Facts: Creston (the landlord) agreed in writing to lease Torrens Title land in Queensland to Sarcourt (the tenant) for a term exceeding 3 years. The agreement contained the terms of the lease as an annexure, but the lease was never registered, despite being duly executed. Robert and Grace Chan (the guarantors) were also parties to the agreement because, pursuant to cl 23.01 of the annexure, they guaranteed the tenant’s obligations. Sarcourt defaulted under the lease and Cresdon took action against the guarantors.
Cresdon’s action against the guarantors was stated as being one taken on the guarantee under this lease. The guarantors argued that the lease’s registration was a condition precedent to their liability and that, until registration, there were no obligations to be performed under the lease. They also contended that third parties were not subject to the rule in Walsh v Lonsdale, and that the rule did not mean that a term recognized in equity would necessarily be sufficient to satisfy the condition of a legal term. Cresdon argued that a lease that remained unregistered, although ineffectual at law, was not void or ineffective for all purposes.
Issue: Whether the guarantee was enforceable, notwithstanding that the lease had not been registered as required by statute?
Held (High Court majority – Mason CJ, Brennan, Deane, and McHugh JJ; Toohey J dissenting): Decided against the landlord and ruled that, because there was no registered lease, there was no enforceable guarantee. It also held that, although the rule in Walsh v Lonsdale meant that an agreement to lease gave rise to an equitable lease, it did not create a legal interest. Further, the operation of the rule depended upon the availability of specific performance of the agreement to lease. The facts in this case did not support such a finding. The guarantee of obligations ‘under this lease’ referred to obligations in a legal lease. Because no legal lease existed, there was no enforceable guarantee.