owner has formally withdrawn consent. Still no response.

NSW Civil and Administrative Tribunal

Your client is now willing to take the matter to a court or tribunal, and this is where you come to a jurisdictional fork in the road. NSW Civil and Administrative Tribunal (‘NCAT’) is a creature of statute and, though it is empowered to make orders that are very much like an equitable remedy, it has no equitable jurisdiction. You are going to have to find a statutory hook to hang your remedial hat on, but this will not be difficult.

Residential tenancy agreement

These arrangements can nearly always be characterised as a ‘residential tenancy agreement’ (‘RTA’) under the Residential Tenancies Act 2010 (NSW) (‘RT Act’). At its core, is a prescribed RTA in writing, but its regulatory radius extends to any arrangement, written or oral, ‘under which one person grants to another person for value, a right of occupation of residential premises for the purpose of use as a residence’, whether exclusively or not (s 13). Note that ‘for value’ may fall well short of ‘market value rent’. Payment of rates or carrying out occasional maintenance may suffice.

Once that hurdle is cleared the jurisdiction of any court is ousted and application for recovery of possession can only be made to NCAT in its Consumer and Commercial Division, under Schedule 4 of the Civil and Administrative Tribunal Act 2013 (NSW) (s 119). This does not seem so bad to your client as NCAT is famously expeditious and inexpensive compared to its curial cousins. Where a fixed term of residence applied and this has expired, s 18 of the RT Act helpfully deems this to have become a periodic tenancy. In such a case, you discuss with your client the preconditions to lodging an online application given the following likely candidates:

• serve a 90 day notice of termination of a periodic tenancy under s 85 of the RT Act;
• serve a 30 day notice of termination on exchange of con- tracts for sale of the land, if applicable, under s 86;
• apply directly for an order for termination of the periodic tenancy in the case of continuous occupation for 20 years or more, under s 94; and
• in each case, prepare to apply for a writ of possession under s 121 if

On the other hand, if the term is still current, then your client is going to have to find a breach of the RTA, or similar, under ss 87–92, or plead hardship under s 93, sufficient to warrant early termination of the RTA. Unfortunately, your client cannot point to any such problem other than the occupant’s refusal to leave.

Life tenancy + caveat

You follow through with a 90 day notice under s 85 and this prompts the occupant to seek legal advice. Annoyingly, the occupant retorts that the arrangement constitutes a ‘life tenancy’, ousting the jurisdiction of NCAT under s 8(1)(d) and clause 19 of the RT Regulation 2010. Worse still, your client is served with a caveat lodged on the title to the property under s 74F of the Real Property Act 1900 (‘RP Act’) claiming an ‘equitable life estate’. This is what faced the 90 year old owner in Stamp v Whall [2018] NSWSC 1811, on the eve of her public auction when her tenant resiled from certain undertakings made in NCAT proceedings that he would vacate before then.

Equity Division of the Supreme Court

Not to worry – you have succeeded in ‘flushing out’ the occupant’s position as being other than an RTA so you can lodge a lapsing notice under s 74J of the RP Act. On both fronts, that may bring the matter before the Equity Division of the Supreme Court. The prospect of incurring substantial legal costs, and the need for hours of preparation of affidavit and other evidence may encourage the occupant to vacate before it comes to that.

The caveat will lapse unless the occupant obtains a Court order extending its operation within 21 days and lodges this with Land Registry Services. If the occupant seeks and fails to get the order, he or she may be liable for any consequential losses and costs. Your notice sees the caveat lapse but not the depar- ture of the occupant.

You tell your client that the equitable right asserted in the caveat means the occupant can be characterised as a co-owner of an equitable interest in the property with you as the legal owner (Shah v Sanjiv [2014] NSWSC 1535 at [13]-[14]). Your client can apply under ss 66F(1) and 66G of the Conveyancing Act 1919 (NSW) for the appointment of trustees for sale and apportionment of the net sale proceeds as the Court deems fit under s 66G(6). This will be suitable if your client wants to sell the land. A writ of possession can be part of the orders sought by statement of claim pleaded in accordance with rule 14.15 of the Uniform Civil Procedure Rules 2005, and granted once the trustees are registered as proprietors (Angius v Salier [2017] NSWSC 198 at [9]).

Proprietary estoppel

In Sarkellis v Vourlos [2019] NSWSC 1063, the occupant was the widower of the owner’s niece who was terminally ill and living in poor conditions when free accommodation was first offered. He later asserted that the owner said ‘this is your house’, that he reasonably relied on this as being a right of residence for life and consequently acted to his detriment by giving up his public housing with subsidised rent. The Court held the representations were far too vague to warrant the sort of right he asserted. After repeated further largesse extended by the owner well after the death of the niece, and recurrent procrastinatory conduct on the part of the occupant, a writ of possession was granted with immediate effect. Fortunately for your client, any representations were similarly vague.

Haggling

Your client’s occupant alleges that the property is held on trust for his or her life. In Thompson (as Trustee for Webster Estate)  v Broom [2019] NSWSC 623, the will of the deceased clearly provided for a right of residence for the life of a beneficiary but the executors wished to sell the property. The Court noted that valuation evidence suggested the property would fetch $780,000 with vacant possession and around $400,000 subject to the right of residence. The executor was permitted to sell it by private treaty or to the life tenant for $400,000.

This can be a powerful bargaining tool for the occupant. Although your client’s circumstances do not involve a well drafted right of residence under a will, adopting a commercial approach may be sensible to induce the lodger to leave, such as offering to cover the costs of moving and the bond to be paid on new rented premises. It is a bitter pill to swallow, but your client follows this advice and it works with some extra dollars paid – part now and part upon giving vacant possession.

Conclusion

A lodger being in occupation for a long time under a concessional arrangement with very little in writing and scant recollection of relevant conversations and conduct may make it unexpectedly difficult and costly for an owner on the title to recover possession.

Feature Article Law Society Journal written by Richard McCullagh Legal Director at Patrick McHugh & Co

https://lawsociety.cld.bz/LSJ-November-2019/88/