A licence to occupy to a family member needs careful drafting

Arrangements to provide a family member with a place to live are common. But unless the terms are clear, disputes can arise and protracted litigation can result, as a recent decision in the Supreme Court of NSW illustrates.

In Cross v Cross-Boyd [2021] NSWSC 977 (10 August 2021) his Honour Justice Davies decided on four contentious issues arising from a Deed of Family Arrangement which gave a daughter a licence to occupy her deceased’s father’s home.

The Deed of Family Arrangement

In his Will made on 17 December 1999, the late Horace Sylvester Cross established a trust for his daughter Kathryn (who was one of six children) “for her special needs arising out of her disability”. The trustees were to provide her with a place to live (without payment of a fee), initially the deceased’s principal place of residence at 16 Flower Street, Maroubra (the “Property”), and sufficient income to ensure her well-being. The Property could be sold, but if so, an alternative property would need to be purchased or a fund provided for Kathryn’s accommodation. He died on 24 February 2016, his wife having pre-deceased him.

On 22 August 2018, family provision proceedings brought against the estate by another daughter (Virginia) were settled, and a Deed of Family Arrangement was signed with her.

In the Deed of Family Arrangement, the right of occupancy of the Property was given to Virginia, who was to reside there with Kathryn (the “Protected Person”). The terms were:

1. [Virginia] shall have the following right:

1. A licence to reside at the Property for such period as the Protected Person may reside there on the following conditions:
   1. [Virginia] to reside at the Property … for such period as the Protected Person and/or her appointed guardians and managers consent to such residence;
   2. [Virginia] is to pay the sum of $150 per week as contributions toward expenses for the maintenance and upkeep of the Property (“the Contribution”) … commencing on and from 1 August 2018;
   3. If the Property is sold and the Protected Person moves to assisted accommodation, the licence shall terminate immediately upon settlement of the sale of the Property;
2. …
3. In the event that [Virginia] fails to make payment of the Contribution for a period of 4 or more consecutive weeks, the Executors shall be entitled to give notice in writing terminating the licence agreement immediately;

The dispute

On 29 May 2020, the trustees commenced Supreme Court proceedings against Virginia for possession of the Property. The trustees claimed that Virginia was in default under the Deed because she was in arrears for four or more weeks. No orders were sought to disturb Kathryn’s possession.

The Court considered four issues.

Issue #1 Was there a default in payment of the Contribution?

Virginia made the payments of $150 per week irregularly. On 20 February 2020, the executors issued her with a Notice of Termination on the basis that the payments were in arrears for more than 4 weeks.

The Court found that the Notice of Termination of Licence to Occupy was not valid. It said that although the payments were in arrears for more than 4 weeks, Virginia was not in default under paragraph 1 c. because there was no 4 week period during which she failed to make a payment.

By the hearing, all payments were up to date, so it was unnecessary for the Court to decide whether Virginia was able to offset amounts she paid for repairs and maintenance. The Court said that if it had been necessary to decide that issue, it would have found that no offset was available because it would need to have been provided for, but was not provided for, in the Deed.

Issue #2 Was the requirement in the Notice to continue the payments a waiver?

The Notice of Termination required Virginia to continue to make the payments until she vacated. Virginia argued that this waived the requirement for her to vacate the Property.
The Court said that the requirement to make payments was “nothing more than a reminder” that her obligations continued until she vacated. It did not operate as a waiver.

Issue #3 Was relief against forfeiture available?

The Court said that had it found the Notice of Termination to be valid, Virginia would not have been entitled to relief against forfeiture, because the trustees have not “taken unconscientious advantage of Virginia in seeking to evict her because of asserted defaults under the terms of the Deed”.

Issue #4 Was the Deed of Family Arrangement a Residential Tenancy Agreement?

If it were a Residential Tenancy Agreement, s 119 of the Residential Tenancies Act 2010 (NSW) would apply, and the proceedings should not have been commenced in the Supreme Court.

s 119 is as follows:

119 Prohibition on certain recovery proceedings in courts

A landlord or former landlord must not commence proceedings against a tenant or former tenant of the landlord in the Supreme Court, the District Court or the Local Court to obtain recovery of possession of residential premises subject to a residential tenancy agreement.

The term residential tenancy agreement is defined in s 13 as follows:

13(1) A residential tenancy agreement is an agreement under which a person grants to another person for value a right of occupation of residential premises for the purpose of use as a residence.

The Court found that the Deed fell within s 13 because the trustees granted Virginia “a right of occupation in the property for use as a residence, and in return she was to pay $150 per week”.

None of the s 7 or s 8 exemptions in the Act applied. Note that the s 8(1)(c) exemption of an agreement under which a person boards or lodges with another person, does appear to have been argued in this case.

Therefore s 119 was a complete defence to the claim.

Concluding comments

This decision illustrates that where, as in this case, there is “bad feeling within the family”, where a person (in this case Virginia) “feels aggrieved about how she perceives she has been treated by the [trustees]”, then disputes will arise unless the terms of the licence to occupy are clearly drafted.
The term for termination for default needs to be drafted clearly to apply where payments are in arrears for a set period of time. So does the term for repairs and maintenance need careful drafting.

And if the Residential Tenancies Act 2010 is to be excluded, then the Deed must be drafted to fall within an exemption, such as the boarding or lodging exemption under s 8(1)(c) of the Act.

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