Go Lounge Limited v OECL Limited

[2022] NZHC 570

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2021-419-298

[2022] NZHC 570

BETWEEN

GO LOUNGE LIMITED

Applicant

AND

OECL LIMITED

Respondent

Hearing:	14 March 2022
Counsel:	V Whitfield for the Applicant T Tran for the Respondent
Judgment:	25 March 2022

JUDGMENT OF GORDON J

This judgment is delivered by me on 25 March 2022 at 1pm pursuant to r 11.5 of the High Court Rules.

.....................................................

Registrar / Deputy Registrar

Counsel:            Victoria Whitfield, Barrister, Cambridge

Truc Tran, Barrister, Hamilton

Solicitors:Gurnell Harrison Stanley Lawyers, Hamilton for the Applicant Webb Gould Law, Hamilton for the Respondent

GO LOUNGE LIMITED v OECL LIMITED [2022] NZHC 570 [25 March 2022]

Introduction

[1]                 The applicant, Go Lounge Ltd (Go Lounge), is the lessee of commercial premises (the premises) on the ground floor of a two-storey building at 19 Captain Cook Road, Cooks Beach. It applies under s 261 of the Property Law Act 2007 (the Act) for an order under s 264 granting it relief against forfeiture of the lease.

[2]                 The respondent, OECL Ltd (OECL), is the owner of the premises. It opposes the application.

[3]                 Ryan Laird, the director of Go Lounge, swore an affidavit in support of the application and was cross-examined (briefly) at the hearing. Louise Taylor, the director of OECL, swore an affidavit in support of OECL’s opposition to the application.

Background

[4]                 Go Lounge has operated a restaurant from the premises since 2007. It continues to do so. The restaurant originally operated under the name Go Vino. In 2021 it was re-branded as KaiZen. Until August 2021 Mr Laird lived on the upper floor above the premises with his wife and young son. They had lived there under a separate residential tenancy agreement that commenced on 1 March 2015.1 I will refer to the upper floor as the apartment and the building as a whole as the property.

[5]                 Cooks Beach is a small coastal settlement with a permanent population of 459 people. The population increases by ten times from Christmas to the end of January. The only other restaurant/bar in Cooks Beach is the Vessel which operates on a seasonal basis during the summer months. It was established in November 2018 and is situated at 37 Captain Cook Road, within 100 metres of KaiZen. Ms Taylor and her business partner own the Vessel. Their purchase of the Vessel settled in June 2021 and they opened in September 2021.

1The agreement recorded that it was a periodic tenancy which might be ended by either party giving notice as required under the Residential Tenancies Act 1986.

[6]                 OECL purchased the property at 19 Captain Cook Road at auction on 8 July 2021 from the previous owner Bayley Developments Ltd (BDL). Settlement of the purchase took place on 11 October 2021.

[7]                 Go Lounge and BDL had entered into a deed of lease dated 14 June 2019 (the 2019 lease). Under the 2019 lease BDL leased the premises, along with all but one of the carparks at the rear of the building, to Go Lounge.

[8]                 The 2019 lease commenced on 1 August 2018. It contained three rights of renewal of three years each. If it was not renewed the first term thus ended on 31 July 2021. If all rights of renewal were exercised the term extended to 31 July 2030. Go Lounge could exercise its right of renewal if:

(a)it gave BDL written notice of renewal at least three calendar months before the end of the term; and

(b)it was not, at the date of giving notice, in breach of the lease.

[9] There was a previous lease between the same parties dated 12 October 2007 (the 2007 lease). The right of renewal in the 2007 lease contained essentially the same terms as in the 2019 lease set out above at [8].

[10]            Around May 2021, Mr Laird became aware that BDL intended to sell the property. The auction was set for 8 July 2021. An article on the Stuff Limited website dated 11 June 2021 makes it clear that the property (as a whole) was being marketed as an investment opportunity. The article quotes one of the real estate agents (the agents) as saying:

It is a two-pronged tenancy format which has operated successfully for some 14-years now as the KaiZen at Go Veno business has year-on-year grown its clientele.

[11]            On Friday 2 July 2021, BDL’s solicitor sent an email to Go Lounge’s solicitor stating that BDL was marketing the property for sale, and it had been noted that the

dates in the lease were incorrect.2 The email asked Go Lounge’s solicitor to confirm the error and to confirm that the correct renewal dates were 1 August 2021, 1 August 2024 and 1 August 2027, with a final expiry date of 31 July 2030. The email also said:

No renewal was undertaken for the 1 August 2020 date recorded in the lease. Can you please advise whether your client is intending to renew the lease this August?

[12]            Mr Laird says that on Monday 5 July 2021 he received advice that the auction terms had changed and the property was to be sold on the basis that the apartment was unoccupied. Before this, and for the six-week marketing period, the property had been marketed on the basis that the apartment was occupied. Mr Laird says this change, which occurred only three days prior to the auction, caused him a huge amount of stress. He says there are very few long-term rentals (which would guarantee that a tenant would not be asked to vacate over the summer holiday period). Ms Taylor also says there are few houses available for people to rent at Cooks Beach.

[13]            Mr Laird says, having regard to the change in auction terms in relation to the residential tenancy, he wanted assurance that he and his family would be able to take up the residential tenancy. He said it all happened very quickly and he was in quite a panicked state thinking that he and his family could lose their home.

[14]            As a consequence his solicitor sent an email at 11.05am on 6 July 2021 to BDL’s solicitor. The email stated:

Our client instructs they will only take the renewal of the Restaurant/Cafe lease if a fixed term residential tenancy of the upstairs unit is also granted to them for the same period as the restaurant/Cafe renewal (ie 3 years from      1 August 2021).

Our client confirms that the correct renewal dates are 1 August 2021, 1 August 2024 and 1 August 2027, with final expiry date of 31 July 2030.

[15]            The 6 July 2021 email is central to the case for OECL. While Go Lounge acknowledges that the email may count in favour of OECL, it emphasises that it is only one of the many factors the Court will balance in exercising its equitable jurisdiction to determine the application.

2      The renewal dates were recorded in the lease as: 1 August 2020; 1 August 2023; and 1 August 2026; with a final expiry date of 31 July 2029.

[16]            Go Lounge’s solicitor did not receive a response from BDL’s solicitor to the 6 July 2021 email.

[17]            Mr Laird says that after his solicitor sent the 6 July 2021 email he received a phone call from one of the agents wanting to know what was going on. Mr Laird said the agent asked him if he was prepared to be out by the 31st. Mr Laird says he replied that they might have to be.

[18]            Mr Laird says he immediately telephoned the agent back. He says the agent was worried about the sale of the property if there was no tenant in place in the premises. Mr Laird says he gave the agent an assurance that they (i.e. Go Lounge) would stay. He also assured the agent that he was not trying to influence the auction and that the consortium he had hoped to put together to bid at the auction was not in a position to make a bid.

[19]            Mr Laird says by then people in the community who were aware of his “predicament” had said they would help him find accommodation if he and his family had to vacate the apartment. Mr Laird says that is why he was encouraged to tell the agent that they would stay in the premises. However, he says he also told the agent that he needed to impress on any purchasers his desire to still rent the apartment.

[20]            Mr Laird says that the agent then told him he had potential bidders and he would ask their permission for Mr Laird to give them a call. Mr Laird says the agent later supplied two numbers for “Gary” and “Phil” for him to call.

[21]            Mr Laird says that the agent said he was taking another prospective purchaser, Ms Taylor, to look through the property again that afternoon. Mr Laird said he presumed that the agent would tell Ms Taylor about the conversation he had had with the agent and his assurance that Go Lounge would stay in the premises. Mr Laird says later that day he telephoned both Gary and Phil and assured them that he was wanting to continue the 2019 lease and also wanted to rent the apartment. Mr Laird says another potential bidder approached him to get an assurance that the restaurant would be staying. Mr Laird says he gave him that assurance.

[22]            Ms Taylor says that when she first became aware that the property was for sale she considered it was an attractive opportunity because there are very few commercial options within Cooks Beach. She said it had the advantage of having an apartment upstairs which could potentially be used for staff accommodation. She says having seasonal staff at the Vessel was very challenging in the Covid environment.

[23]            Ms Taylor says that she physically inspected the property on three occasions prior to settlement: once on an initial inspection with the second of the two agents; then approximately two or three days before the auction with the agent Mr Laird had spoken to; and once more before settlement for inspection.

[24]            Ms Taylor says on being told that the residential tenancy would not be renewed, or had not been renewed, and there was not going to be a tenant upstairs, this reinforced her thinking around staff accommodation. At that point Ms Taylor said she was looking at the purchase as a commercial opportunity in terms of the property itself. She says, however, the 2019 lease was very unattractive because the final expiry was 2030, there appeared to be incorrect dates in the lease and she thought the rental being paid for the premises was well below market rental.

[25]            Ms Taylor says that on 6 July 2021 on receiving information from the agent that the lease for the premises was not going to be renewed she thought it was “brilliant” that there would be vacant possession of the commercial premises. She said this started her thinking about various opportunities: putting a restaurant outlet in downstairs; converting downstairs into accommodation; or securing a new tenant.

[26]            On 8 July 2021, the agent updated by email the terms of conditions of the auction of the premises. The email stated:

Good morning,

Note the lease date final expiry has been changed to 2030 in line with the vendors lawyers instructions.

Please discard the previous auction terms and conditions of sale and replace with the attached,

Regards

[27]            Replacement terms and conditions reflecting the advice in the email were attached to the email. It is not clear from the email exhibited to Mr Laird’s affidavit who the email was sent to. It would be reasonable to assume it was sent to potential purchasers.

[28]            At auction on 8 July 2021 there were four bidders: the three Mr Laird had spoken to and Ms Taylor for OECL. The property was sold to OECL. The bidding records show the property was sold at 12.24pm.

[29]            Mr Laird says he was not present at the auction but his parents were. They telephoned him to let him know of the outcome.  Then, by email sent at 1.04pm on   8 July 2021 Go Lounge’s solicitor emailed BDL’s solicitor saying:

Our clients advise they wish to exercise the renewal of the lease (without the need for an equivalent termed residential tenancy of the residential unit).

[30]               BDL’s solicitor replied by emailed letter the same day confirming the property had been sold unconditionally and that BDL was required to provide vacant possession of the apartment. There was no reference in the letter regarding the lease of the premises.

[31]            On 12 July 2021, Go Lounge’s solicitor contacted the solicitor for OECL and sought a meeting to discuss OECL’s plans for the apartment stating that Mr Laird was hoping to also continue renting the apartment. Go Lounge’s solicitor followed up with a further email on 20 July 2021 asking for Ms Taylor’s details so Mr Laird might contact her directly. OECL’s solicitor responded on the same day saying that he had sent correspondence to BDL’s solicitor and was awaiting a response.

[32]            On 27 July 2021, BDL’s solicitor sent an email to Go Lounge’s solicitor. It is clear from another document that the solicitor for BDL sent a draft of the email to OECL’s solicitor for comment before it was sent to Go Lounge’s solicitor. The email included the following:

The purchaser has advised they have relied upon the advice of your client, and their non-renewal of the lease. They do not wish to allow a departure from the terms of the lease, and do not agree to your client renewing the lease out of time, and accordingly the lease expires 31 July 2021.

[33]            The solicitor for Go Lounge responded by email on 28 July 2021 setting out Go Lounge’s position as follows:

Very late in the process your client raised an issue regarding incorrect renewal dates in the lease and asked for a response from our client at short notice. Our client advised he would only take a renewal of the lease if the residential unit was also rented to him for an equivalent period. Immediately following this, and before the auction, your client’s agent then contacted our client about the matter, as the property was being marketed throughout as a tenanted commercial premises. The matter was discussed and our client advised your client’s agent (Josh Smith of Bayleys) that he would change his position and would in fact renew the lease for [a] further 3 year period despite not yet knowing if he would be granted a three year residential tenancy of the upstairs unit. Our client was even given names of two prospective purchasers by Josh Smith and spoke to the two prospective purchasers to confirm he was taking the renewal.

At no point did your client ever advise our client whether an equivalent residential tenancy would or would not be granted. In addition the notice given to your client’s agent, our client then formally confirmed what had already been notified to your client’s agent – that our client would renew the commercial lease even though an equivalent residential tenancy had not yet been confirmed either way.

[34]            BDL’s solicitor responded by email dated 11 August 2021 saying that the details in the 28 July 2021 email had been referred to the agent. The email asserts that the agent was unequivocal in his position that Mr Laird did not make a representation to him. It is stated that the agent denies that Mr Laird gave him any notice of Go Lounge’s intention to renew the lease. The email says that the agent was prepared to swear an affidavit to that effect (I note there is no affidavit from the agent).

[35]            The 11 August 2021 letter further states that it was in reliance on the representation in the 6 July 2021 email that the auction proceeded on 8 July 2021.

[36]            Go Lounge’s solicitor responded by email on 12 August 2021. The email includes the following:

Importantly, on the morning of the auction (and after our client had spoken to your client’s agent and advised that he would in fact be taking up the renewal) [the estate agent], on behalf of your client, e-mailed the prospective purchasers amended auction terms. The terms re-confirmed that the property was being sold subject to the tenancy and rights of renewal, with a final expiry of 31 July 2030. It was not represented that the building was being sold with vacant possession as your client states, and it was not represented that our client would be vacating…

[37]            However, at least by 16 September 2021 BDL had changed its position regarding renewal of the lease. In an email of that date to OECL’s solicitor, BDL’s solicitor states:

… Fundamentally, if your client wanted vacant possession, she should not have signed an agreement that provided for a commercial lease. …

[38]            On 11 October 2021, OECL settled the purchase of the premises. Ms Taylor says that on 10 October 2021 she was with the second of the two agents inspecting the property. The agent told her that BDL would like to offer her the opportunity not to settle and the property would go back on the market because they had another interested party (one of the bidders at the auction). Ms Taylor says she declined the offer.

[39]            In light of BDL’s refusal to renew the lease, Go Lounge sought to invoke an arbitration clause in the lease. OECL refused to participate in the arbitration, leading Go Lounge to file the present application.

Interim injunction hearing

[40]            On 25 November 2021, OECL served a notice on Go Lounge requiring the latter to vacate the premises by 23 December 2021. In response, Go Lounge filed an application on 6 December 2021 for urgent interim injunctive relief preventing OECL acting on its 25 November 2021 notice. On 9 December 2021, Lang J granted Go Lounge the  relief it sought namely an order restraining OECL from acting on its    25 November 2021 notice.3

[41]Go Lounge remains in possession of the premises pending my decision.

Issue

[42]            The parties identify the key issue as whether the Court should grant Go Lounge relief from the forfeiture of its lease pursuant to s 264 of the Act given that Go Lounge never formally renewed the lease in accordance with the terms of the 2019 lease. There is also the 6 July 2021 email already referred to.

3      Go Lounge Ltd v OECL Ltd [2021] NZHC 3364.

[43]            Before Lang J, Mr Tran for OECL had argued that the Court had no jurisdiction to hear the substantive application: Go Lounge had filed its application out of time and the Court had no power to extend the time for filing; and in any event the 2019 lease had now expired. Lang J rejected both arguments.4 OECL does not pursue them on the substantive application.

Relevant law

[44]Section 264 of the Act provides:

(1)On an application under section 261, the court may grant relief against the refusal of the lessor to extend or renew the lease, or enter into a new lease…

1. In particular, the court may—

(a)do either of the following:

(i)order the lessor to extend or renew the lease or enter into a new lease with the lessee…

…; and

(b)    grant relief under paragraph (a)(i) or (ii) on any conditions (if any) as to expenses, damages, compensation, or any other relevant matters that the court thinks fit.

[45]            Section 264(3) makes clear that if the lessor has made a disposition to a person other than the lessee; and granting relief under this section to the lessee would prejudice that third party; that fact does not preclude the court from granting relief. In such a case the court may do any or all of the following:

(a)Cancel or postpone that estate or interest.

(b)Assess the damages or compensation to be paid to any person prejudicially affected by that cancellation or postponement.

(c)Order any damages or compensation to be paid by the lessor or by the lessee, or partly by the lessor or lessee in the proportions that the court determines.

4      At [16] and [18].

[46]            As Hinton J said in Wendco (NZ) Ltd v LJCTB Trustees Ltd, the principles relevant to the Court’s discretion under s 264 are well established:5

Section 264 is a “remedial measure” that confers a “very wide jurisdiction to do equity in relieving against refusals by lessors to renew leases”. The legislature’s intention was to enable the Court to do what it thinks fit in accordance with the justice of the particular application. The underlying rationale for the Court’s equitable jurisdiction is to protect the lessee from a lessor taking commercial advantage of their inadvertent mistake, where to do so would have a disproportionate effect on the lessee.

[47]            In Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd, Asher J identified seven factors to assist the Court’s assessment of where the equity lies:6

(a)Reasons for the failure to give notice. For example, whether the failure to renew the lease was inadvertent.

(b)Whether the cause of default was due to any action of the landlord.

(c)The lessee’s conduct, in particular whether it has complied with all the terms of the lease and has been a good tenant.

(d)The prejudice to the lessee if the relief is not granted.

(e)The prejudice to the lessor if the relief is granted.

(f)The lessor’s motivation for the refusal to renew and understanding of the lessee’s intentions.

(g)The interests of third parties and how they may be affected by any order.

[48]None of these factors is itself determinative of the application.7

5      Wendco (NZ) Ltd v LJCTB Trustees Ltd ]2017] NZHC 2668 at [17] (footnotes omitted).

6      Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd (2005) 7 NZCPR 48 (HC) at [29].

7      Wendco (NZ) Ltd v LJCTB Trustees Ltd, above n Error! Bookmark not defined., at [19]. In making that point, Hinton J cited the words of Asher J in Sibrad Company Ltd v Kanters (2008) 9 NZCPR 356 (HC) at [20]. There Asher J reasoned that a lessee could not expect relief merely by explaining its failure to renew as innocent and inadvertent. That failure, though innocent, might have prejudiced the lessor, something which the Court should also consider in determining such a case.

Submissions

[49]            Counsel for both parties made their submissions with reference to these factors. I now address each factor in turn.

Reasons for the lessee’s failure to give notice, including whether that failure was inadvertent

[50]            Ms Whitfield, for Go Lounge, submits that the circumstances relevant to this factor are unusual. She says that since BDL had never insisted under the 2007 lease that Go Lounge formally renew the lease, the failure of Go Lounge to renew the 2019 lease prior to the three-month period was “clearly inadvertent”.

[51]            She also submits that by asking Go Lounge whether it intended to renew the lease only a week before the auction, BDL had impliedly accepted that Go Lounge could renew the lease out of time. She says further that the option to renew was still open to Go Lounge after it offered to renew the 2019 lease on new terms (on the condition the residential tenancy was also granted) because it received no reply from BDL.

[52]            Ms Whitfield says that Go Lounge admits it sought security for the residential tenancy, and that led to its failure to renew at that point. However, she submits that that must be read against the background that:

(a)Mr Laird assured the agent that Go Lounge would remain in the premises.

(b)The auction terms were amended only three days prior to the auction to provide for the residential apartment being vacant, with the consequence that Mr Laird and his family would be homeless and thus face difficulties running their restaurant.

(c)On Mr Laird’s evidence, BDL changed the auction terms (regarding vacant possession of the apartment) at the request of Ms Taylor to place pressure on Go Lounge, a competitor. Ms Whitfield notes that Ms Taylor has not expressly denied that allegation.

[53]            Ms Whitfield cites Wendco, where the lessee did not serve a renewal notice for 22 months past the expiry of the lease term. The lessee in that case believed the parties were negotiating the annual rent. The lessor claimed that the lessee was delaying the service of a renewal notice until it had secured a lease on better terms. The Court accepted the lessor’s contention but did not deem determinative the lessee’s intentional failure to renew. After considering all factors, the Court still granted the lessee relief from forfeiture. Ms Whitfield submits that Go Lounge’s conduct was not even close to the same scale as that of the lessee in Wendco which deliberately did not exercise the renewal for 22 months past the expiry to gain leverage during negotiations.

[54]            Mr Tran for OECL submits that the failure to renew cannot be characterised as inadvertent. He submits that Go Lounge attempted to keep its options open by failing to formally renew the lease, which later backfired when an unexpected party was the successful bidder at auction. He submits that Go Lounge’s email of 6 July 2021, where it attempted to bargain instead of preserving its position as lessee, is deserving of significant weight.

[55]            As already noted there was a prior lease (the 2007 lease) between BDL and Go Lounge for the premises. The commencement date was 1 November 2007 with three rights of renewal each of three years. The renewal dates were 1 November 2010, 1 November 2013 and 1 November 2016 with a final expiry date of 31 October 2019. Like the 2019 lease, written notice of renewal was required at least three calendar months before the end of the term.

[56]            Mr Laird’s evidence is that there were never any formal renewals and the lease simply rolled over. Mr Laird was not challenged on that evidence. I accept that was the case.

[57]            It was therefore reasonable for Mr Laird to assume that the same informal arrangement would apply to the 2019 lease. By its conduct BDL had accepted that renewals could operate in that way. In other words, Go Lounge had until 31 July 2021 to give notice of renewal.

[58]            That BDL assumed it was open to Go Lounge to give notice in a way that did not comply with the lease terms is also apparent from the 2 July 2021 email from its solicitor asking if Go Lounge was intending to renew the lease. In other words, BDL was not insisting that there be the three-month notice period as contained in the 2019 lease.

[59]            BDL did not respond to the 6 July 2021 email from Go Lounge’s solicitor saying Go Lounge would only renew the 2019 lease if a fixed term residential tenancy was also granted. By not responding, there was no change to the contractual position that had operated regarding renewal since the commencement of the 2007 lease. The position therefore vis-à-vis BDL is that it was open to Go Lounge to renew the lease for the premises at least up until 31 July 2021.

[60]            I turn next to the events surrounding the 6 July 2021 email. I accept that it was sent on behalf of Go Lounge in the context of Mr Laird finding out the day before, on 5 July 2021, that he and his family were to lose their home above the restaurant. Mr Laird’s position is that on speaking to the agent on 6 July 2021 by telephone he initially confirmed that they (i.e. Go Lounge) would need to vacate the premises; but he immediately phoned the agent back and says he gave him an assurance that he wanted to continue the lease. Mr Laird annexed to his affidavit records from 2 Degrees showing his mobile phone usage on 6 July 2021. There is a call at 12.04pm which Mr Laird said was his call to the agent confirming he wished to continue with the lease.

[61]            However, there is an email which Ms Taylor relies on which was sent by the agent to Ms Taylor at 12.23pm on 6 July 2021. In other words it was sent after the phone call. In that email the agent said:

We have received notification from the tenant at 19 Captain Cook Road, Cooks Beach that they will not be renewing the lease for the downstairs tenancy unless they secure the residential tenancy on the first floor. We are making you aware of [sic] the prior to the auction on Thursday.

[62]            Mr Laird was asked in cross-examination about the timings. While acknowledging that there seemed to be an issue in relation to the timings of his phone call and the email to Ms Taylor he insisted he had told the agent he wished to continue with the lease of the premises. There is some support for Mr Laird’s position in the

email sent by the agent (presumably to at least the registered bidders) on the morning of the auction, noting that the lease date final expiry had been changed to 2030 in line with the vendor’s lawyer’s instructions. In the auction terms and conditions attached to the agent’s email, in schedule 3, as regards residential tenancies it is stated “vacant possession”. In the same schedule, in relation to “commercial/industrial tenancies” it is stated that the term is three years; there are three rights of renewal of three years; and the final expiry is 31 July 2030. There is no reference to the lease not being renewed.

[63]            Even if Ms Taylor had been under the impression that the 2019 lease was not going to be renewed (having received the agent’s email of 6 July 2021) the email sent by the agent on the morning of the auction attaching the revised terms and conditions should have put her on notice regarding renewal given that the final expiry of the lease was expressed to be 31 July 2030. That is inconsistent with a non-renewal.

[64]            This weakens OECL’s claimed reliance on the agent’s email of 6 July 2021. Further, and in any event this factor is only one of the factors the Court considers.

Whether the cause of the default was due to any action of the landlord

[65]            Ms Whitfield submits that there was fault on the part of BDL and OECL that contributed to Go Lounge not exercising the renewal within the required time. She submits that Go Lounge’s failure to give notice within the required time was because of the historical conduct of both parties not insisting on the strict formalities of the 2007 lease. She submits that BDL did not respond to Go Lounge’s offer and it was only when OECL secured the purchase of the property that BDL advised that the lease would not be renewed.

[66]            Mr Tran submits that the lessor at all relevant times was BDL. He submits that OECL inherited these issues with ownership of the property on 11 October 2021. He submits that the historical conduct of the parties was outside OECL’s control.

[67]The circumstances of this case do not fit easily with this factor.

[68]            I have already discussed BDL’s conduct in not requiring formal renewals in accordance with the terms of the 2007 lease. I have also noted that BDL’s solicitor did not respond to the 6 July 2021 email from Go Lounge’s solicitor regarding a residential tenancy.

[69]            There is no affidavit on behalf of BDL but on one view it might be said, as Ms Whitfield submits, that BDL chose to keep its options open by not responding to Go Lounge’s 6 July 2021 email. It was only once OECL had secured the purchase of the property that BDL advised that the lease would not be renewed.

[70]            Mr Tran submits that all of the above was out of OECL’s control. To an extent that is correct, but I also note as submitted by Ms Whitfield, that Ms Taylor has not expressly denied the allegation that the auction terms regarding vacant possession of the apartment were amended at her request.

The lessee’s conduct

[71]            Mr Tran submits that Go Lounge is a difficult tenant. He refers to Ms Taylor’s evidence that prior to the auction it had been conveyed to her that the tenant was difficult and that Mr Laird’s conduct (as conveyed to her by the agent) was designed to scare off investors so he had a better chance at the auction (as part of the consortium he had hoped to put together). Ms Taylor makes other allegations about Mr Laird’s conduct which Ms Whitfield responds to as discussed below.

[72]Mr Tran refers to Sibrad Company Limited v Kanters where Asher J stated:8

… It is not sufficient for an applicant to simply explain the failure to renew as innocent and inadvertent, and then to expect relief. If that were the position, the Act would say so. Rather there is a broad discretion, and where there are breaches of lease by the lessee, the extent to which they affect the lessor can be considered. So can bad behaviour by a lessee and consequent bad feeling between landlord and tenant, as these can give rise to real prejudice to a lessor if a renewal is forced.

[73]            Ms Whitfield submits that there is no evidential basis for any conclusion other than that Go Lounge has been a good tenant. She accepts that Go Lounge was in

8      Sibrad Company Limited v Kanters (2008) 9 NZCPR 356 (HC) at [20].

arrears for a period in around 2012 to 2013 but that was fully and finally settled with BDL in 2013. She submits that otherwise Go Lounge has always paid rent, albeit on the wrong day of the month. She submits that the reduced rent paid due to COVID- related disruptions was previously agreed between BDL and Go Lounge and was reasonable. As to the electricity issue Mr Laird explains as follows:

[37]      Louise raises the issue with the power. There is no separate meter between the commercial premises and the residential accommodation. This means that Go Lounge pays the entire power bill and then needs to seek recovery of the portion of power provided to the residential apartment.

[38]      Previous tenants had refused to pay their electricity bill so I requested a bond for the power bill.

[39]      I removed the fuse till we could reach agreement in relation to the payment of the power for the residential accommodation (which was all otherwise chargeable to Go Lounge).

[40]      I communicated with Louise about this, as shown in her Exhibit J.    I did ask Louise to sort this before her tenants moved in but she failed to do so.

[41]      The electricity issue has not yet been resolved [as at the date of the affidavit, 18 February 2022]. We are currently deducting the electricity costs from the monthly lease payments.

[74]I address in turn each of the four issues raised on behalf of OECL.

[75]            First, there is the allegation that Mr Laird attempted to devalue the property through his comments to prospective purchasers. It is apparent from Ms Taylor’s affidavit that she was not present on any of those occasions and this was simply the thinking of the agent that this was a tactic being adopted by Mr Laird. Mr Laird denies that was the case. He says most viewings occurred while he was not present and so he had no contact with those parties. He says that on occasions he was present he simply answered any questions that were asked of him.

[76]            I place little weight on this allegation made against Mr Laird. It is a second- hand comment made by the agent and in any event Ms Taylor says herself, in her affidavit, that “[n]one of this fazed me at the time because at the end of the day I didn’t know who was going to be the successful bidder at the auction.”

[77]            Regarding Mr Laird’s admitted removal of the fuse box, I agree with Mr Tran that this was not the right way of going about resolving the issue of a separate meter for the apartment. However, I do not place Mr Laird’s conduct in the category of “bad behaviour by a lessee” as referred to in Sibrad Company Limited.

[78]            I accept that Go Lounge did not always pay its rent as required on the first of the month. It paid the rent but on the wrong day. That may well be annoying to the landlord but the point is the rent was never in arrears (save for the few days after the first of the month). Again I do not put this in the “bad behaviour” category.

[79]            Finally there is the issue of reduction in rent. OECL claims that Go Lounge reduced the rent and outgoings to 70 per cent of the amount payable under the 2019 lease without its consent. Mr Laird’s evidence was that the previous agreement he had reached with BDL was that, pursuant to clause 27.5 of the 2019 lease, Go Lounge would pay 30 per cent for the period during the Level-4 Covid lockdown and 70 per cent during Level-2. Then when the next lockdown commenced in September 2021 for a period of approximately four weeks, Mr Laird says in accordance with the previous arrangement, Go Lounge paid 30 per cent of the rent due on 1 September 2021.

[80]            The payment made to OECL in November 2021 was at 70 per cent of the rent. When New Zealand moved into the traffic light system, Go Lounge resumed paying rent at 100 per cent.

[81]OECL’s complaint is that there was no agreement as to the reduced rent.

[82]            The 2019 lease was in the form of the Auckland District Law Society’s standard deed of lease. Clause 27.5 applies where there is an emergency and the tenant is unable to gain access to the premises to fully conduct the tenant’s business. If that is the case:

.. then a fair proportion of the rent or outgoings shall cease to be payable for the period commencing on the date when the tenant became unable to gain access to the premises to fully conduct the tenant’s business from the premises until the inability ceases.

[83]            In Coffee Culture Franchises Ltd v Home Straight Park Trustees Ltd9 Associate Judge Bell considered this clause in the context of Covid-19 disruptions to business. He stated:

[24] … I do not consider that cls 27.3 or 27.5 were intended to require a tenant whose business has collapsed to carry on paying rent and to claim back an overpayment later if it has managed to survive despite cash-flow difficulties in the meantime. …

[84]            Although Go Lounge did not reach explicit agreement with OECL regarding the amount of reduction in rent given the agreement with the previous landlord it can hardly be said, as Mr Tran submits, that the reduction in rental payments was an “arbitrary reduction”. Further, by email of 2 December 2021 to the solicitor for OECL, OECL was asked to advise if it considered that the percentage deduction applied was not reasonable, and if so to explain its reasoning. OECL did not respond to that email.

[85]            In short none of the matters raised by OECL are of sufficient weight to tip the scales against Go Lounge.

Prejudice to the lessee if relief is not granted

[86]            Ms Whitfield submits that potential prejudice to Go Lounge would be severe if relief is not granted. She notes that KaiZen has been operating for over 14 years at Cooks Beach and is an integral part of the community. Go Lounge invested approximately $200,000 for the fit out of equipment and the renovation of the premises. She submits that Mr Laird will lose his livelihood if relief is not granted.

[87]            Mr Tran accepts that Mr Laird has been operating the business for some time and his concern for his livelihood is genuine. He submits, however, that Mr Laird chose to risk that by attempting to keep Go Lounge’s options open instead of preserving its position as lessee in the days prior to the auction.

[88]            I accept that if relief is not granted and Mr Laird loses the business, he will lose  his  livelihood.    Cooks  Beach  is  a  small  community  with  very  few shops.

9      Coffee Culture Franchises Ltd v Home Straight Park Trustees Ltd [2021] NZHC 577.

Mr Laird’s evidence that there is nowhere else in Cooks Beach where he could set up the restaurant was not challenged. In other words, the prejudice would be significant.

Prejudice to the lessor if relief is granted

[89]            Ms Whitfield submits that, on the other hand, granting relief will not prejudice the lessor. She submits that OECL’s possible alternative uses of the premises are not viable. She submits that opening a restaurant outlet would take advantage of Go Lounge’s goodwill and leads to the inference that Ms Taylor’s intention was to remove her competitor. Nor could she convert downstairs into accommodation due to District Plan limitations. She further submits that there is no need to find a new tenant to pay market rent as the 2019 lease provides for a rent review.

[90]            Mr Tran submits that OECL would suffer significant consequences if relief is granted.

[91]            The alleged “significant consequences” for  OECL  were  not  spelled  out. Ms Taylor’s thinking prior to the auction about possible uses of the property was just that – ‘thinking’ about ‘possible uses’. Ms Taylor does not suggest they were in any way developed plans.

[92]            Further, OECL had the opportunity prior to settlement, not to settle. OECL did not take advantage of that offer.

[93]            I do not accept OECL has demonstrated any prejudice. It will still be able to use the apartment for accommodation for her staff at the Vessel if it chooses not to grant the residential tenancy to Mr Laird and his family. Ms Taylor says she considers the rent currently being paid by Go Lounge for the premises is below a proper commercial rate. However, there is provision for a rent review on renewal of the lease.

The lessor’s motivation in refusing the renewal and understanding the lessee’s intentions

[94]            Ms Whitfield submits that Ms Taylor has given no evidence as to the grounds for OECL’s refusal to renew the lease, other than the suggestion that OECL may do something else with the premises. She submits that the inference can be reasonably

drawn that OECL’s motivation for the refusal to renew the lease is so that OECL can remove Go Lounge as its competitor in Cooks Beach and take control of both restaurant businesses in the town.

[95]            Mr Tran submits that Go Lounge’s submissions regarding OECL’s motivations are misguided because it was BDL who refused to renew the lease. He submits that BDL’s refusal to renew the lease was based upon Go Lounge’s conduct and representations prior to the auction.

[96]            I do not accept Mr Tran’s submission. In the 27 July 2021 email from BDL’s solicitor to Go Lounge’s solicitor (referred to in [32] above) it was stated that the purchaser i.e. OECL did not wish to allow a departure from the terms of the lease and did not agree to Go Lounge renewing the lease out of time, and that accordingly it expired on 31 July 2021.

[97]            In circumstances where there had never been any insistence that Go Lounge comply with the renewal requirements in the lease, I draw the inference that OECL insisted on compliance to enable it to remove a competitor.

The interests of third parties

[98]            Ms Whitfield submits that because the decision to refuse the renewal of the lease was made by OECL, OECL cannot be regarded as a “third party” for the purpose of this enquiry. She submits that the staff currently employed by Go Lounge will lose their jobs. On Ms Taylor’s evidence, there are no fixed plans to open another restaurant and even if this were to occur, Ms Whitfield submits it would undoubtedly take months for the fit out to be completed and for the restaurant to be operational.

[99]            Mr Tran submits that the correct position is that OECL is an innocent third party. He submits that OECL acted on representations made to it prior to auction and saw an opportunity to purchase a property with vacant possession. He submits that this tips the equitable balance in OECL’s favour.

[100]        I do not consider OECL is a third party for the purposes of this factor. It was the party which decided that the lease would not be renewed, albeit that that decision

was conveyed through the solicitor for BDL. I accept that the staff currently employed by Go Lounge are relevant third parties. As Ms Whitfield submits, even if another restaurant were to be opened and Go Lounge’s staff were to be re-employed, there would still be a period before the new restaurant would be operational.

Conclusion

[101]        Weighing all the factors, I do not consider the 6 July 2021 from Go Lounge’s solicitor to BDL’s solicitor and the email by the agent of 6 July 2021 to Ms Taylor attract the weight that OECL seeks to place on them. The second of the two emails was overtaken by the express auction terms circulated by the agent on the morning of the auction. Go Lounge’s conduct as lessee does not put it in the category of a “bad tenant”. All the other factors favour Go Lounge.

Result

[102]        I make an order directing OECL to renew the lease dated 14 June 2019 entered into between Go Lounge and BDL. I do not impose any conditions. The lease provides for a rent review on the renewal of the lease.

Costs

[103]        I reserve costs. Go Lounge as the successful party is prima facie entitled to costs. I urge the parties to endeavour to agree costs. If agreement can be reached a joint memorandum is to be filed and served within 20 working days from the date of this judgment. If agreement cannot be reached Go Lounge is to file and serve its memorandum on costs within five working days of the date for the joint memorandum. OECL is to file and serve its memorandum in response within five working days of service of Go Lounge’s memorandum.

[104]        Costs memoranda are not to exceed five pages, excluding any attachments. I will determine costs on the papers.

Gordon J