Yanchep Sun City Pty. Ltd. & Anor. v. Commissioner of State Taxation (W.A.).Judges:
Supreme Court of Western Australia
This is an appeal pursuant to sec. 33 of the Stamp Act 1921 by the parties to a lease dated 5 December 1983, against the disallowance by the respondent of an objection made pursuant to sec. 32 of the Act in respect of the respondent's assessment of the duty payable on the lease.
For the purposes of the appeal the relevant facts are agreed between the parties to be as follows:
- 1. The appellants entered into a written lease agreement dated 5 December 1983 (``the Lease'') whereby the appellant Yanchep Sun City Pty. Ltd. (``the lessor'') leased to the appellant Sun City Country Club Inc. (``the lessee''), for the term and at the rent and upon the other covenants and conditions set out in the Lease, a golf course, the particulars of which are set out in the Lease.
- 2. The Lease was filed in the Court with the Transmission of Objection and was marked ``A''.
- 3. The appellants submitted the Lease (and two counterparts) to the respondent for the purpose of assessing the stamp duty payable on same.
- 4. By assessment dated 29 February 1984 the respondent assessed the amount of duty payable on the Lease and its counterparts at $2,833.40 (being $2,829.40 on the original, and $6 [sic] for the two counterparts submitted). This assessment was calculated on a total consideration of $808,311 arrived at by the respondent adding to the total amount specified as rent in the Lease the sum of $218,968 being the total estimated amount of rates and taxes which under the terms of the Lease the lessee was liable to pay.
- 5. In accordance with the provisions of sec. 32 of the Stamp Act the appellants lodged with the respondent an objection to the respondent's assessment of stamp duty on the basis that the respondent was not entitled
ATC 4763to consider any moneys payable by the appellants as rates and taxes when assessing the stamp duty payable on the Lease.
- 6. By letter dated 10 May 1984 the respondent disallowed the appellants' objection.
The appellants object to the assessment of duty to the extent that it includes duty on the total of the estimated rates and taxes payable pursuant to para. 6.7 of the Lease. The respondent's notice to the appellants of the disallowance of the objection is in these terms:
Yanchep Sun City Pty. Ltd. & Sun City Country Club Inc.
Would you please refer to your objection dated 7 March 1984.
I confirm that the lease agreement made between Yanchep Sun City Pty. Ltd. and Sun City Country Club Inc. dated 5 December 1983 has been assessed for ad valorem duty under Item 12(2)(b), Second Schedule, Stamp Act 1921-1983. The total of the payments described as `rent' in the lease amounted to $589,343. In addition, a sum representing 25 years times an annual estimate for rates and taxes amounting to $218,968.00 has been included as part of the `total rent payable'. Ad valorem duty at the rate of 35 cents per $100 has been assessed on the sum of $808,311.00 amounting to $2,829.40. The objection relates to the inclusion in the assessment of any component representing rates and taxes.
Under cl. 6.7 of the lease agreement (set out also in your objection) the lessee is liable for payment of the rates and taxes. It is your contention that the obligation to pay these rates and taxes does not constitute `rent' for the purposes of the assessment. In my opinion, the expression `total rent payable' in Item 12(2)(b), Second Schedule, Stamp Act charges moneys payable by the lessee directly attributable to the use of the land. Under the rating and taxing legislation the lessor is liable to payment of these rates to the appropriate authority. Under the terms of the lease provision has been included for the lessee to pay such rates and taxes which may be charged upon the lessor. In my opinion, such payments in respect of rates and taxes are part of the consideration which the lessee agrees to pay in return for the use of the property. In my opinion, they form part of the `total rent payable'.
Each of the arguments contained in your objection have been considered, including the cases to which you have expressly referred. In my opinion, the cases to which you have referred are not inconsistent with the meaning which I attribute to the expression `total rent payable'. In my opinion, the inclusion of a sum representing rates and taxes gives the expression its common sense and ordinary meaning.
Your objection is disallowed.''
The lease discloses that the first appellant (the lessor) leased to the second appellant (the lessee) certain land and improvements thereon for a term of 25 years commencing on and including 1 January 1984 and expiring on 31 December 2008, at a rent specified, calculated and payable in the following manner:
``Part 3 - Rent
3.1 Rent: The lessee will during the Term pay to the lessor free of all deductions in each year an annual rental commencing on the 1st day of January 1985 payable monthly in advance being for the first year Five thousand dollars ($5,000) per annum, for the second year Eleven thousand five hundred dollars ($11,500) per annum and thereafter for each successive year One hundred and six per cent (106%) of the annual rental payable in respect of the immediately preceding year.''
The lease contains covenants on the part of the lessee, inter alia, that:
``Part 6 - General Lessee's Covenants
6.7 Rates and Taxes: The lessee will pay all (or in the first and last year of the currency of the Term hereof the appropriate proportionate part of all) rates and taxes (excluding any income tax payable by the lessor on its income) and assessments where the (sic) municipal local government parliamentary or otherwise which are at any time during the continuance of the Term charged upon the Demised Premises or upon the lessor or the lessee on account thereof PROVIDED ALWAYS that the lessor may in its discretion elect by notice in writing to the lessee to pay any of the foregoing outgoings in which event the lessee shall on demand
ATC 4764reimburse the lessor to the extent of any such payment.''
The relevant statutory provisions relating to the assessment of stamp duty on leases are as follows: "
- 16(1) From and after the commencement of this Act and subject to subsection (2) of this section, the duties to be charged for the use of the Crown on or in respect of the instruments specified in the Second Schedule to this Act shall, subject to this Act, be the duties specified opposite to those instruments in that Schedule, which duties shall be in substitution for the duties chargeable under the enactments repealed by this Act.
- 79(2) No lease or agreement for a lease made for any consideration or considerations in respect whereof it is chargeable with ad valorem duty, and in further consideration either of a covenant by the lessee to make, or of his having previously made, any substantial improvement of or addition to the property demised to him, or of any covenant relating to the matter of the lease or agreement for a lease; is to be charged with any duty in respect of such further consideration.
- Provided that this subsection shall not apply as respects any further consideration in the lease or agreement for a lease consisting of a covenant which if it were contained in a separate deed would be chargeable with ad valorem duty, and accordingly the lease or agreement for a lease shall in any such case be charged with duty in respect of any such further consideration under section nineteen of this Act.
SECOND SCHEDULE (Section 16(1))
Duties Payable on Instruments
``12. Lease or Agreement for Lease:(1) Any lease made in perpetuity or for a term of years or Duty on the amount for a period terminable with one or more lives, or payable (see item 4 otherwise contingent, in consideration of a sum of this schedule) money paid by way of premium, fine or the like, if without rent, or an agreement for such a lease. (2) A lease, or an agreement for a lease, of land and tenements at a rent without the payment of any sum by way of premium, fine or the like - (a) for a period not exceeding one year, for every $100 of the rent and also for every fractional part of $100 thereof that would be payable for a whole year ..... 0.35 (b) for a period exceeding one year, for every $100 of the total rent payable and also for every fractional part of $100 thereof ..... 0.35 (c) for an indefinite term, for every $100 of the rent and also for every fractional part of $100 thereof that would be payable for a whole year ..... 0.70 (3) A lease of any lands or tenements at a rent and in Duty equal to the consideration of a premium, fine or the like, or an combined amount of agreement for such a lease duty payable on a conveyance in consideration of
the premium, fine or the like under item 4 of this Schedule and the duty payable on a lease or agreement for a lease for the rent under sub-item (2) of this item. (4) A lease of any lands or tenements of any other kind whatsoever not hereinbefore described, or an agreement for such a lease ..... 5.00''
The issue for determination in this appeal is whether or not the respondent is entitled to assess ad valorem duty in respect of rates and taxes payable by the lessee under para. 6.7 of the lease. Stated in another way, the question is whether or not rates and taxes so payable are properly to be regarded as part of ``the total rent payable'' under the lease.
Pursuant to an order for directions made by the Master, each the appellants and the respondent filed written submissions canvassing in detail every aspect of their respective arguments and referring where appropriate to decided authorities in support thereof. It seems remarkable that it should be so but there does not appear to be any precedent either in Australia or overseas bearing directly upon the question in issue. For the most part such judicial authority as does exist arises out of the need to construe rent restriction legislation and I have not found those cases to be of any real help to me. In some cases these decisions are misleading and tend to distract attention from the single and quite fundamental question requiring resolution in this matter.
The appellants' submissions can be summarised in this way. The respondent is entitled to levy duty on the amounts payable under para. 6.7 (which is hereafter referred to simply as the relevant sum) only if that amount is ``rent payable'' for the purposes of item 12(2)(b) in the Second Schedule to the Stamp Act. The meaning to be ascribed to the word ``rent'' in the context of the Stamp Act is the ordinarily understood and commonly used meaning of that word which, it is said, is a sum due by the lessee to the lessor in return for which the lessee is given the right to occupy the demised premises. Payments made pursuant to a covenant in a lease providing for payment by the lessee of items such as rates and taxes are not payments made by the lessee to the lessor for the right to occupy the demised premises but rather are completely different in nature, quality and substance and do not constitute ``rent''. The appellants agree that the lessee's covenant to pay rates and taxes constitutes ``consideration'' owing to the lessor but they point to the fact that whereas in sec. 77 to 80 of the Stamp Act reference is made to the ``consideration'' for which a lease is granted, it is only a particular type of consideration, namely ``rent'' which attracts ad valorem duty. In any event, they say that the ``rent'' payable pursuant to para. 3.1 of the lease is the consideration in respect whereof the lease is chargeable with ad valorem duty for the purposes of the first part of sec. 79(2) and that the amount payable under para. 6.7 is payable pursuant to a covenant providing for further consideration relating to the matter of the lease for the purpose of the second part of that subsection the operation of which, it is argued, is not excluded by the proviso thereto for the reason that a separate deed consisting merely of a covenant between the lessor and lessee in terms of para. 6.7 would not be chargeable with ad valorem duty. An alternative submission is that even if the relevant sum is ``rent'' within the meaning of that word used in item 12(2), it is not rent which is ``payable'' and therefore attracts no duty. The basis of this submission is said to be that the ``rent payable'' is the actual amount of money which the lessor receives from the lessee as a result of the lessee's use of demised premises and that further consideration flowing from the lessee to the lessor under the lease of an intangible nature (particularly where there exists no immediate formula to calculate the value of the consideration) is (if it be rent) not ``payable'' within the meaning of the Act. The appellants' third and final submission is that if there is any serious doubt that the intention of the Act is to impose duty on the relevant sum the ambiguity should be resolved in favour of the appellants.
The respondent's submissions put in considerable detail and supported by reference to such authority as exists coincides substantially with the argument set out in the notice disallowing the appellants' original objection.
The primary and indeed the only question for determination is whether the relevant sum is properly to be regarded as part of ``the total rent payable'' under the lease for the purposes of item 12(2)(b).
It is common cause that the Act does not attempt to define the term ``rent'' or the phrase ``the total rent payable''. The appellants say that the appropriate meaning to be given to ``rent'' is that meaning which is ordinarily understood and commonly used. The respondent urges that the common law meaning of the term should be applied. I do not think any useful purpose is served by pursuing this distinction which, in my view, is more apparent than real. It is no easier nor more illuminating to embark upon an enquiry as to the meaning in common usage of the term than it is to discover the meaning at common law and indeed, upon a consideration of the House of Lords authority to which I am about to make reference, it would seem that the ordinarily understood and commonly used meaning advocated by the appellants coincides with their Lordships' views as to the modern meaning of the term in the context of formal legal documents.
Counsel for the respondent cited as his principal authority
United Scientific Holdings Limited v. Burnley Borough Council (1978) A.C. 904. This decision certainly has much to commend it in that it is a relatively recent decision of the House of Lords in England in which each of the five law Lords sitting has written a detailed judgment. The case also has the added advantage of not being dependent upon the construction of any particular statute and, furthermore, of being a unanimous decision of all members then present. In these circumstances I feel confident that to the extent that their Lordships considered the modern meaning of the word ``rent'', their views expressed ought in the absence of any contrary Australian authority to be regarded as authoritative. The following passages are extracted from the judgments and represent the particular Judge's expression of his understanding of the modern meaning of the word ``rent'':
``A payment to the landlord for use of his land''
(Lord Diplock at p. 935)
``The contractual money payment made by a tenant to his landlord in consideration for the use of the latter's land''
(Lord Simon at p. 947)
``A sum of money which the tenant has contracted to pay to the landlords for the use of the premises let''
(Lord Fraser at p. 963).
Lords Diplock and Fraser impliedly, and Lords Simon and Salmon expressly, approved the earlier Court of Appeal decision in
C.H. Bailey Limited v. Memorial Enterprises Limited (1974) 1 W.L.R. 728, in which Lord Denning M.R. said (at p. 732):
``It is time to get away from the medieval concept of rent. That appears from a passage in Holdsworth, A History of English Law, vol. VII (1900), p. 262, which was referred to by Evershed L.J. in
Property Holding Co. Ltd. v. Clark, (1948) 1 K.B. 630, 648:
- ... in modern law, rent is not conceived of as a thing, but rather as a payment which a tenant is bound by his contract to make to his landlord for the use of the land.''
The simplicity of the foregoing definitions assists very little in solving the instant problem. They do, however, have the virtue of pointing to the question, namely, is the obligation assumed by the lessee under para. 6.7 a payment for the use of the land? I do not think that it is and I will attempt to explain my reasoning for this conclusion.
It is not suggested on behalf of the respondent that every payment of money made pursuant to a covenant in the lease is a payment made for the use of the demised premises. Obviously money payments expended upon keeping the premises in repair could not be regarded as a payment to the landlord for use of the land. By the same token the lessee's covenant in this particular lease in para. 11.5 by which it agrees to pay the lessor's costs of and incidental to the preparation of the lease, whilst it may have the characteristic of being a contractual money payment made by the lessee to the lessor it clearly is not a payment which is made in consideration for the use of the lessor's land. And there are numerous other examples that could be quoted, particularly covenants whereby the lessee agrees to indemnify the
ATC 4767lessor against all manner of liabilities that may accrue during the term of the lease. Although it may be said against the conclusion that I have expressed above that without para. 6.7 there would have been no lease and thus no right to the lessee to use the land, the same could probably be said of every covenant in the lease imposing an obligation upon the lessee. I do not think that it is enough to look merely for a contractual liability on the part of the lessee to pay money to or on behalf of the lessor. To be rent the payment must be one which is essentially a payment for the right to use the demised premises. Just as payment by the lessee pursuant to para. 11.5 would be a payment in respect of the lessor's costs of the lease, so a payment under para. 6.7 would be a payment for rates and taxes. In my view this particular lease, read as a single document, cannot be construed other than to the effect that the rent payable is that which is provided for in para. 3.1.
For the respondent, some reliance was placed upon the word ``total'' in the phrase ``the total rent payable''. The suggestion apparently is that the legislature has attempted to embrace within the latter concept something more than the amount which is expressly designated as rent within the document itself. I think there is a different explanation for the use of the word total and this is to be found by taking a step back into the history of item 12 in the Second Schedule. Prior to the item taking the form it presently has by an amendment passed by Parliament in 1981, the duty payable in respect of a lease for a fixed term exceeding one year was calculated at a rate per $100 or part thereof of the ``average annual rental''. The change brought about in 1981 was to use the aggregate sum of the rent payable throughout the whole of the term of the lease as the basis for the calculation of duty. A clear distinction can be made between a lease for a fixed term in excess of one year and one for a fixed term of less than one year in that in the latter case, both now and before 1981, duty is assessed on the basis of the rent that would be payable under that lease for a whole year. In this context clearly the concept of the total rent payable is not that which Parliament has decreed to be the basis for calculation of duty. Likewise, for a lease for an indefinite term. In my opinion the word ``total'' has been inserted in item 12(2)(b) in order to make clear the distinction between the average annual rental previously referred to and the new concept of the sum of all of the rent payable under the lease for the whole term. In the result the assessment of duty will in every case require a decision by the respondent as to the amount of rent that is payable under the lease and no extension to the ordinary meaning of the word ``rent'' arises by reason of the adoption of a formula for assessment based upon ``the total rent payable''.
It is argued on behalf of the respondent that reference made in para. (1) and (3) of item 12 in respect of the payment of ``a premium, fine or the like'' indicates that the legislature has directed its attention to the type of consideration that should be exempted from duty as ``rent''. There is, of course, no suggestion on either side that the expression ``premium, fine, or the like'' encompasses the payment of rates and taxes. The respondent submits, however, that the significance of what is referred to as the ``exemption provision'' in relation to premiums, fine and the like, is that if the legislature had intended rates and taxes to be excluded from the meaning of ``rent'' it would have expressly excluded them. There are, of course, a number of flaws in this argument. Firstly, the legislature has not exempted from duty consideration which is properly described as a premium, fine or the like but rather has required it to be taxed on an ad valorem basis under item 4 which relates to conveyances and transfers on sale of property. The second fallacy is that the argument is dependent upon accepting the proposition that the term ``rent'' includes the liability to pay rates and taxes under the lease which, of course, begs the question. Obviously if the total rent payable includes the lessee's liability under para. 6.7, the taxing of payments which amount to a premium, fine or the like is an entirely irrelevant consideration.
Although it was not argued as a separate issue on the appeal, I think there is another reason why the relevant sum should not be regarded as part of the total rent payable under the lease. So far as rates payable pursuant to the Local Government Act are concerned, although the liability for payment falls upon the owner of the land (and in the present context the lessor would be the party so liable) that liability will depend upon the use to which the land is put (see Local Government Act, sec. 532(3) and (5)). In addition, land will not be rateable if so declared by the Governor (Local Government Act, sec. 532(8) and (10)) or by the Council of the
ATC 4768municipality (Local Government Act, sec. 532(11) and (12)). Similar but not identical provisions apply in respect of liability for land tax and water rates. It is not part of the case for the appellants that the demised premises are or may later become exempt from the payment of rates and taxes and it is not my intention to suggest that this should or may be so. Reference is made to the rating laws for the purpose of demonstrating that the rateability of any particular parcel of land may depend upon the use to which the land is put and it may vary from time to time. It follows therefore that a covenant to pay rates and taxes of the type contained in para. 6.7 of the subject lease is of no different character than any other covenant in the lease requiring the lessee to indemnify the lessor against a contingency that may or may not arise during the term of the lease. It does violence to the language used in the accepted definition of the term ``rent'' to suggest that this type of liability is one which ought necessarily to be regarded as a payment by the lessee to the lessor for the use of the lessor's land.
Apart from the matters already considered, it is my opinion that there is merit in the appellants' argument that by reason of sec. 79(2) of the Stamp Act, ad valorem duty is not payable in respect of the relevant sum. It must be noted that the proviso to subsec. (2) of sec. 79, which excludes the operation of the preceding provisions of the subsection, applies only if a separate deed containing a covenant in the terms of that which provides for the payment of the further consideration would itself attract ad valorem duty. There is no doubt that a deed containing a single covenant by the lessee to pay to the lessor the rates and taxes assessed in respect of the subject land would attract stamp duty, but the point is that it would not attract ad valorem duty. The position may well be different if there is a demise of the land in consideration of the payment by the lessee of the rates and taxes payable in respect of the land. That is a matter upon which I neither need nor propose to make any further comment. I only raise it to highlight the fact that the proviso to subsec. (2) of sec. 79 is not referring to the separate deed providing for a demise of the land in consideration of the further consideration referred to, but simply a separate deed containing only the covenant for payment of the further consideration which, in this case, is the rates and taxes.
During the course of argument both counsel referred to a number of anomalies that they suggest would arise if the view advocated by the other party is adopted. In particular, I can understand the concern of the respondent that by means of one device or another liability for payment of duty could be avoided or minimised by differentiating between payments which might ordinarily be lumped together and be included simply as rent. If this is the case, and indeed there appears to be scope for such an approach, the remedy lies with the legislature rather than for the Courts to give the existing legislation a meaning which upon its ordinary construction it does not bear.
In my opinion the appeal should be allowed.