Finders Keepers – Obtaining possessory title to real estate in NSW

Section 65(1) of the Limitation Act 1969 (NSW) is so powerful that it can extinguish an owner’s title to real estate if they don’t evict an unlawful occupier within 12 years. It states:

on the expiration of the limitation period [i.e. 12 years] … for a cause of action [i.e. to recover land] ... the title of a person having the cause of action to the [land] … as against the person against whom the cause of action formerly lay … [is] extinguished.

To claim possessory title, a person has two hurdles to clear:

• The owner’s cause of action to recover possession of the land must have accrued; and
• the person’s possession must be adverse and continuous for 12 years.

In a recent decision of the Supreme Court of New South Wales, an occupier successfully cleared both of these hurdles. The decision is McFarland v Gertos [2018] NSWSC 1629 (30 October 2018) (Darke J).

We review the law of obtaining possessory title to real estate in the light of that decision.

The facts of McFarland v Gertos

At 6 Malleny Street, Ashbury is a 3 bedroom house on its own block of land. Malleny Street is a quiet suburban street with one end blocked, next to Canterbury Racecourse in Sydney.

Mr Downie purchased the house in 1927. He lived in it with his family until shortly prior to the Second World War, when he moved out because it was “full of white ants”, according to his daughter.

Mr Downie died in 1947, without leaving a will. No grant of administration has been made. At that time, the house was tenanted to Mrs Grimes who was a “protected tenant”. This gave her the right to occupy the house for life by paying a small rental. She occupied the house for another 50 years until shortly before she died on 19 April 1998.

In the second half of 1998, Mr Bill Gertos noticed that the house appeared to be abandoned and was falling into disrepair. He made enquiries of the neighbours, then entered the house through the rear door. The door was off its hinges and the house was open. Inside, he found rubbish, papers and scraps, an empty wardrobe, a bed, a dirty mattress and some broken chairs. The electricity was not connected, but there was running water.

He concluded the house was not occupied, and was uninhabitable because of its poor condition. He decided to take possession. Mr Gertos made the roof weatherproof, changed the locks and made it secure. He spent about $35,000. He appointed a managing agent and rented out the property. He paid the outgoings.

In 2014, Mr Gertos carried out substantial repairs, spending about $108,000. He continued to rent out the house.

In 2017, Mr Gertos made application to be recorded as the proprietor in fee simple of the land under s 45D(1) of the Real Property Act 1900 (NSW).

Mrs McFarland, who was Mr Downie’s daughter, and two grandchildren commenced these proceedings for a declaration that Mr Gertos was not entitled to be registered on the title to the property.

The owner’s cause of action to recover the land must have accrued

Section 31(b) of the Limitation Act provides that the cause of action does not accrue until the owner or their legal representative is ‘presently entitled to possession’. That is, not until the house was no longer tenanted.

Therefore, the cause of action to recover the land accrued on 19 April 1998, the date Mrs Grimes (the tenant) died, not 1947 when Mr Downie (the owner) had died.

Section 38(1) of the Limitation Act states that:

the cause of action does not accrue [to the owner or their legal representative] until the date on which the land is first in adverse possession.

Therefore, the cause of action against Mr Gertos did not commence until late 1998, when he took possession. Therefore, the 12 year limitation period expired in 2010.

The person claiming must be in adverse possession

The adverse possession must be:

Open, not secret; peaceful, not by force; and adverse, not by consent of the true owner; (judgment para 70, following Bowen CJ in Eq in Mulcahy v Curramore Pty Ltd [1974] 2 NSWLR 464 at 475)

The court accepted these indicia that Mr Gertos was in adverse possession:

1. The property was unoccupied when he took possession;
2. He had the locks changed, made it secure and made it habitable;
3. He rented the property to tenants though a managing agent - there was evidence of a signboard on the property and internet website advertising for a tenant in 2005 – this was sufficient possession - it was not necessary for him to physically occupy the property;
4. The property was rented out more or less continuously over the years, to a series of tenants;
5. He paid Council rates, Water rates and usage charges, land tax, maintenance and insurance premiums;
6. He spent more than $100,000 in 2014 carrying out substantial works;
7. The income and expenses relating to the property were declared in his income tax returns;
8. He disclosed his possessory title entitlement in his Family Law Proceedings in 2015;
9. The property is a single dwelling suburban block.

Therefore, the court was satisfied that title held in the name of Mr Downie was extinguished by reason of s 65(1) of the Limitation Act.

It follows that s 45D(1)(b) of the Real Property Act 1900 (NSW) had been satisfied. Ss (a) i.e. the land is a whole parcel of land and ss (c) i.e. the land is Real Property Act title, were also satisfied. The court permitted the s 45D Application for a Possessory Title to be registered and Mr Gertos was registered on the title as owner.

Policy Issues

There was considerable public controversy when the decision was handed down. These were the media headlines –

• Developer wins court battle to become owner of vacant Sydney house (smh Oct 31 2018);
   
• ‘I decided to take possession of it’: Developer claims squatter’s rights on $1.7 million Sydney home (news Oct 31 2018);
   
• Sydney property developer awarded home under squatting laws after renting it out for 20 years (abc news Oct 31 2018)

Justice Darke anticipated this controversy, and stated this to be the public interest:

one of the evident purposes of the provisions of the Act [is] that where land remains in adverse possession for a defined period the title holder will be barred from seeking recovery of the land and the title will be extinguished. This purpose may be regarded as a reflection of the notion that there is a public interest in ensuring that a person in long-term and undisputed possession is able to deal with the land as owner. (judgment para 88)

Conclusions

In almost all possessory title situations, a family representative, neighbour or friend becomes aware of the situation and takes appropriate action to secure possession of the property within the 12 year limitation period.

The facts in McFarland v Gertos are unusual in that the deceased owner’s family took no interest in the property until it was too late. By the time they applied to the Court in 2017, the 12 year limitation period had long expired.

The main reason appears to be that probate or letters were not applied for after Mr Downie died. Had they been, the property would have been known to be an asset of the estate.

The family may have a right to compensation. Provided they make their claim within 6 years of becoming aware of the adverse possession, they may well be entitled to compensation for the value of the house, net of Mr Gertos’ expenditure, on the grounds of unjust enrichment.

This possibility was raised by Emmett AJA in Sieve-Storm Pty Ltd ACN 160 562 354 as trustee for Affordable Property Trust v Murphy [2016] NSWSC 1800 at para 73. In that case, Emmett AJA declared a residential property option void due to non-compliance with the formal requirements of s 66ZG of the Conveyancing Act 1919 (NSW).

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