Emery v Andrews HC Auckland CIV-2011-404-002903
[2011] NZHC 680
•8 July 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-002903
UNDER Section 244 of the Property Law Act 2007
BETWEEN KEITH RAYMOND LEONARD EMERY AND GILLIAN MENG CHONG EMERY Applicants
ANDSTEPHEN ROBERT ANDREWS AND ELENA NIKOLAEVNA ANDREWS Respondents
Hearing: 8 July 2011
Appearances: N R Campbell for Applicants
C S Henry and K Blackmore for Respondents
Judgment: 8 July 2011
ORAL JUDGMENT OF VENNING J
Solicitors: Turner Hopkins, PO Box 33-237 Takapuna 0622
Barter & Co PO Box 197 Albany Village Auckland
Copy to: N R Campbell PO Box 4338 Shortland Street Auckland
C S Henry, PO Box 616 Orewa 0946
EMERY V ANDREWS HC AK CIV-2011-404-002903 8 July 2011
[1] The applicants apply for orders for possession of land known as 6 Lewis
Lane, Coatesville, Auckland together with related orders.
Background
[2] The applicants are the owners of the property at 6 Lewis Lane, Coatesville. By an agreement for sale and purchase dated 4 August 2009 they agreed to sell the property to the respondents for $2,125,000. The agreement for sale and purchase provided for a long-term settlement date, namely 11 March 2011. The agreement for sale and purchase also provided for the respondents to occupy the property pursuant to a licence to occupy which was to be completed prior to their taking occupation. The licence to occupy provided for the respondents to pay the applicants $8,000 a month with provision that $2,000 of that monthly sum would be applied in reduction of the purchase price when the property was settled.
[3] A formal licence to occupy was completed on 11 August 2009. Importantly it provided at cl 8:
The Owner may terminate this licence during its term by giving 10 working days’ written notice of termination at any time in any of the following circumstances:
(a) Failure to pay occupation fee for a period of ten working days after notice requiring the payment default to be remedied.
(b) Breach of any covenant contained in this deed, which continues more than ten working days after notice to remedy the breach.
(c) Cancellation of the Agreement by the Owner.
This Licence terminates immediately upon the settlement of the Agreement.
[4] Although the agreement for sale and purchase was due for settlement on 11
March this year the respondents did not settle. The applicants served a settlement notice after 5.00 p.m. that day. When that was not complied with, the applicants gave notice of cancellation of the agreement for sale and purchase on 30 March
2011.
[5] The respondents did not pay the occupation or licence fee due on 12 March and have not paid the licence fee subsequently. Despite that they remain in possession of the property.
[6] I add here that to protect their interest under the agreement for sale and purchase the respondents had registered a caveat but that caveat has been allowed to lapse.
The application
[7] The applicants seek orders for possession relying on two grounds:
first, that the agreement for sale and purchase has been cancelled; and
second, that the respondents have failed to pay the occupation or licence fee.
[8] The application for possession is brought by originating application. It was served on 25 May. The hearing date was 6 July. In accordance with the Rules a notice of opposition was due by 8 June. The respondents took no steps by that date. Only on 1 July did the respondents, through their then solicitors, advise the applicants that they intended to oppose the application. It was only on 6 July, the day immediately preceding the hearing of the application for possession, that a notice of opposition and affidavit in opposition was filed.
[9] The respondents challenge the applicants’ right to cancel the agreement for sale and purchase and also challenge the applicants’ right to terminate the licence agreement and on that basis oppose the applicants’ application for possession.
[10] The matter was briefly before the Court on 6 July in the Duty Judge list and was adjourned for argument to today.
[11] It is convenient first to deal with the issue of cancellation of the agreement for sale and purchase. The respondents submit the applicants were not entitled to, and have not validly, cancelled the agreement for sale and purchase. It is the respondents’ case the applicants were not ready, willing and able to settle the agreement for sale and purchase because at the time they issued the settlement notice they were themselves in breach of warranties and undertakings under the agreement and so were not entitled to cancel the agreement.
[12] The respondents say they themselves have recently tendered settlement and indeed intent to seek specific performance of the agreement for sale and purchase, albeit at a significantly reduced price.
[13] To the extent that the termination of the licence to occupy relies on the cancellation of the agreement for sale and purchase the respondents submit that the applicants are therefore not entitled to rely on that ground.
[14] The basis of the respondents’ case in relation to this issue is that the buildings or improvements on the property contain a substantial number of defects, which amount to breaches of warranties by the applicants under the terms of the agreement for sale and purchase.
[15] The respondents raise a number of matters. In a letter of 22 January 2011, written directly to the applicants, the respondents identified a number of issues of
concern to them at the time, including:
a door not working;
a diesel heater for the spa and pool not operating;
a leak in the entrance way and some damaged gib;
an accident in the shed where a series of access steps fell leading to an injury of Mr Andrews, one of the respondents;
a crack in an entrance stairwell; and
some glass in the master room which made crackling sounds.
[16] It has to be observed that none of those matters seem to be of any particular moment.
[17] However, in a further letter written on 4 March 2011 and prior to settlement the respondents’ solicitors wrote and raised a number of much more detailed complaints regarding the property.
[18] There was no attempt to quantify the defects the respondents alleged at that time. More recently, on 4 June, the respondents obtained a substantial report from AAA Design & Consultancy Ltd, which identifies a number of defects in the property. The respondents have been advised it would cost in the region of
$1,100,000 to address those defects. They seek to abate the purchase price accordingly.
[19] The rights of parties arising from alleged breaches of warranties and the provisions of cl 6 of the standard agreement for sale and purchase have recently been considered by the Supreme Court in the case of Property Ventures Investments Ltd v Regalwood Holdings Ltd1. The purchaser in that case raised issues concerning defects and breach of warranties. Blanchard J, speaking also for McGrath and Wilson JJ, said such a claim:2
must be advanced, and to the extent which is reasonably possible, particularised before settlement. If this is not done by the purchaser, the vendor will not be disabled from asking for settlement in full.
(Emphasis added).
1 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] 3 NZLR 231.
2 At [79].
The point of cl 6.5 is to make it clear that despite any breach of cl 6 by the vendor, the purchaser must still settle. The breach does not give the purchaser any right to delay settlement for any purpose. If the breach gives rise to a right to cancel but that course is not taken, the purchaser cannot simply sit on its hands. ...
It was suggested by Tipping J that the purchaser should seek to provide a genuine pre-estimate of loss the purchaser alleged as a consequence of the vendor’s breach of warranty.4
[20] The applicants say that in light of those observations, and bearing in mind that the respondents have been in occupation of the property and thus have been well able to identify and quantify defects, they should have quantified the defects or at least have made a reasonable pre-estimate of the cost of the alleged defects prior to the due date for settlement. The applicants say that it is now too late for the respondents to raise these issues.
[21] The nature of the application before the Court today is an application for possession. I note the observation of the Chief Justice in the Property Ventures’ case:5
If the vendor was in such material breach of contract (a matter that cannot be resolved on summary application) it was not “ready able and willing” to perform the contract and Property Ventures was not obliged to settle on its statement. Regalwood’s cancellation was not shown on summary application to have been valid.
(Emphasis added)
[22] I take from that that Elias CJ was cautioning against resolving disputed issues as to rights to cancellation on a summary application. I accept that this Court should be cautious about determining rights as to the cancellation of a substantive agreement for sale and purchase on an application for possession, where the
evidence is on affidavits and the parties have not been cross-examined.
3 At [93].
4 At [98].
5 At [26].
[23] Mr Campbell submitted that it does seem clear enough from the respondents’ own evidence, that no attempt was made to value or quantify the works required to remedy the property until after settlement. The respondent Mr Andrews confirms that at para 39 of his own affidavit.
[24] However, despite Mr Campbell’s thoughtful and forceful submissions I am not satisfied that it would be appropriate for the Court at this stage to make a definitive finding which could have the effect of binding the parties in separate proceedings that the applicants were entitled to cancel the agreement for sale and purchase. I note that the solicitors’ letter of 4 March on behalf of the respondents raised a number of material matters prior to settlement date. While those matters have only been quantified later, given the importance to the parties and the monetary value involved, I am not prepared to find at this summary stage on an application for possession that the respondents have no arguable basis to challenge the applicants’ right to cancellation. In coming to that view I note that Blanchard J noted that the requirement for particularisation was “to the extent it was reasonably possible”, and
that all that may be required is the claim must be “raised in substance”.6
[25] I conclude that the matter would need to be considered in context and in my judgment explored in somewhat more detail than has been possible at this summary hearing.
[26] I observe that the applicants would seem to have a very strong case but, for the reasons given above, I am not prepared to make a finding confirming their right to cancel at this stage. To the extent that the applicants seek possession on the basis of the cancellation of the agreement for sale and purchase the applicants’ application cannot succeed.
The effect of non-payment of the licence fees
[27] There is, however, a second leg to the applicants’ claim. The applicants also seek possession on the basis of non-payment of the licence fees. The Notice of
Intention to Cancel Licence to Occupy dated 14 April 2011 confirms that the notice
6 At [79].
was issued pursuant to ss 245 and 246 of the Property Law Act 2007 and that it was issued in reliance on two breaches, one of them being that the respondents had not paid the occupation fee of $8,000 due on 12 March 2011 and further did not pay that fee within the time specified in a default notice dated 23 March 2011.
[28] In the notice of opposition it is suggested that the notice dated 30 April did not comply with the requirements for cancellation under ss 244 and 245 of the Property Law Act in that it purported to terminate the licence within 10 working days of notice. That, however, is a misapprehension. It is apparent from the document I have just referred to, the Notice of Intention to Cancel dated 14 April and the earlier default notice of 23 March 2011 that the respondent has complied with the requirements of ss 245 and 246 of the Property Law Act.
[29] It is not in dispute that the respondents have not remedied the breach identified in the notice. They have not paid the $8,000 that was due on 12 March or indeed the $8,000 due each subsequent month thereafter.
[30] The three reasons given by the respondents for not paying the licence fee are, first, that they paid the fee from 12 August 2009 until 12 February 2011 and under the terms of the licence and agreement for sale and purchase they are entitled to a credit of $2,000 of that $8,000 a month to be applied in the reduction of the principal due on settlement. That credit totals $38,000.
[31] The respondents say that their status as creditors is uncertain on the basis of the cancellation issue. However, as noted the respondents do not accept the applicants were entitled to cancel. They have told the Court they intend to seek specific performance of the agreement for sale and purchase at an abated price. They say that the agreement for sale and purchase is still on foot. Consistent with that they have remained in occupation. However, equally consistent with that position and their occupation they are subject to the obligations under the occupation licence and must pay the $8,000 a month, even if $2,000 of that is to be ultimately set-off against the purchase price together with the accrued credit of $38,000.
[32] The respondents’ position is covered to the extent that there is, even on their
argument, a substantial sum of money due to the applicants to settle.
[33] Next, the respondents say that s 45 of the Residential Tenancies Act requires the landlord, the applicants in this case, to compensate the tenants, the respondents, for their reasonable expenses incurred in repairing the premises. In a supplementary affidavit filed with the Court this morning, Mr Andrews says he has spent approximately $29,825 on reports regarding the defects in the property as a first step in addressing the repairs required to the property. But as noted above, the respondents’ case is that the agreement for sale and purchase has not been cancelled and is still on foot. If that is the position, and the agreement has not been validly cancelled by the applicants then the Residential Tenancies Act can have no application to the case because s 5 of that Act confirms that the Act does not apply where the tenant is the purchaser of the premises under an agreement for sale and purchase with the landlord as vendor.
[34] The Residential Tenancies Act can thus have no application on the respondents’ case. It is unnecessary to determine the alternative submission advanced for the respondents that the exception in s 5 does not apply if the agreement for sale and purchase has been validly cancelled. However, I observe, without finding, that I agree with Mr Campbell’s submission that s 5 would apply even in the event of cancellation of the agreement for sale and purchase. The tenants took possession under that agreement for sale and purchase. If the agreement was cancelled their rights would be under the Property Law Act rather than the Residential Tenancies Act. However, it is unnecessary to determine that point.
[35] Finally the respondents say that they have incurred costs of approximately
$30,000 by way of the reports required to address the defects in the property. They argue they should not have to pay the occupation fee as their ability to recover those fees has become uncertain due to the actions of the applicants, who have purported to cancel the agreement for sale and purchase.
[36] Two brief points can be made in response to that. First, the costs were incurred well after the initial default of 12 March 2011 and the subsequent obligation
to make the payment on 12 April, for example. More importantly, the costs the respondents may have incurred are associated with their claim for an abatement in the purchase price under the agreement for sale and purchase. The costs should be set-off against the purchase price as part of the abatement. They are not to be set-off against the respondents’ obligation to pay an occupation rental, which is a quite separate issue. While the respondents remain in occupation of the premises they are required to pay for it.
[37] I conclude that, given the failure of the respondents to pay the occupation rental, the applicants were prima facie entitled to cancel the licence to occupy and to an order for possession of the property.
Relief against forfeiture
[38] However, the respondents have effectively made application for relief against forfeiture during the course of these proceedings in counsel’s oral submissions. Section 253 of the Property Law Act applies. The principle there is, as was confirmed in the recent cases of Grant & Anor v Hannay & Anor7 and Mulholland v Waimarie Industries Ltd:8
Where the breach consists solely of a failure to pay rent, there is a presumptive right to relief on payment of the arrears and costs. It is only in exceptional circumstances that relief is to be denied if the debt is paid in full.
[39] Provided therefore that the respondents address their default by paying the outstanding licence or occupation fees and comply with their obligations under the licence agreement thereafter they would, on the above authorities be entitled to remain in possession. If, however, the respondents are not willing or able to meet their commitments under the licence agreement and any other conditions the Court may impose as a condition of granting relief against forfeiture then the applicants should not be kept out of possession of their property. Possession of the property will not affect the parties’ rights in relation to or under the agreement for sale and purchase. The ultimate outcome of that issue is independent of which party has
physical possession of the property.
7 Grant & Anor v Hannay & Anor HC Auckland CIV-2009-404-007248, 17 March 2010 at [41].
8 Mulholland v Waimarie Industries Ltd HC Christchurch CIV-2009-409-000707, 15 May 2009.
[40] Mr Henry submitted that if the Court came to this conclusion and was to require the respondents to pay the arrears of occupation rental they should have 15 working days to do so. I am not prepared to accede to that request. The respondents have been on notice of the application for possession since 25 May, over six weeks ago. They must have been aware that it was likely that if they were to succeed in opposing the application for possession and were to be allowed to remain in possession, that they would have to satisfy their obligations under the licence agreement.
Result/orders
[41] Accordingly, I make the following orders:
The respondents are granted relief against forfeiture and may remain in possession of the property at 6 Lewis Lane, Coatesville, on the following conditions:
(i) They are to pay the occupation fee of $8,000 due on 12 July
2011 by 5.00 p.m. 12 July 2011.
(ii) They are to pay the outstanding occupation fees due as at
today’s date of $32,000 by 5.00 p.m. on Friday 15 July 2011. (iii) They are to pay the future occupation fees on due dates.
(iv)The respondents are to file and serve the specific performance proceedings counsel has referred to by 20 July 2011.
(v)If the respondents fail to comply with any one of the above conditions the applicants are entitled to apply on 24 hours notice for judgment for possession.
Costs
[42] The respondents were very late in filing the notice of opposition. I have concluded that the applicants are entitled to the order they seek but, in the exercise of its discretion the Court is granting relief against forfeiture and to that extent granting the respondents an indulgence.
[43] The respondents are to pay the applicants’ costs on a 2B basis for all steps in the proceeding taken to date.
Further directions
[44] In the event the respondents comply with the above directions and in particular file and serve an application for specific performance by 20 July 2011 the file is to be referred to the List Judge with a request that it be assigned to a Judge and
be granted a priority fixture.
Venning J
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