The State and its agencies own and manage vast
tracts of land in Victoria, much of which offers potential economic or other
benefits to the private sector. For
example, the State often makes land and buildings available to a business
operator for the purposes of running its business or a community group so it
can hold meetings, workshops and/or
training sessions. Alternatively, the
State may wish to make land available for use by the private sector in the
furtherance of particular significant policy objectives.
Preliminary considerations
Before deciding on the nature of the tenure which
your department or agency should grant over a piece of land, it is important to
step back and ask a few questions. For example, you should consider:
·
Who wants to occupy the land and for what
purpose?
·
Does the Government want to make the land
available to achieve a particular policy objective?
·
Does achieving that purpose require exclusive
possession or is a lesser form of tenure sufficient?
·
Does the future tenant need to put up the tenure
as security for raising capital so they can finance the project?
·
Will the department or agency or third parties
need to access the land while it is occupied?
The answers to these questions will assist with
determining which form of tenure you should offer to the prospective occupant
and the terms and conditions of that tenure.
When is a lease appropriate?
A lease is an agreement between an owner of land
and a tenant which grants a right of exclusive possession to the tenant. This means the tenant can exclude the whole
world, including the landlord, from accessing the land for the term of the
lease as long as the tenant complies with its obligations under the lease
agreement. Even if a tenant breaches a
condition of the lease and risks 'forfeiting' the lease, a leasehold tenant can
apply to the Court for the equitable remedy of relief against forfeiture. If the tenant is successful, the Court will
permit the tenant to remain on the land, subject to prompt rectification of the
existing breaches and compliance with other conditions.
The rights under a lease will attach to the leased
land - if the tenant assigns the lease to a third party, for example if the
tenant sells its business, the third party will also enjoy the same right of
exclusive possession of the leased premises.
Another aspect of a lease is that it is capable of
being registered on the title to the land.
Registration of the lease also enables registration of any mortgage
granted over the leasehold interest. So
if a tenant has granted a mortgage to a bank as security for money borrowed
against the lease and the tenant defaults in its mortgage repayments, the bank
will be able to access the important statutory powers applicable to a mortgagee
in Part IV of the Transfer of Land Act
1958. These include a mortgagee's
power of sale, the power to take possession of the land and a right to seek an
order for foreclosure. As a result,
banks may be more willing to provide finance to a tenant with a registered
leasehold interest.
These aspects may make a lease an attractive option
to someone who wants to operate a business from the premises and needs to raise
investment capital for its start up and who also wants the flexibility of later
transferring the leasehold interest, along with the business, to a third party.
Of course, a downside for a tenant is that a higher
commercial value is likely to attach to the lease consistently with the
powerful bundle of rights held by a leasehold tenant.
When might you grant a licence?
Like a lease, a licence grants a right to a party
to access and occupy land subject to the terms of the licence.
Unlike a lease, the occupant under a licence does
not have the right to exclusive possession of the licensed premises - in other
words they may have to share occupation with the licensor and third parties or
may only be able to use the licensed area at certain times or days.
Another key difference of a licence to a lease is
that the rights of a licensee are not assignable to a third party (unless the
agreement specifically permits this).
Additionally, a licence interest cannot be registered on title.
Therefore, a licence is likely to be suitable where
an occupant needs specific rights to an area of land, water or airspace, but it
is not necessary or appropriate for the occupant to have the right to exclude
the rest of the world from the premises. Examples of where licences are commonly used in
Government include granting a right to a telecommunications company to install
a mobile telecommunications tower on State owned land and allowing community
groups to use school buildings and facilities.
As property law experts within Government, the VGSO
Property Team is well placed to assist you with land use arrangements and other
property issues. Please contact:
