Flexa Clinic Limited v Hing
[2017] NZHC 3181
•19 December 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2755 [2017] NZHC 3181
UNDER the Property Law Act 2007 IN THE MATTER
of an application by FLEXA CLINIC LIMITED for an order against the proposed cancellation of a lease under Section 253 of the Property Law Act 2007
BETWEEN
FLEXA CLINIC LIMITED Applicant
AND
RAEWYN DEBORAH HING AND HING TRUSTEE LIMITED AS TRUSTEES OF THE R & E HING FAMILY TRUST
Respondents
Hearing: 14 December 2017 Appearances:
JM Skinner for Applicant
SJ Tee for RespondentsJudgment:
19 December 2018
JUDGMENT OF TOOGOOD J
This judgment was delivered by me on 19 December 2017 at 11.00 am
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Flexa Clinic Limited v Hing & Ors [2017] NZHC 3181 [19 December 2018]
[1] Flexa Clinic Limited seeks both interim and final relief under the Property Law Act 2007 against cancellation of a lease of commercial premises at 162 Lake Road, Northcote, Auckland. Mr Murray Hing is the sole director and a shareholder of Flexa.
Background
[2] In stating its grounds for the application, Flexa asserts that it entered into a
Deed of Lease for the Lake Road premises with a commencement date of
1 November 2011, the landlord being the R & E Hing Family Trust (the Trust), of which Murray Hing’s sister Raewyn and a trustee company (Hing Trustee Limited) are the current trustees. Murray is a beneficiary of the Trust.
[3] It is said that the lease constitutes a valid and binding agreement between the parties to it, but also that it was varied “in May 2013 on a Friday night” when Murray went to the house of his father, Raymond, to watch a game of rugby. He says Raewyn was present and that she told him she recognised that Flexa was having difficulties, in part because the Trust had refused the use of the Northcote property as security for an advance. Murray says that Raewyn told him that:
(a) the Trust was prepared to give Flexa a rental holiday to assist in getting the business back on track; and that
(b) the rent holiday was to last until the sale proceeds of Murray’s former
matrimonial home were distributed.
[4] Murray says his father, who was then a trustee, “also called out that this was ok”.
[5] Flexa ceased paying rent then and has not paid it since, but Murray makes a contribution, through the Flexa business, of $300 per week which contributes to the care of his father who has now been declared to be of unsound mind.
[6] The trustees’ position is that the Deed of Lease upon which Flexa relies was never executed by the Trust, Raymond (who was then a trustee) having signed it but the other trustee, Duthco Trustees No. 16 Limited, having expressly refused to sign the lease because it was not satisfied that doing so was in the interests of all the beneficiaries of the Trust. The Trust says, therefore, that there has only ever been a monthly tenancy, albeit at the rent set out in the lease document of $5,776.58 plus GST per month, a sum which was apparently paid between 2007 and May 2013. The Trust’s position is that while a rental holiday was agreed to (being merely a deferment of the obligation to pay rent and not a forgiveness of it) but that in any event it was only intended to be for a short period. The trustees claim to have been seeking payment of rent since 2014.
[7] The position is affected by the allegation by the Trust that, without its approval (although arguably with its tacit acceptance), Flexa has been sub-letting the property to sub-tenants who pay a total of $120,000 per annum in rent. None of this rent has been accounted for to the Trust. As I understand it, Flexa’s business is operated from the premises at 160 Lake Road and that 162 Lake Road is a building comprising subdivided commercial space. It appears, therefore, that Flexa is obtaining a significant income stream from a building it does not own, does not otherwise use and for which it is not paying rent.
[8] There has been considerable correspondence between the parties since 2013, none of which needs to be addressed in any detail for present purposes. It is clear, however, that underlying the present controversy is a breakdown in the relationship between brother and sister over the Trust’s affairs. Murray argues that his sister and other interested parties also are indebted to the Trust and sees no reason why the indebtedness of his company to the Trust, if any, should be the subject of coercive action to cancel Flexa’s lease.
[9] On 28 September 2017, the Trust’s solicitors served on the solicitors for Flexa a notice of breach of the terms of the lease which they said was a monthly tenancy at a rental of $1,5033 per week. Arrears of $152,866.30 for the period ended
31 March 2017 were claimed, and the notice asserted that Flexa would have 14 days
to remedy the breach, after which notice to cancel the lease on one month’s notice
would be given.
[10] On 17 October 2017, claiming that there had been a failure to remedy the breach set out in the notice of 28 September 2017, the trustees served one month’s formal notice of the determination of the monthly tenancy and, on
10 November 2017, confirmed by letter that Flexa would have to vacate the premises by 17 November 2017. In response, Flexa’s solicitors argued that there was a valid lease and that Flexa was entitled to a rent holiday which meant that claims for outstanding rental and the entitlement to cancellation were rejected.
[11] The originating application for relief against cancellation is awaiting a fixture which the parties anticipate will be allocated sometime in April 2018.
[12] The parties agree, therefore, that the issue to be determined at this stage is whether Flexa should be required to pay rent in the meantime and, if so, how much.
[13] It is agreed also that the Court should approach the matter as it would approach an application for interim injunction, considering the arguable merits of the parties’ positions and looking at where the balance of convenience and the overall interests of justice lie.1
The nature of Flexa’s occupation of 162 Lake Road
[14] I am satisfied on an examination of the papers that Flexa’s claim that it entered into a valid lease for a term of 10 years commencing on 1 November 2011 is tenuous at best. While the deed of lease was signed by Mr Raymond Hing as one of the trustees, it was not signed by the trust company that was then the other trustee, Duthco Trustees No. 16 Limited. It is clear that Duthco expressly refused to execute the document because of uncertainty that it was in the interests of all beneficiaries. It is more probable that the relationship has been one of landlord and tenant on the
basis of a monthly tenancy at a rental of $5,776.58 plus GST per month, at least up
1 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12].
to the point where there was said to be an agreement that Flexa would have the
benefit of “a rent holiday”.
[15] Putting aside any question of payment of arrears, therefore, the consequence of a finding that there is no binding lease and that the arrangement is merely a monthly tenancy is that it would be difficult for Flexa to argue that it is entitled to resist cancellation of the lease.
The rent “holiday”
[16] Although the informal discussion in May 2013 regarding the rent holiday may not have been sufficient to bind the Trust formally,2 the respondents may be estopped from denying that the rent holiday was granted by the trustees. The Trust’s solicitors said in a letter dated 25 July 2013 that the Trust, “has and is still providing a rental holiday” and payments of $300.00 per week have been accepted by the Trust since 2014.
[17] But the terms of the so-called rent holiday are by no means clear. It is disputed between the parties whether the rental holiday means that the obligation to pay rent was merely deferred or whether it means that the obligation was entirely forgiven during the period of the “holiday”. The applicant also faces the difficulty that it is not clear from the documents, including correspondence between the parties or their representatives at various times, what was agreed about the length of the “holiday”.
[18] On 1 December 2014, Flexa’s solicitors wrote to the Trust’s solicitors saying:
In June 2013, in lieu of the R & E Family Trust providing a Guarantee to the Bank of New Zealand a rental holiday was agreed. The only qualification on the rental holiday was that it continue until the property at 41A Clifton Road, Takapuna, was sold and was to assist the Flexa Group to rebuild its business into [sic] it was in a position to trade positively.
2 Raewyn was not a trustee; although she is a beneficiary, she had no authority to bind the Trust in such a matter. In May 2013, Raymond was co-trustee with Duthco. No resolution about the rent holiday was minuted under clause 9.1 of the Trust Deed.
At that time, Flexa’s solicitors suggested that, if the Trust acknowledged the lease arrangement and the rent holiday, a payment of $300 per week by Flexa would commence.
[19] In October 2017, however, Flexa’s solicitors asserted a different basis for the
rent holiday, arguing that:
The only limitation to the rent holiday was improvement of the businesses [sic] financial position and completion of relationship property issues with Murray’s ex-wife.
[20] I record that it is not disputed that the Clifton Road property was sold in 2016 and that the proceeds of sale are now held in a solicitor’s trust account pending resolution of Murray’s relationship property dispute with his ex-wife. On the basis first asserted for the rent holiday by Flexa’s solicitors, it ended with the sale of Murray’s former matrimonial home in 2016. To the extent that Flexa’s financial position is relevant to the duration of the rent arrangement, the only financial information about the company is a letter from its business and taxation advisers asserting that it made a profit of $24,923.00 in the year ended March 2016.
Trustees’ proposal for interim rental
[21] The trustees claim that the current market rental for 162 Lake Road is
$8.541.67 plus GST per month. They propose, however, that pending the hearing of the application for permanent relief Flexa should pay rent at the rate of $5,776.58 plus GST per month which was the rate provided for in the lease document and paid by Flexa until May 2013.
Flexa’s response
[22] It is submitted for Flexa that the Trust has not insisted on the payment of more than $300 until this proceeding was issued and that it has not demonstrated any particular need for the rental income it now seeks. It is argued that, on balance, the Court should determine that payment of rent should await the outcome of the substantive hearing in a few months’ time.
[23] On the untested evidence before the Court, I conclude:
(a) There is a barely arguable case that the parties have entered into a formal lease for a period of years from November 2011, and that it is more probable that the nature of the arrangement for Flexa’s occupation of the Lake Road premises is a monthly tenancy.
(b)In the absence of fully tested evidence as to the nature of the “rental holiday”, it is only faintly arguable that Flexa remains entitled to withhold payment of rent of $5,776.57 plus GST per month.
(c) The argument that, because the Trust has not insisted on the payment of more than $300 in rent until recently, it is reasonable not to require a higher rent to be paid until the determination of the substantive claim might carry greater weight if Flexa’s case was more strongly arguable. The trustees have been asserting the Trust’s right to receive the higher rental for some years.
(d)The only financial evidence before the Court shows that Flexa earned a “profit” of approximately $25,000 to the financial year ended March 2016. There is no evidence indicating that it is unable to pay rent at the rate sought by the trustees on an interim basis.
(e) To the contrary, given that Flexa is receiving approximately $10,000 per month in rent paid by sub-tenants of a building it does not own and for which it is not paying rent, and in the absence of evidence as to its current financial position, it is reasonable to infer that it has the means to pay rent pending the hearing and that it is equitable that it should do so.
[24] I direct that:
(a) pending the determination of the substantive application, Flexa Clinic Limited shall pay the sum of $5,776.58 plus GST per month by way of rent on the first day of each month commencing on 1 January 2018; and
(b) Flexa Clinic Limited’s tenancy of 162 Lake Road, Northcote shall not
be cancelled pending a further order of the Court.
Costs
[25] Costs on the application for interim relief shall be determined on a category
2B basis. If the parties cannot agree, any application for costs shall be by memorandum filed and served before 26 January 2018. Any memorandum in reply shall be filed and served by 16 February 2018. Costs shall then be determined on the papers unless the Court directs otherwise.
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Toogood J
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