Whose Quarry now? Long may your landlord live!

Where a quarry operation is conducted on leased land, the landowner and the quarry operator have potentially competing interests.  On the one hand the land owner, like any landlord, wishes to be in a position, if he so chooses, to terminate the relationship with the incumbent operator and to lease the land to another operator in the event that the lease is terminated by reason of the incumbent operators default or, alternately, if the lease expires and the land owner is unable to reach agreement with the incumbent on the terms of a renewal.  On the other hand the quarry operator is likely to have invested considerable capital and effort in establishing an operating quarry, and thus a business with goodwill.  Quarry sites are not easily secured and the situation is very different from that of a retailer who is forced to move to another shop down the street if he cannot renew his lease. 

These conflicting interests are not easily balanced and the legislative regime controlling quarries inevitably comes down on one side or the other.  Prior to the commencement of the Extractive Industries Development Act 1995 (“the EID Act”) it could perhaps be said that the legislative and regulatory regime advantaged the quarry operator.  DNRE or its predecessors issued Extractive Industry Licences for fixed periods of up to 30 years and would not entertain any other application while the EIL remained in force.  The existence or otherwise of leasehold rights, or any other form of tenure, was not a matter of which DNRE took cognisance on any ongoing basis and the situation could occur where an EIL was in place but the holder no longer had a lease.  The end result was that the quarry owner was placed in a position of considerable advantage in dealing with the landowner.  In effect the landowner was obliged to deal with the quarry operator holding the EIL if he wished to lease his land for the purpose of quarrying. 

The EID Act has brought with it a significantly changed regulatory approach.  In its notice to holders of Extractive Industries Titles, dated 7 June 1996, DNRE advised that under the new legislative framework the planning permit process will be the main approval process to establish an extractive industry operation.  This appears to reflect the regulatory trend in recent years, another example being liquor licensing.  Planning permits are referable to the properties in respect of which they are issued, and they run with the land.  The emphasis on the planning permit process represented a clear shift from the previous focus on EIL’s, exclusive and personal to the holders.  However the specific shift in the balance of power between land owner and quarry owner was effected, firstly, by Section 19 of the EID Act which makes it a condition of the Minister granting a Work Authority that the Minister must be satisfied that the applicant has obtained the consent of the land owner, and secondly and most significantly, by Section 21 which provides that a Work Authority remains in force for whatever period is permitted under the applicable planning scheme or planning permit, unless the land owners consent is revoked, lapses or otherwise ceases to have effect.

The end result is that a Work Authority in respect of a particular quarry or quarry site becomes a gift of the land owner, subject only to the recipient satisfying the requirements in relation to a work plan, bond etc.  This might have some logic in relation to a virgin quarry site, but very little logic in the context of a quarry that has been developed at considerable capital cost by a lessee operator.  It raises the possibility that a landowner can refuse to renew a lease and then be free to sell an established quarry to a third party. 

This is obviously bad enough but the reasoning behind those provisions of Section 21 of the EID Act which bring a Work Authority to an end if the land owners consent is revoked, lapses or otherwise ceases to have effect, is beyond comprehension.  Consent is apparently required to be ongoing and may be withdrawn at will, which creates the theoretical possibility of a Work Authority being brought to an end by the land owner, notwithstanding a continuing lease.  The requirement of the land owners ongoing consent is a powerful lever in the hands of the landowner in the event of a dispute with the operator.  Even worse is the fact that the relevant provisions are left swinging in the breeze without any explanation as to their precise meaning.  For example, what happens if the landowner dies?  One would have thought that he has necessarily stopped consenting, and that notwithstanding the continuation of the lease the Work Authority ceases to remain in force. 

It is difficult to think of a single good reason for these provisions in Section 21.  The consent of the landowner should be an issue resolved for the duration of the lease term and any resulting option terms when the lease is entered into.  Probably the best course would be the complete deletion of these provision from Section 21, but at the very least it should be made clear that the land owner cannot withdraw his consent while the lease remains on foot.

The very clear lesson is that great care must be taken with leases.  Tenure of sufficient duration must be secured, so that at least the cost of establishing or acquiring the quarry can be satisfactorily amortised over the lease term.  In most cases this will be done by options, in which case great care must be taken to ensure that they are exercised at the correct times, and precisely in the manner required by the lease.  For the reasons set out above a quarry operator seeking to renew his lease without the benefit of an option is now in a very vulnerable position.  However, the problems of revocation or other cessation of the landowners consent can be addressed by the inclusion of appropriate covenants in the lease.

A further complication in relation to leases is the possibility that the current review of the Retail Tenancies Reform Act will result in the removal of the present limitation that retail premises subject to that Act must have an area of less than 1,000 square metres.  If this limitation were removed it would appear that quarries from which the extracted product is retailed would be retail premises subject to the provisions of the Act.  Essentially this is good news for quarry operators.  The Act imposes a number of disclosure and compliance requirements, most of which are quite inappropriate to quarry premises.  These obligations fall mainly on landlords, but do impact on tenants to some extent, particularly on a transfer or assignment of the lease.  Note also the tenant’s obligation to give to the landlord a business plan before commencement of the lease.  The important and favourable effects of the legislation are as follows:

1. The landlord cannot unreasonably refuse consent to an assignment or transfer of the lease and there is a defined procedure for establishment of the proposed new tenant’s credentials.
2. The landlord cannot require key money or any payment for goodwill (which is important in terms of the possibility, canvassed earlier in this article, that land owners may be in a position to effectively sell an operators quarry business by withdrawing consent to the Work Authority.)
3. The landlord cannot require the tenant to pay the landlords legal costs of the lease.
4. Rental can only be reviewed by certain specified methods, and a provision requiring the reviewed rental to be no less than the prior rental is void.
5. Disputes, apart from claims for non-payment of rental, cannot be litigated in the ordinary courts and must be referred to the Victorian Civil and Administrative Tribunal.

The application of the Retail Tenancies Reform Act to quarry leases, if this occurs, will be a further reason why entering into a quarry lease will require a very careful and informed approach.

I have not attempted in this article to address the interaction of planning schemes and permits with Work Authorities and leases.  This is another topic.

The catalyst for this article was some written material emanating from Robin Hocking and I am indebted to him. 

Andrew Lumb – Nevett Ford Lawyers

The CMPA expresses sincere thanks to Andrew Lumb of Nevett Ford for his wisdom and understanding is presenting this paper to guide us through such an important area. If you have problems and need legal advice do not hesitate to contact Andrew at Nevett Ford on [03] 9614 7111.

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