Grey District Council v Banks
[2013] NZHC 1485
•19 June 2013
IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY
CIV-2012-418-000005 [2013] NZHC 1485
UNDER the Property Law Act 2007
BETWEEN GREY DISTRICT COUNCIL Applicant
ANDDOUGLAS BANKS First Respondent
CHRISTINE SANDRA BANKS Second Respondent
Hearing: 11-12 March and 14 May 2013
Appearances: J Shackleton and D M Miller for the Applicant
C S Banks in Person on behalf of Respondents
Judgment: 19 June 2013
JUDGMENT OF FOGARTY J
Introduction
[1] This litigation concerns a ground lease for a property in Blaketown, Greymouth. Blaketown is a subdivision immediately adjacent to the Harbour Board works at the mouth of the Grey River. The land occupied by the subdivision was originally settled on the Greymouth Harbour Board by grant of the Crown as an
endowment.1 It was accompanied by a plan of residential subdivision,2 and was built
as a working class suburb, with the householders being lessees on 21 year term leases from the Harbour Board.
1 Reserves and Other Lands Disposal and Public Bodies Empowering Act 1911, s 24 (the empowering provision). That endowment was the consequence of an agreement between the Borough and the Harbour Board, see Hansard (28 October 1911) 156 NZPD 1283.
2 All the land coloured yellow on the plan marked M D 3775 deposited in the office of the
Minister of Marine at Wellington. Section 24(2).
GREY DISTRICT COUNCIL v BANKS [2013] NZHC 1485 [19 June 2013]
[2] Long term renewable leases on land owned by public bodies but leased in residential titles to lessees have always been specifically provided for since the Public Bodies’ Leases Act 1908, s 5(e):
A tenancy for any term not exceeding twenty-one years, with a perpetual right of renewal for the same or any shorter term, at a rent to be determined by valuation, in accordance with the provisions of the First Schedule hereto:
The First Schedule then sets out the terms of the lease. These leases are commonly known as Glasgow leases.3 The terms in the First Schedule make it clear that they are renewable by the lessee, not by the lessor.
[3] The leases the subject of this litigation which draw on some of the terms of the First Schedule, are for 21 year terms, but the decision as to renewal is in the first instance by the lessor.
[4] For many years, from 1911 down to 1979, these leases were always renewed by the lessor and lessees on 21 year terms. From 1979 onwards, the lessor took advantage of the fact that, with the right to renew or not, the lessor could technically decide not to renew on the same terms, but to offer alternative terms in a new lease. This the lessor did in 1979, providing for the rents to be reviewed every seven years instead of every 21 years. This had a significant increase in the level of rent payable by the lessees. Then from 2000 on the lessor offered Glasgow leases, ie, renewable at the option of the lessee.
[5] The Grey District Council is now the lessor. Mr and Mrs Banks, the respondents, are lessees of one of the properties. Since 2007, they have deliberately been failing to pay their rent in full. The Council has served them with a notice under s 245 of the Property Law Act 2007, giving notice of intention to cancel their lease if the arrears were not paid. The Council has now commenced these proceedings seeking orders cancelling their lease, granting the Council possession of
the property, and for payment for the arrears, which now total $17,032.
3 Laws of New Zealand Lessor and Lessee (online ed) at [80].
[6] Mr and Mrs Banks oppose these orders, and say the rent is not due, for two reasons:
(a) First, they say that the lease should not provide for rent reviews every seven years. Previous leases of the property, which they characterise as perpetually renewable (to which they were not party), did not provide for such reviews; so, the Banks say, nor should theirs.
(b)Secondly, Mr and Mrs Banks also argue that the lease contains an incorrect rent review mechanism. They point to an historic practice of rent review of 3.5% per annum of the value of the unimproved land at the date of review. The applicant says this is not contained in any previous lease, or in their current lease.
[7] In response, the Council says that the historic leases for the property are irrelevant. The only document that prescribes the parties’ rights and obligations relating to the property is the current lease, which provides for seven year rent reviews. The current lease was signed in 2006, and is for a 21 year term from 1
November 2000.
[8] Further, the Grey District Council argues that the historic leases were not perpetually renewable by the lessees. They could only be renewed if the lessor (the Harbour Board, latterly the Council) decided at the end of every 21 years to lease the property again. In any case, at the time each new lease was entered into, it was open to the lessor and the lessee to agree on terms that differed from those contained in any previous lease. This occurred when a 1937 lease for this property expired (it had been extended) and was replaced by a 1979 lease that, for the first time in the sequence, provided for seven yearly renewals; agreed to by the then lessee, Mr Ellery. Mr and Mrs Banks purchased that lease by assignment from Mr Ellery in
1981. When the 1979 lease expired in 2000, the Council gave Mr and Mrs Banks the option of renewing the 1979 lease or taking a new 21 year lease, perpetually renewable by the lessees, but containing the 7 year rent reviews. Mr and Mrs Banks protested the 7 year rent reviews, but signed the perpetually renewable lease, with the 7 year rent reviews.
The respondents’ argument
[9] Mr and Mrs Banks contend that all the leases, starting with the original lease, granted in 1916, were granted in perpetuity, that is, on 21 year terms, renewable at the option of the lessee. They argue that the leases were granted in exercise of a power to lease in s 5(e) of the Public Bodies Leases Act 1908 – which required 21 year renewable leases to be in accordance with the First Schedule of the Act. Those terms set up perpetually renewable leases, at the election of the lessees, with the rent reviewable at each 21 year renewal.
[10] Mr and Mrs Banks argue that these leases were unlawfully unilaterally varied by the lessor Council in 1979, when it required 7 year rent reviews. They contend that at that time the then lessee of this land, Mr John Ellery, was not given notice of the rent review variation, nor advised that he had a right to refuse the variation, and was deceitfully led to believe that the renewal lease was on the same terms as the original perpetually granted lease. That he was simply told by the lessors to sign the renewal lease. He was not advised to seek independent legal advice.
[11] Mr and Mrs Banks argue that when they took over the lease, they did not appreciate that it was anything other than a perpetual 21 year lease. That it was not drawn to their attention by the same solicitors who handled the renewal of Mr Ellery’s lease on behalf of both the Greymouth Harbour Board and Mr Ellery. That they did not know about the variation in the rent review processes, and that the rental on the original leases was calculated at 3.5% of the unimproved land value. They found all this out in about 2010.
[12] They argue that, because these amendments were unilateral, the variations are invalid and unenforceable and so that the renewal lease is an illegal contract. That it is not just and fair for the lease to be cancelled, as the Grey District Council seeks. Instead, they are entitled to relief under the Illegal Contracts Act 1970.
[13] Alternatively, they argue that the Grey District Council is estopped from asserting the terms of the lease that the respondents first entered into as assignees in
1981, because the variations in the renewal lease signed by Mr Ellery were unlawful
(being beyond the Council’s leasing powers, unilateral and not explained to him at
the time). That Mr and Mrs Banks were not advised when they took assignment of the 1979 lease in 1981 that it had been unilaterally varied, and should not have contained a seven year rent review clause. Had Mr Ellery and/or Mr and Mrs Banks been advised of these variations, they would not have agreed to sign the renewal leases on these terms. They say that Mr Ellery and themselves have relied on the actions of the Greymouth Harbour Board and their solicitors, Guinness and Kitchingham, and the Grey District Council, to their detriment. That the Grey District Council does not have clean hands, and that it is unfair and unconscionable for the Grey District Council to rely upon the strict terms of the current lease.
[14] In short, Mr and Mrs Banks argue the lease is a perpetually renewable lease on 21 year terms, which in 1979 was unilaterally varied to impose a rent review every seven years. As a result, the reviews have increased the rent by over 400%. This is particularly the result of the rent review in 2007, which, they say, should not have occurred.
[15] They say they have continued to pay what they consider to be a fair rental under the original terms of the lease, namely 3.5% of unimproved land value, until about 6 April 2010, when they stopped paying rent until the outcome of the dispute was known. This is because they believed they had overpaid the rent prior to paying at the lower rate. They also seek rectification of the lease to remove the rent review clause, and for a declaration of the proper procedure for the rent valuation at the beginning of each 21 year lease period.
[16] If the Court decides that there is rent owed by them, they want to be able to pay that sum in order to avoid cancellation of the lease and loss of their home.
[17] For these reasons, it is not just and equitable to grant the Grey District
Council its application, and grant possession of the property to it.
Refinement of the issues between the parties
[18] Mr and Mrs Banks were originally represented by GCA Lawyers (Mr Richard
Lynn as solicitor) and by counsel Mr Jai Moss. These solicitors and counsel
prepared the amended notice of opposition, which sets out their current grounds of opposition, which have been summarised in the introduction above.
[19] Mr and Mrs Banks ran out of funds, and have presented the argument themselves. However, it is apparent from the structure and detail of the argument that they have had significant legal assistance.
[20] The issues were further refined in the oral hearing, as a result of the detail of the argument present. The written argument presented also focussed on the powers that the Grey Harbour Board had, and latterly the Grey District Council, to make leases under the Public Bodies Leases Act. That gave rise to the point not pleaded in the amended notice of opposition, which was that the contracts were illegal for want of power.
[21] Because the solicitors for the Grey District Council were understandably caught by surprise by this argument, at the end of the oral hearing, leave was granted to Simpson Grierson to file further submissions on this point.
[22] By the end of the first hearing, the issues were refined down to two points: (1) The unilateral issue
Whether there was a unilateral amendment of the leases, such that Mr and Mrs Banks, as assignees of Mr Ellery under the 1979 lease, or as lessees under the 2006 lease, could argue that the seven year rent reviews were invalid, or unenforceable;
(2) The unilateral right of the lessor to renew
Whether or not the Grey Harbour Board or the Grey District Council ever had the power to enter into these leases in the first place, as a power to enter into leases no more than 50 years, “without right of renewal”.
[23] This second point was further refined in the oral argument presented by
Mrs Banks at the second hearing. This argument was sophisticated, and I surmise
also had background assistance from the original solicitors and counsel. In this argument, Mr and Mrs Banks contend that although there are clauses in the leases which date back to the first lease in 1916, which give the lessor the right to decide at the end of every 21 year term whether to lease for a further term, or failing which engage compensation provisions enabling the lessees to recover the value of improvements, such terms were not in accordance with the First Schedule of the Public Bodies Leasing Act 1908 and its successors. That “substantially” the leases were renewable leases at the option of the lessees.
[24] In support of this argument, Mr and Mrs Banks rely on the fact that the leases were noted on the certificates of title as “renewable” leases at all material times, when the renewals were registered periodically. In this context, they say that the reference in the Land Registry documents of a “renewal” was in the context of a lessee’s right to renew, as in a Glasgow lease.
[25] At the core of point 2 is the question of whether or not the Grey Harbour
Board and its successor the Grey District Council ever had the power to enter into a
21 year lease renewable firstly at the option of the lessor, and then only second at the option of the lessee. This specifically turns on whether or not the lessor was able to take advantage at any time of the co-existing statutory power to enter into a lease for up to 55 years, which power did not come encumbered with any standard terms. This is the power originally contained in s 5(c) of the Public Bodies Leases Act
1908.
[26] Section 5 of that Act provides:
When a leasing authority has power to let any land, it may let the same under the provisions of this Act on any of the tenancies or leases following:
(a) A tenancy at will:
(b) A tenancy terminable by the leasing authority at any time by six
months’ notice, or any shorter notice:
(c) A tenancy for any term not exceeding fifty years, without right of renewal:
(d) A tenancy with a right of renewal for one or more terms, at a rent to be determined in the original lease, but so that the aggregate duration of the original and of the renewed terms shall not exceed fifty years:
(e) A tenancy for any term not exceeding twenty-one years, with a perpetual right of renewal for the same or any shorter term, at a rent to be determined by valuation, in accordance with the provisions of the First Schedule hereto:
(f) A tenancy for any term not exceeding twenty-one years, with a provision in accordance with the Second Schedule hereto that on the expiration of the term a new lease for the same or any shorter term shall be offered for sale by auction, and so on from time to time in perpetuity:
(g) A tenancy for any term not exceeding twenty-one years, with a provision in accordance with the First and Second Schedules hereto that on the expiration of the term the lessee shall have an option either to accept a renewed lease in accordance with the First Schedule hereto, or to have a new lease offered for sale by auction in accordance with the Second Schedule hereto, and so on from time to time in perpetuity:
(h) A tenancy in accordance with the provisions of any of the three last preceding paragraphs, save that the right of renewal or of having a new lease offered for sale by auction is limited in duration in such manner as the leasing authority thinks fit, in lieu of being perpetual.
[27] The lessor argued that it was always able, by reason of (c), to enter into these leases. Second, that the lessor could pick from those provisions of the First Schedule required for a 21 year lease renewable by the lessee (f), putting them in as terms of the lease for 21 years, made under (c), as that does not exceed 50 years, as the lease has no right of renewal.
[28] Mr and Mrs Banks in their oral argument submitted that the leases in question were not limited to 50 years, as the lessor had the perpetual right of renewal after every 21 years.
[29] The Council’s argument invited the inference that the phrase “without right of renewal” in s 5(c) should be interpreted as “without right of renewal by the lessee”, not as without right of renewal by the lessor, or either party.
(1) Resolution of the unilateral issue4
[30] The 1979 lease was signed by the lessee, Mr John Ellery. The 1981 assignment of that lease was signed by Mr and Mrs Banks. The 2006 lease, taking
4 See the definition of this issue in [22] above.
effect from the year 2000 (the execution was postponed by an arbitration relating to the rent review) was signed by Mr and Mrs Banks.
[31] Mr and Mrs Banks took a point as to the correctness of the execution. They complained that all relevant amendments to the standard form of the lease were not properly initialled in the margin. I am satisfied there is nothing in this point. There is a variety of practice in New Zealand as to the degree to which parts of pages are initialled or not. There was no argument from Mr and Mrs Banks that any provision or detail in the text of either of the leases and the assignment were not there at the time of execution by Mr Ellery or themselves.
[32] Mr and Mrs Banks’ argument against the unilateral introduction of the seven
year rent review was that it was not explained to Mr Ellery at the time he signed the
1979 lease, that the seven year rent review had been inserted. Mr Ellery is deceased. To prove this, Mr and Mrs Banks sought to argue from a similar experience of the only surviving lessee from that period, Mr Harry Cox. He filed an affidavit to the effect that that was his experience. Second, they also relied on a contention that all of the 1979 leases were executed at the premises of Guinness and Kitchingham, who were both the solicitors for the Grey Harbour Board at the time and solicitors for the lessees. And that, based on Mr Cox’s experience, and on their own experience, the solicitors at Guinness and Kitchingham did not explain to them the changes in the lease.
[33] Embedded in this argument is the proposition that there was a legal obligation on the lessor to explain to the lessee at the time of “renewal”, any amendments to the lease. No authority was cited for this proposition.
[34] The argument runs against the longstanding principle in law, that a person who has signed a document is to be treated as having read and understood the document; known often as the plea of non est factum.
[35] Of course, normally, solicitors owe a professional duty to explain to their clients the commitments they are entering into when executing a solemn instrument,
be it a contract, a deed, a lease, or whatever. Guinness and Kitchingham are not parties to these proceedings.
[36] There is no principle of law casting upon the lessor the burden of explaining any differences in terms from the expired lease, to be found in the new lease. On the contrary, the law presumes that the lessees will make it their responsibility, aided if necessary by professional advice, to read the terms offered to them and to decide whether or not to sign the renewal or, to use a neutral term, replacement lease.
[37] The only way in which Mr and Mrs Banks can get relief is if there was a misrepresentation by the lessor as to the content of the new lease. For example, if the lessor’s agent had, in writing or orally, assured Mr Ellery and/or Mr and Mrs Banks that there had been no change to the 1979 lease from the previous lease (1937
– extended in 1958), then there would be room to argue that the insertion of seven year rent reviews were not binding on the lessees.
[38] The Grey District Council did not have to argue, let alone prove, that they had advised the lessees at the time. They were able, however, to identify the meeting of the Council at which it was resolved to introduce the seven year rent reviews. This took place at a Finance Committee Meeting of the Greymouth Harbour Board on 17 September 1979. A resolution was passed:
...we renew all leases for a further period of 21 years, rental at 4% Land
Value, reviewable seven yearly...
[39] At the same time, they passed a resolution to investigate the policy of freeholding the sections in Blaketown. That policy was introduced successfully. There are fewer lessees, but still a significant number.
[40] Counsel for the Grey District Council also disclosed properly an anonymous one and a half page letter of the same date, 17 September 1979, addressed to the Greymouth Harbour Board, said to be written by one of the deputation from a meeting of people, consisting of pensioners and lower income people, who were angry and incensed at the massive increase of ground rentals that some have received. The document includes this passage:
We would ask you to reconsider these rentals to a scaled increase to take in inflation and cost increases over the 21 year lease, not reviewed every 7 years, which has been inserted in the lease without the agreement or knowledge of the leasees [sic]...
[41] The Grey District Council also discovered a letter written from Guinness and Kitchingham, of 25 September 1979, to the Harbour Board, enclosing a draft of the “proposed letter to lessees of expiring Blaketown leases and also a copy of the new form of lease which will be available at your office for perusal by any lessees.”
[42] This letter, drawn in draft, intended to be sent to lessees, includes the following:
The Board has decided to offer to grant to you a renewed lease of your section for a period of 21 years commencing on 1st November 1979 at a rental, during the first 7 years of the term of such renewed lease, fixed at 4% on the new land valuation of your section as recently valued by the Valuation Department. A notice of this new valuation will no doubt have already been received by you.
The rental payable during the second and third seven-year periods of the renewed lease shall be such sum as is fixed by the valuation of two valuers, one to be appointed by you and the other by the Board, or their umpire in the case the valuers cannot agree on the amount of such rental.
A copy of the new lease of the section which the Board is prepared to offer to you may be seen at the office of the Board or of its solicitors, Messrs. Guinness and Kitchingham, during normal business hours.
Will you please consider the foregoing proposals urgently and let me know on or before 22nd October next whether you desire to renew your lease on the above terms and so retain a title to your home. I might add that if your property is subject to a mortgage you will be required by the mortgagee to renew your lease.
If, before making a dec
vision [decision] you require any further information or explanation I would suggest that you either seek the advice of your own solicitor or call at the Board’s office, when any further information which the Board can give you will be readily available to you.
[43] Mr Pretorius, Chief Executive Officer, Grey District Council, had no reason for thinking that this letter was not sent. This was contested by Mr and Mrs Banks. Other than the presence of this letter on the files (in two forms, one with a Greymouth Harbour Board stamp on it, the other clearly a photocopy but without the stamp) there is no evidence that it was sent out. It is not recorded in the minutes of
any committee or board as having been sent out. There is no correspondence available of it being responded to.
[44] I do not think it is necessary for me to decide whether or not this letter was sent. It may not have been sent, because it is a rather blunt proposition to effectively say to lessees “you either renew the lease on the above terms or you lose title to your home”. If it were sent, however, it could not be said to misrepresent or disguise the character of the lease terms on offer.
[45] To my mind, the point about unilateral disclosure is disposed of by finding as a matter of law that there was no obligation, either at common law or imposed by any statute, on the lessor to give informal notice of any amendment of a lease which is being submitted for lessees to cover the renewal period. That is so unless a renewal lease is submitted which is different, but the changes are so subtle that they would not be noticed unless pointed out. But one thing is clear, the 1979 lease was quite different, very materially different, than the 1937 and 1916 predecessors. For it contained a new provision for seven year rent reviews.
[46] I am satisfied that the respondents have not discharged the evidential burden of proving on the balance of probabilities that there has been any misrepresentation, let alone any deceit. Therefore, the unilateral amendment arguments to the deed fail, and opposition to the application on that ground is dismissed.
(2) Resolution of the unilateral right of the lessor to renew5
[47] As already introduced, Blaketown was granted by the Governor of New Zealand to the Greymouth Harbour Board (in trust (without power of sale) as a “harbour endowment” by s 24 of the Reserves and Other Lands Disposal and Public Bodies Empowering Act 1911). At that time, it was anticipated that the land would be subdivided. Section 24 provided:
24 Addition to endowment of Greymouth Harbour Board
(1) In addition to the land which the Governor is authorized to grant to the
Greymouth Harbour Board by section fifty-three of the Reserves and
other Lands Disposal and Public Bodies Empowering Act 1910, the Governor may grant to that Board the land hereinafter described for an estate in fee-simple in trust (without power of sale) as a harbour endowment: Provided that before making such grant the Governor is satisfied that the Greymouth Harbour Board has paid to the Mayor, Councillors, and Burgesses of the Borough of Greymouth the actual cost of forming and metalling the roads and streets within the said area. In the event of any dispute arising between the Board and the Mayor, Councillors, and Burgesses of the borough as to fixing the amount of the actual cost of forming and metalling the said roads and streets, the same shall be decided by the Minister of Marine, and his decision shall be final.
(2) The land to which this section applies is particularly described as follows: All that area in the Grey Survey District, containing thirty acres, more or less, bounded on the north and west by areas vested in the Greymouth Harbour Board as described in section fifty-three, subsection (2), (a), (c) of the Reserves and other Lands Disposal and Public Bodies Empowering Act 1910, coloured purple; on the east by Reserve No 705, coloured red, freehold Sections Nos 181 to 174, 173 to 164, 163 to 150, coloured green, and by area vested in the Greymouth Harbour Board by section fifty-three subsection (2)(b) of the Act aforesaid, coloured purple; on the south by the south side of Rigg Street to a line in continuation of west side of Reserve No 705: the said area including Collins, Coakley, O’Grady, Rigg, Doyle, and Blake Streets, Packer’s Quay, and streets leading eastward from Packer’s Quay, and Sections Nos 83, 82, 81, 85, 51, 53, 54, 55, 56, 57,
33, 32, 31, 30, 29, 28, 27, 26, 25, 10, 11, 12, 24, 23, 22, 13, 14, 15, 21,
20, 19, 16, 17, 18, 9, 8, 7, 6, 5, 4, 3, 2, 1.
All the above-described area is in the Land District of Westland, and coloured yellow on the plan marked M D 3775, deposited in the office of the Minister of Marine, at Wellington, in the Provincial District of Wellington.
[48] The Board had to pay the Borough of Greymouth for the actual costs of forming and metalling roads and streets. This is of a residential subdivision. The Greymouth Harbour Board is a leasing authority for the purposes of the Public Bodies’ Leases Acts of 1908 and 1969 by reason of the Harbours Act 1923, s 138, and of 1950, s 144, respectively.
[49] As noted in the introduction,6 Hansard reveals that these statutory provisions came as advice to the House of Representatives from the Government of New Zealand, passing on an agreement between the Borough and the Harbour Board.
[50] I have already set out s 5 of the Public Bodies’ Leases Act 1908. Section 7 of the 1969 Act is to the same effect, but extends the term of (c) from 55 years to 99 years. Section 7 of the 1969 Public Bodies’ Leases Act provided:
7 Powers of leasing authority to grant leases
(1) Where a leasing authority has power to let any land, it may let the land under the provisions of this Act on any of the following tenancies or leases:
(a) a tenancy at will:
(b) a tenancy determinable by the leasing authority at any time by 6 months' notice, or any shorter notice:
(c) a tenancy for any term not exceeding 99 years, without right of renewal:
(d) a tenancy with a right of renewal for 1 or more terms, the rent for the renewed terms to be determined by valuation in accordance with the provisions of Schedule 1, but so that the aggregate duration of the original and of the renewed terms shall not exceed 50 years:
(e) a tenancy for any term not exceeding 21 years, with a perpetual right of renewal for the same or any shorter period, at a rent to be determined by valuation in accordance with the provisions of Schedule 1:
(f) a tenancy for any term not exceeding 21 years, with a provision in accordance with Schedule 2 that on the expiration of the term a new lease for the same or any shorter term shall be offered for sale by auction, and so on from time to time in perpetuity:
(g) a tenancy for any term not exceeding 21 years, with a provision that on the expiration of the term the lessee shall have an option either to accept a renewal lease in accordance with Schedule 1 or to have a new lease offered for sale by auction in accordance with Schedule 2, and so on from time to time in perpetuity:
(h) a tenancy in accordance with paragraph (e) or paragraph (f) or paragraph (g), save that the right of renewal or of having a new lease offered for sale by auction is limited in duration in such manner as the leasing authority thinks fit, instead of being perpetual.
[51] The First Schedule of the Public Bodies’ Leases Act 1908 provided:
FIRST SCHEDULE.
PROVISIONS OF LEASE GRANTED UNDER SECTION 5, PARAGRAPH (e), OF THE PUBLIC BODIES' LEASES ACT, 1908.
A LEASE granted under paragraph (e) of section five of this Act may contain the following provisions, or any provisions substantially to the same effect :~
1. On the expiration by effluxion of time of the term hereby granted, the lessee shall have a right to obtain, in accordance with the provisions hereinafter contained, a renewed lease of the land hereby demised, at a rent to be determined by valuation in accordance with the said provisions, for the term of [the same period of years for which the original lease is granted or any shorter period] computed from the expiration of the lease hereby granted, and subject to the same covenants and provisions as this lease, including this present provision for the renewal thereof, and all provisions ancillary or in relation thereto.
2. Within six calendar months previous to the expiry by effluxion of time of the lease hereby granted, or so soon thereafter as may be, a valuation shall be made of the fair annual rent of the land hereby demised, so that the rent so valued shall be uniform throughout the whole term of the renewed lease.
3. In making the said valuation no account shall be taken of the value of the following improvements on the said land: [Specifying, as the leasing authority thinks fit, the kinds of improvements, whether made during the term or at any other time, which are not to be taken into account in the valuation of the rent.]
4. The said valuation shall be made by two indifferent persons as arbitrators, one of whom shall be appointed by the lessor and the other by the lessee.
5. The arbitrators, before commencing to make the said valuation, shall together appoint a third person who shall be an umpire as between them.
6. The decision of the two arbitrators if they agree or in such respects as they agree, or of the umpire if the arbitrators do not agree or in such respects as they do not agree, shall be binding on all parties.
7. The duty of the umpire, on reference to him of any question, shall be to consider the respective valuations of the two arbitrators in the matters in which their valuations do not agree, and then to make an independent and substantive valuation, and the last-mentioned valuation shall be the decision of the umpire; but in giving his decision on any question so referred to him the umpire shall in every case be bound to make a valuation not exceeding the higher and not less than the lower of the valuations made by the arbitrators respectively.
8. The provisions herein contained for the making of a valuation shall be deemed to be a submission to arbitration under and within the meaning of the Arbitration Act, 1908, or any enactment for the time being in
force in substitution therefor or amendment thereof, and all the provisions of any such enactment shall, so far as applicable, apply accordingly.
9. Within two calendar months after the making of the said valuation and the giving of notice thereof to the lessee, the lessee shall give notice in writing signed by him or by his agent duly authorised in that behalf and delivered to the lessor stating whether the lessee desires to have a renewed lease of the land.
10. Any such notice may be given by the lessee within the time aforesaid, although the term hereby granted has already expired by effluxion of time, or although the said valuation has not been made or notice thereof has not been given to the lessee until after the expiration of the said term by effluxion of time, unless before the giving of such notice by the lessee he has given up to the lessor the possession of the land hereby demised or has been duly ejected therefrom in pursuance of the judgment or order of any Court of competent jurisdiction.
11. Any such notice by the lessee of his desire to have a renewed lease shall be deemed to constitute a contract between the lessor and lessee for the granting and acceptance of a renewed lease at the rent so valued, and for the term and subject to the covenants and provisions referred to in clause
1 of these presents.
12. If the lessee fails within the time aforesaid to give any notice as to whether he desires a renewed lease or not, or if he gives notice in writing signed by himself or by his agent duly authorised in that behalf that he does not desire a renewed lease, his right to a renewed lease shall cease on the expiry of the time aforesaid, or on the date at which such notice is received by the lessor, as the case may be.
13. The term of any such renewed lease shall run from the date of the expiration of the prior lease, and the rent as so valued shall accrue as from the said date in lieu of the rent reserved in the prior lease, notwithstanding the fact that the renewed lease may not be executed until after that date.
14. The reasonable cost of any such valuation as aforesaid shall be paid by the lessee.
15. If the lease hereby granted is not renewed in accordance with the foregoing provisions, or if it is determined by forfeiture, re-entry, or otherwise, all buildings and improvements on the land demised shall absolutely revert to the lessor free from any payment or compensation whatever.
16. Any notice required to be given to the lessee in accordance with the foregoing provisions may be sent by post to his last known place of business or residence in New Zealand, and shall in such cases be deemed to have been duly received by him on the day on which it would be delivered at that place of business or residence in the ordinary course of post.
17. Nothing in the foregoing provisions shall exclude or restrict the right of the lessee to obtain relief against any forfeiture or determination of the lease or of his right to a renewal thereof in the same cases and on the
same conditions as if the lease had been granted otherwise than in the execution of statutory powers in that behalf.
18. The expression "lessor" as herein used includes the successors and assigns of the lessor, and the expression "lessee" as herein used includes the successors, executors, administrators, and assigns of the lessee.
The First Schedule of the 1969 Act is essentially the same, and certainly to the same effect.
[52] Up until 2004, all local authorities and public bodies did not have the general capacity or powers of ordinary persons. Rather, they had only such powers as Parliament gave to them. From 2004 onwards, there was a reform of the law, replacing that longstanding policy with a general empowerment policy, so that all local authorities had the powers of ordinary persons. That reform does not apply to
the lease executed in 2006.7
[53] Neither the 1979, nor the 2000 leases, comply with the First Schedule of the Public Bodies’ Leases Act of 1908 and 1969. Turning first to the 1979 lease, it does not have clause 1 of the First Schedule. It does not have any clause substantially to the same effect. On the contrary, rather than the lessee having the right to obtain a renewed lease, under the 1979 Act, it is the Board which first considers whether or not there should be a lease at the expiry of the 21 year term. Clause 12 opens:
That not later than six calendar months previous to the expiration of the term hereby granted the Board shall decide whether it will or will not lease the said land again as from the expiration of the said term...
[54] Should the Board decide not to lease the land, then clause 15 provides:
If the Board shall decide not to lease the said land again the Board shall within two weeks after the expiration of the term hereby created pay the amount of the valuation of improvements arrived at as aforesaid to the lessee or such other person as the Board shall consider entitled thereto and the Board shall as from the expiration of the said term become the absolute owner of such improvements...
[55] In short, the 1979 lease is not a lease renewable at the option of the lessee, let alone perpetually renewable at the option of the lessee. Accordingly, it does not fall
7 It was agreed that that lease, taking effect from the year 2000, is subject to the 1969 Public
Bodies’ Leases Act by reason of s 303(2) of the Local Government Act 2002.
within s 7(e) as a tenancy for any term not exceeding 21 years, with a perpetual right of renewal (by the lessee) for the same or any shorter period, at a rent to be determined by valuation, in accordance with the provisions of the First Schedule hereto.
[56] I would add that it is clear that for a lease to fall within s 7(e), or s 5(e) in the
1908 Act, it has to either contain the provisions in the First Schedule or any provisions substantially to the same effect. The word “may” in the first sentence is effectively “shall” in that regard. The sentence is:
A lease granted under paragraph (e) of section five of this Act may contain the following provisions, or any provisions substantially to the same effect.
[57] It is plain that the word “may”, rather than “shall”, is used to accommodate that there is some discretion provided in the application of the First Schedule. The First Schedule can be adopted without change or, alternatively, the lessor granting a lease under s 5(e) can use any provisions, provided they are substantially to the same effect.
[58] On the other hand, it is clear that many of the other clauses in the first 1916 lease are taken directly from the First Schedule. Below are two columns. In the left column are the numbers of the provisions found in these leases under the First Schedule of the 1908 Act, and in the right hand column are in the first lease, executed in 1916:
First Schedule Clauses 1916 Lease
5 11(c)
6 11(d)
7 11(e)
8 11(f)
14 11(i)
16 16
Similarly in the 1979 lease (executed in 1980), provisions in the First Schedule of the 1969 Act used in the lease: lease clause 12(c) from First Schedule, clause 8;
12(d), clause 9; 12(e), clause 10; 12(f), clause 11; clause 17, clause 14.
[59] As discussed, Mr Shackleton agreed that the 1979 lease was not a lease granted under (e) of s 7 of the 1969 Act. Rather, he argues that it is a lease granted under (c), and in respect of the earlier leases, s 5(f) (1908) and s 7(f) (1969).
Analysis
[60] There is a reasonable argument that the original lease and its successors, down to and including the 1979 lease, were made within the powers given by the Council in s 5(c) of the Public Bodies Leases Act 1908, and 7(e) of the 1969 Act. For, if one reads (c):
(c.) A tenancy for any term not exceeding fifty years, without right of renewal: ...
in isolation and without regard to the purpose of granting the power to the leasing authority, then one can conclude that the leases were not for a term exceeding 50 years. Second, it seems reasonably clear that the phrase “without right of renewal”, which appears in s 5(7) and in the First Schedule of both Acts, is talking about right of renewal by a lessee. So the leases from 1916 to 1979 did not have the leasing authority letting land for a term exceeding 50years in the 1908 Act or 99 in the 1969
Act.
[61] The argument the other way qualifies the language in (c)/(f) with two propositions. The two qualifications are that the statutory powers should be read in the light of their purpose. The second proposition is that all statutory powers have to be executed in good faith and for their proper purpose.
[62] As has been explained, this endowment, although empowered by Parliament, gives effect to an agreement reached between the Greymouth District Council and the Greymouth Harbour Board, approved by the Government.8 Accompanying the statute was a plan of residential subdivision, the lot numbers of which we set out in s 25. The intent was that it be built as a working class suburb. And it was. The original lease provided for the possibility that the Harbour Board as lessor might want the land in future for Harbour Board purposes. This is the reason why the lease
provided both for reserving the power to the lessor every 21 years, whether or not to
8 See [1] above.
renew the lease, and secondly for compensation in the event that the lessor elected not to renew the lease. Otherwise, the terms of the lease were substantially as though it was a Glasgow lease perpetually renewable at the election of the lessee. Too many years have elapsed, and there is no evidence either way, to judge whether or not there was ever likely to be a realistic need to resume this land for Harbour Board purposes, as distinct from an endowment investment designed to generate revenue for the operations of the Harbour Board. Too many years have elapsed to examine whether or not there were any understandings or representations which might enable the Court in its equitable jurisdiction to find that the lease always was substantially renewable at the option of the lessee.
[63] If the respondents in this case are right, that the power to lease for less than
50 years was being used for an improper purpose, and so an illegal use of power, it does not follow that these respondents would get relief. Relief under the Illegal Contracts Act 1970 is discretionary; see s 7.
[64] Whether or not the form of the lease, as originally used and repeated in 1937 and again in 1979, was unlawful, the fact of the matter is that all the lessees agreed upon its terms when they executed the lease documents. The terms of the leases are themselves quite clear.
[65] Section 7 of the Illegal Contracts Act 1970 gives the Court a very wide discretion whether or not to grant relief to parties to an illegal contract. Section 7(3) provides:
7 Court may grant relief
...
(3) In considering whether to grant relief under subsection (1), and the nature and extent of any relief to be granted, the court shall have regard to—
(a) the conduct of the parties; and
(b) in the case of a breach of an enactment, the object of the enactment and the gravity of the penalty expressly provided for any breach thereof; and
(c) such other matters as it thinks proper;
but shall not grant relief if it considers that to do so would not be in the public interest.
[66] In this case, I think it is the conduct of the respondents which is the most important factor. The conduct is their voluntary entry into the assignment of the
1979 lease and entry into the new lease.
[67] The only party before this Court complaining about the lease are the respondents who took an assignment of the 1979 lease from Mr Ellery. At the time they took the assignment, they had every opportunity to examine the terms and contents of the lease. Similarly, when they executed the lease in 2006, when it became a lease renewable at the option of the lessees, they were aware of the terms. I do not place too much weight on the second consideration as, by that stage, they were committed to their residential dwelling. But when they took the 1979 lease, they knew it was a 7 year rent review. And there was no promise as to the rent level relative to the land value.
[68] The second important consideration is in the public interest. I do not think it is in the public interest to try to resolve the issue raised by the respondents as to whether or not the leases prior to 2000 can be justified by reference to the empowering provisions of the Public Bodies’ Leases Act 1908, s 5(c) and the 1969
Act, s 7(c). It is not in the public interest principally because the parties to those deeds are not before the Court. There are still a large number of other leases in place. My understanding would be, however, that they are all leases made since
2000. There is no issue as to the validity of the 2000 and onwards leases.
[69] The only other litigation that could take place would be applications by lessees to claw back some of the increased rental from the time the 7 year rent reviews were introduced in 1979.
[70] I sense that Mr and Mrs Banks believe that they are bringing their proceedings, to a degree, on behalf of other lessees as a test case. Their particular set of facts does not raise any issues as to merit, warranting this Court examining and resolving the legality or illegality of the leases prior to the year 2000.
[71] For these reasons, I am satisfied that even were I to resolve the issue as to whether or not the leases prior to the 2000 lease, executed in 2006, were illegal, which I do not, there are no significant considerations in favour of the respondents to release the respondents from the terms they signed up to in 1981, and again in 2006. For these reasons, the respondents’ defence to the application fails. Sensibly, the Council applicant and Mr and Mrs Banks the respondents have agreed that should the legal arguments of the respondents fail that time will be given for Mr and Mrs Banks to pay their arrears of rent. The Court understands that they have been putting money aside for this purpose, against the possibility that they might lose. For these reasons, this Court does not at this stage make any order cancelling the lease, nor make any order granting the Council possession of the property.
[72] Rather, it orders that Mr and Mrs Banks the respondents are parties to a valid lease and so are liable for the payment of the arrears. Leave is reserved for the Council to pursue the remedies of cancellation and possession if they cannot reach satisfactory arrangements with the respondents for collection of the arrears of rent.
[73] Costs are reserved.
Solicitors:
Simpson Grierson, Wellington
Copy to:
D and C S Banks, Greymouth
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