The lender obtained default judgement for possession of the property. However, the tenant sought orders: that he be joined to the proceedings; that the eviction be stayed; and that a caveat he had lodged be prevented from lapsing. The tenant filed an affidavit indicating he had purchased a take-away food business from the borrower and did not know the mortgage was in default and had not realised that his lease was not registered.
The senior lending manager for Australian Unity Funds Management, Mark Zuckerman, gave evidence that he had been advised that a tenant had been found for the property, however, consent was never given because default under the mortgage had persisted. When informed that the tenant had been given occupation, Mr Zuckerman reminded the borrower that consent to the lease had not been given and that the tenants ought not to have been allowed in.
The judge made reference to the fact that the mortgage contained a negative covenant by which the borrower promised not to lease the property without consent. However, such a clause is irrelevant to the priorities as between a mortgagee and an unregistered leasee (see page 39 of Matthew Bransgrove’s Textbook The Essential Guide to Mortgage Law in New South Wales and section 53 (4) of the Real Property Act). What may have compromised the lender’s position would have been estoppel (see page 40 of The Essential Guide). In this regard, Schmidt J held:
On the evidence the tenant had no dealings with the lender. It follows that it may not be concluded that there was anything which the lender did which induced an understanding on tenant’s part, that the plaintiff would consent to its lease.
The lenders title was held to be paramount and the tenant lost on all counts.