Briden v Lefkada Limited

[2022] NZHC 3372

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2022-409-279

[2022] NZHC 3372

IN THE MATTER

of a Deed of Lease dated 6 January 2017

BETWEEN

WARREN JOHN BRIDEN, GARY CYRIL BRIDEN and LYNNE

SUSAN BRIDEN, as Partners of the Briden Holdings Partnership

Plaintiffs

AND

LEFKADA LIMITED

Defendant

Hearing:

6 December 2022

Appearances:

J Taylor for Plaintiffs

D Whimp – director of Defendant, by leave

Judgment:

13 December 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

BRIDEN v LEFKADA LIMITED [2022] NZHC 3372 [13 December 2022]

[1]    The defendant, Lefkada Limited (Lefkada), was the lessee of the property at 5C Good Street, Rangiora, North Canterbury (the premises). The lease which was in writing has expired. The lessor, Briden Holdings Partnership (BHP), wants Lefkada to vacate the premises and seeks orders that Lefkada yield up the premises and that BHP was entitled to immediate possession from the expiry of the lease. In this summary judgment application, BHP seeks an order that Lefkada immediately vacate the premises as BHP wants to undertake earthquake strengthening work to the building.

[2]    Lefkada opposes those orders. It says it has been in occupation of the premises from 18 May 2016. The original term of its lease was for two years. Under the lease Lefkada had three rights of renewal, each for two years. It is common ground that Lefkada validly exercised its first two rights of renewal, hence BHP saying the lease expired on 18 May 2022.

[3]No formal notice of renewal as required by the lease was issued by Lefkada.

[4]    On 24 November 2022, Mr T Whimp, a director of Lefkada, was granted leave to represent Lefkada in its defence of the summary judgment application. BHP’s position was that it was ambivalent to Mr Whimp’s application and would abide the Court’s decision. Its primary concern was that the hearing date not be put at risk. Leave was granted to avoid the risk of the hearing date being lost due to Lefkada being unable to find counsel at short notice. All relevant factual material in relation to the renewal issue had been produced and the claim was not a particularly complex one. Before the issue of these proceedings Lefkada had a solicitor who, in correspondence with BHP’s solicitor, did not claim the lease had been renewed.

Summary judgment principles

[5]    BHP must satisfy the Court that Lefkada does not have a reasonably arguable defence in respect of the orders BHP seeks. There are no disputed facts, so the proceeding essentially turns on legal principles.

Action for recovery of land

[6]    BHP relies on two alternative causes of action. The first cause of action is for the recovery of its land. This claim is discussed in Todd on Torts. The author notes that:1

A person may be a trespasser in the sense of being in wrongful occupation of land without being amenable to an action for trespass to land.

[7]    To sue in trespass, a plaintiff must have had actual possession at the time of the trespass or, at the time of trespass, an immediate right to possession of the land and, before bringing an action, have achieved actual possession by entry upon any part of the land. The authors of Todd on Torts note:2

This leaves out the person who had at the time of the trespass a right to the immediate possession of the land but who has not been able to acquire actual possession by entry, no doubt because of the trespasser’s continued wrongful presence on the land. A remedy is provided by a separate action called the action for recovery of land, formerly the action for ejectment. … In order to succeed, the plaintiff must prove, at the time of commencing the action, an entitlement to immediate possession of the land, but denial of such possession by the defendant.

[8]    This is what BHP says occurred here. BHP says as owners of the land it had a right to possession upon the expiry of the lease but cannot take possession as Lefkada remains in occupation of the property.

[9]    The second and alternative cause of action pleaded is for specific performance of the contractual obligation to yield up the premises. Mr Taylor, counsel for BHP, confirmed the causes of action were alternatives and that BHP was indifferent to which cause of action applied. I will deal with this application on the basis of the application for possession.

The renewal provisions of Lefkada’s lease

[10]   Under the lease, if the tenant gives the landlord written notice to renew the lease at least three calendar months before the end of the term, and is not at the date of giving notice in breach of the lease, it is entitled to a renewal. As at the last day for

1      Stephen Todd Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at [9.3.01].

2      Todd on Torts, above n 1, at [9.3.01].

the giving of notice, 18 February 2022, Lefkada was in default of its obligations to pay rent and outgoings.   Indeed, BHP issued  a statutory demand  against Lefkada on   16 March 2022 claiming arrears of $17,784.23. It seems rent for June 2021 was missed inadvertently and rent was unpaid from 18 December 2021 to 17 April 2022. Opex was also unpaid, along with invoices for legal fees arising from the defaults.

[11]   Accordingly, in terms of the lease, Lefkada was not entitled to exercise its right of renewal as it was in breach but, as I have noted, it did not give formal notice to BHP of renewal in any event.

[12]   On 8 March 2022, BHP’s solicitors wrote to Lefkada confirming that as no notice to renew had been received, BHP refused to renew the lease. Mr Whimp accepts Lefkada owed rent as at the last day for Lefkada to exercise the right of renewal as the chronology accompanying his submissions says, Lefkada paid all outstanding rent on 15 March 2022.

[13]   Lefkada took legal advice resulting in an email on 13 May 2022 from its solicitors to BHP’s solicitors advising Lefkada had given instructions to apply for relief under s 261 of the Property Law Act  2007 (the Act) against  BHP’s  refusal   to grant a renewal. However, no such application was filed. Such an application had to be brought within three months of BHP advising it refused to renew the lease, that time expired on 8 June 2022. These proceedings were issued on 13 July 2022.

[14]   Following BHP’s solicitor’s letter of 8 March 2022 advising of the refusal to renew the lease, Mr Whimp emailed BHP’s solicitors purporting to exercise the right of renewal. That email also referred to an email from September 2021 from another director of Lefkada to Harcourts which manages the premises on behalf of BHP. The September 2021 email said: “I now think it is likely that I’ll renew my lease for a final two year term next year.” This is not a notice to renew; it is on its face equivocal. Lefkada’s solicitor, in his 13 May 2022 email, referred to the 21 September 2021 email as indicating “an intention to exercise its rights to renew the lease”. Even that description probably stretches what was communicated by the email when Lefkada said it was no more than likely a renewal will be sought. In any event, Lefkada was in default of its obligations under the lease at the time of the 21 September 2021 email

because the June 2021 rent had not been paid. The email shows Lefkada was aware of its right of renewal.

[15]   On BHP’s case, the present situation is straightforward. The term of the lease has expired. The right of renewal was not exercised. No application for relief against refusal to renew was made. BHP’s solicitor’s letter advising of the refusal to renew referred to Lefkada’s right to apply for relief and advised Lefkada to seek advice. Lefkada took advice and, as I have said, Lefkada’s solicitor said he had received instructions to seek relief but that was not done. That opportunity is no longer available.

[16]   Accordingly, BHP says Lefkada is in occupation of its premises with no contractual right to remain and it follows Lefkada has no defence to this claim.

The notice of opposition

[17]   The notice of opposition raises a number of matters which, in reality, are more an appeal to sympathy than defences. By referring to the matters raised as an appeal for sympathy, I do not discount the difficulties Lefkada experienced over the COVID lockdown period or the frustration, stress and hard work that will be required if Lefkada has to vacate the premises. I now address each of the matters raised.

Appeal to Court’s discretion

[18]   Lefkada accepts that the period to apply for relief against a refusal to renew has lapsed: “… but contends the plaintiffs have steamrollered the defendant into the current situation”. That proposition is not sustainable given Lefkada was in default at the time by which it had to exercise its right of renewal. The 8 March 2022 letter advised Lefkada of its right to seek relief, and its solicitor advised instructions had been given to apply for a renewal but such did not occur for reasons that are unexplained. Lefkada refers to economic hardship and asks the Court to exercise its discretion in those circumstances.

[19]   While the Court has a residual discretion to decline summary judgment, it is not a discretion the Court can exercise here. The Court, through its residual discretion,

cannot impose a renewal of lease onto BHP, which would be the effect of declining BHP the orders it seeks.

Notice not to allow renewal deficient

[20]   It is claimed the 8 March 2022 notice of a refusal to renew was deficient given the 21 September 2021 email referred to above. An indication that a tenant is “likely to renew” is not a renewal. If the situation was reversed and BHP said Lefkada had bound itself to a renewal by the 21 September 2021 email, the response would be obvious that all Lefkada did was advise it was likely it would renew but it never did. The 8 March 2022 letter was unequivocal, it advised no renewal had been sought, nor would be given, and Lefkada should seek legal advice.

Lefkada not informed of need for earthquake strengthening

[21]   In Mr Whimp’s written submissions, he said BHP was aware of the need to carry out earthquake strengthening before Lefkada’s tenancy commenced. Assuming that is the case, it is not the reason why Lefkada has to vacate which is, Lefkada cannot demonstrate a right to remain in the premises. Had Lefkada exercised its right of renewal or obtained relief against BHP’s refusal to grant a renewal, the fact that BHP wanted to undertake earthquake repairs would be of no moment.

General discretionary matters

[22]   Lefkada says it has been a good tenant – that is debatable given the defaults referred to but, in any event, that assertion does not of itself take Lefkada any further. Lefkada says it will lose the benefit of a purpose built fit-out related to its chiropractic practice. That is true, but again, such of itself does not give Lefkada a right to remain in occupation of the premises. Lefkada refers to it being unable to provide its existing patients with primary healthcare until it finds alternative premises. It says many of its patients are elderly. The fact is, Lefkada has had since May 2022 to put alternative arrangements in place and again, this factor does not found an entitlement to remain in the premises.

[23]   It is said that Lefkada having been required to vacate the premises will cause stress to its directors.  I accept that is correct but, again, that does not give Lefkada   a right to remain in the premises.

[24]   Lefkada then says that BHP will suffer little prejudice if the lease is renewed. BHP does not have to demonstrate prejudice to regain possession of its own property.

[25]   I am satisfied the notice of opposition does not identify an arguable defence to BHP’s claim. In fairness, Mr Whimp, in his oral submissions, realistically accepted he could not point to Lefkada having a right to obtain a renewal or an enforceable right to require BHP to grant it a new lease. As I said to Mr Whimp, the Court cannot confer that right on Lefkada.

The effect of Lefkada Ltd continuing to pay rent

[26]   It is accepted that rent has been paid since the expiry of the term. Lefkada is not holding over pursuant to the lease as such requires a tenant to have been permitted to remain in occupation.

[27]On 11 July 2022, the solicitors for BHP wrote to Mr T Whimp saying:

Finally, payments being made by you are not being accepted as rent but on account as [sic] damages for the unlawful occupation of the premises, which would be equivalent to the market rent in any event.

[28]   I had real doubts as to whether BHP had the right to accumulate money paid as rent to a fund against which a future damages claim would be made.  This is not   a situation of a creditor having the right of allocation of payments:3

The law in relation to allocation of payments in a current account situation is that a debtor has the right to allocate a payment towards a particular debt. If the debtor fails to do that at the time of payment, then the right of appropriation passes to the creditor.

[29]   If this was a current account situation, then it is at least arguable that Lefkada has allocated the payment towards rent and therefore no right of appropriation passed to the creditor. In any event, BHP was not a creditor for its damages claim when it

3      Sociedad Agricola Topagri Ltda v BPC Technologies Ltd [2014] NZCA 253 at [21].

received the money as, at that time, its damages claim had not been established. In my opinion, a party with a damages claim is not entitled to retain funds paid to it for one purpose as a fund against which it could recover its damages claim if it succeeds. Nor does it follow that the market rent after the end of the lease is the same as was paid by Lefkada during the term of the lease. If the market rent for the property had fallen then BHP would not be permitted to retain all the payments made, as the rent would be higher than the damages. The real issue is whether this debate makes any difference.

A tenancy at sufferance

[30]In Hinde on Commercial Leases:4

What is called a tenancy at sufferance arises where a tenant who originally entered under a valid tenancy holds over after the tenancy has come to an end without any statutory right to do so and without the lessor’s assent or dissent. A tenancy at sufferance differs from a tenancy at will because the so called tenancy exists without the consent of the lessor; but a tenant at sufferance is not a trespasser because the original entry onto the property was lawful.

[31]   If the lessor accepts rent for any period after the lease has been terminated and the term of the lease has expired, the rights of the parties are governed by s 213(2) of the Act. 5 Accordingly, what is the effect of s 213(2) given there is an argument BHP has accepted rent?

[32]Section 213(2) provides:

A lessor who accepts rents for any period after the lease has been terminated or the term of the lease has expired is not, only because of that fact, to be treated as having -

(a)consented the lessee remaining in possession of the land; or

(b)given up any of the lessor’s rights and remedies against the lessee for breach of the covenant or condition of the lease.

[33]   While the lessor will still be able to pursue the right to have the lessee give up possession, the conduct of the lessor accompanying the acceptance of rent may still preclude the lessor from enforcing termination.

4      G W Hinde on Commercial Leases (3rd ed, Lexis Nexis, Wellington, 2019) at [11.024].

5      Hinde, above n 4, at [11.020].

[34]   Nothing here in the conduct of BHP could arguably be said to be a waiver by BHP of its right to seek possession of its premises or to be otherwise estopped from doing so. The advice that it gave as to how it was treating rent, whether it is correct is a matter of law or not, made BHP’s position clear that it saw the lease as at an end and that Lefkada was liable for damages as a result of not vacating the premises.

[35]   I put to Mr Taylor my concerns as to BHP’s treatment of the rental payments. Mr Taylor was not able to identify a legal principle that entitled BHP to retain money paid as rent in a fund to provide, in effect, security for the future recovery of damages. Given the effect of s 213 of the Act , I asked whether Mr Taylor could identify any prejudice in BHP treating the money paid as rent, given it had done nothing to waive its right to seek possession of the premises, nor did Mr Whimp suggest it had.

[36]   Mr Taylor agreed if an order for possession was made, BHP would accept the money paid as rent and Mr Whimp confirmed he was happy with that. The practical effect of that is it may well mean there is no life left in BHP’s claim for damages arising from Lefkada remaining in possession of the premises when it was not entitled to.

Conclusion

[37]It follows I am satisfied that Lefkada does not have a defence to BHP’s claim.

[38]   There is an order that the plaintiffs were entitled to immediate possession of the premises from 19 May 2022.

[39]   There is an order that the defendant is to vacate the premises within five working days of the date of this judgment.

[40]   There is judgment for liability in favour of BHP arising from Lefkada’s failure to vacate the premises on 19 May 2022. It may well be the fact Lefkada has been paying rent will mean BHP cannot demonstrate any loss arising from Lefkada’s occupation, or at least any quantifiable loss worth pursuing.

[41]   I defer making an order in relation to  making good the premises.  I accept  Mr Taylor is correct when he said the lease required Lefkada at the end of the term to yield up the premises in the same clean order, repair and condition as at the commencement of the lease but given Mr Whimp’s advice that it is the intention of Lefkada to make good, I adjourn this aspect of the application. That said, Lefkada’s obligations under the lease are clear.

Costs

[42]   The lease contains a solicitor-client costs clause. There is judgment for liability against Lefkada for costs on a solicitor-client basis. The costs are to be established with the usual detail by way of memorandum within five working days of the date of this judgment. Lefkada can reply (given the time of year) by the end of January 2023. Failing BHP filing a memorandum, BHP is entitled to costs on a 2B basis plus disbursements as fixed by the Registrar.

Observation

[43]   Given there are some potential loose ends for this proceeding, the matter is adjourned to  Thursday 23 February 2023 at 11am.  If the parties have worked out  a practical resolution to the outstanding issues, they are to let the Court know whether the proceeding can be treated as at an end or if further directions are required.

Associate Judge Lester

Solicitors:

Wynn Williams, Christchurch (for Plaintiffs)

Copy to:

F Konidaris, Rangiora (for Lefada Ltd)