Ethical Issues in Leasing
By Michael Dolan.
Ethics is the new buzzword in the media – whether it be the ethics of governments, politicians, bankers, financial advisors, insurers, police or lawyers the media is taking a very keen interest in the word and what it means.
The public is crying out for better behaviour by its leaders and many parts of Australian society. The latest call is for the appointment of a Federal Ethics Commissioner to head up an anti-corruption body.
Ethics is the foundation stone upon which the practice of the law rests. Ethics is what lawyers do. Ethics is doing the right thing when no-one is looking.
Australia’s Chief Justice, the Hon Susan Keifel AC, said in a speech in 2010 that:
“Lawyers may generally be said to be necessary to the working of the law in all its respects. But it is only the ethical lawyer who is essential to a system of justice.”
Lawyers must be ethical in the practise of their profession at all times and be mindful constantly that their paramount duty is to the court and the administration of justice which, on occasions, may conflict with their other ethical duties including those owed to clients and third parties.
The purpose of this article is to touch on some common areas of ethical challenge which lawyers who practise in the area of leases encounter in their daily work. The scenarios outlined are all based on real cases.
Case Study One
You have been instructed to act for a federal government department. By deed the Commonwealth had granted a shooters’ association a licence to use a rifle range for sporting purposes. The terminating date of the licence is the later of 30 June or the date being 14 days after the Commonwealth gives them a Relocation Notice. Further, under the deed, the Commonwealth is entitled to terminate the licence where the association fails to remedy a breach within 14 days. For political reasons, the relevant Minister wants to terminate the licence having just given an electoral assurance that the land on which the range is situated will be used as a public park. The department has instructed your firm to prepare and serve a Notice to Remedy. You are instructed that the Notice must require the association to remedy certain breaches of the licence within 14 days. The department tells you that it well knows that, at the time of service of the Notice, it will be impossible for the shooters’ association to remedy the breaches within the specified period, but it is important for the department to satisfy the wishes of the relevant Minister. What is your ethical position when given that information and those instructions by your client?
This scenario enlivens a solicitor’s paramount duty to the court and the administration of justice. Here the motivation of your client is not underpinned by good faith, but to find a back door way of achieving a political outcome. In the circumstances outlined, your paramount duty would require you to decline to act in the matter.
The scenario is based on a decision of the Supreme Court of New South Wales – NSW Rifle Association Inc. v The Commonwealth (NSWSC) 818. In setting aside the Notice Justice White said:
“The NSWRA contended that the remedy notices were not given in good faith because the Commonwealth did not want the buildings to be repaired, but gave the notices simply to trigger a default that would enable it to terminate the licence so that it could honour a political promise made by the Member for Kingsford Smith. I accept that that was the Commonwealth’s motivation.”
Case Study Two
You are acting for a tenant wishing to assign a commercial lease to a purchaser of his business. The landlord requires your client to pay its reasonable costs in giving consent. The landlord’s solicitor sends you a letter enclosing a tax invoice addressed to your client for the legal costs being charged by his firm for obtaining the landlord’s consent to the assignment of lease. It appears to you that the legal costs charged are grossly excessive for the work which has been undertaken. You raise the issue with the landlord’s solicitor who says that his firm is entitled to charge what it likes and your client has a legal obligation to pay the landlord’s costs if your client wants an assignment of the lease.
Has the landlord’s solicitor acted ethically? What can you do?
A landlord’s solicitor should not seek payment for legal costs from the tenant, only from the landlord as her or his client. Accordingly, the solicitor should invoice the landlord. The question of the “reasonableness” of the quantum of the costs can then be tested between the parties in an appropriate forum. A recent very useful article on this topic by an expert in the area can be found in the Law Institute of Victoria Journal: No longer a victim, Norman Mermelstein, LIJ, 1 August, 2018
Case Study Three
You act for a landlord and another law firm is acting for a tenant in a dispute relating to the lease of commercial premises. The landlord is a new registered proprietor of the premises. Four years ago, the previous landlord was involved in a dispute with the same tenant in respect of the same premises, and you mediated the dispute which settled. A year ago, you commenced acting for the current landlord against the tenant in a rent review dispute concerning the same commercial premises. The tenant’s solicitor has asserted that you are conflicted in acting against the interests of a party for whom you had conducted a mediation. What is your ethical position?
On 24 May 2012 the Law Institute of Victoria issued a non-binding ruling that, in the circumstances outlined, you would clearly be in a position of conflict of interest if you continue to represent your client in any dispute against a party in which you had previously acted as a mediator. (R 4752):