Justitiae Trustee Company Ltd v AAL Holdings Ltd
[2021] NZCA 281
•29 June 2021 at 2.30 pm
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| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA137/2020 [2021] NZCA 281 |
| BETWEEN | JUSTITIAE TRUSTEE COMPANY LIMITED |
| AND | AAL HOLDINGS LIMITED |
| Hearing: | 11 March 2021 |
Court: | Kós P, Miller and Collins JJ |
Counsel: | J K Goodall and R B Hucker for Appellant |
Judgment: | 29 June 2021 at 2.30 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe declarations issued by the High Court are upheld.
CThe appellant must pay the first respondent costs for a standard appeal on a band A basis plus usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Collins J)
Introduction
The focus of this appeal is a 2083m2 property in Herne Bay, Auckland. Currently the property comprises:
(a)The fee simple estate in the land. AAL Holdings Ltd (AAL) owns an undivided 60 per cent share of the fee simple estate. Justitiae Trustee Company Ltd (Justitiae) and the second to third respondents (“the other unit owners”) each own a ten per cent share of the fee simple estate.
(b)Justitiae and the other unit owners each crosslease a designated area of the property, where four separate dwelling units have been erected. Each of the four crossleases is for a term of 999 years.
AAL wishes to construct further dwelling units on an undeveloped portion of the fee simple estate, referred to in the crossleases as “the relevant area”. It claims that, once it has constructed further dwelling units on the relevant area, it is entitled to require Justitiae and the other unit owners to execute, as co-lessors, crossleases for those dwelling units. AAL relies on the terms of the covenants in cls 32–36 of the crossleases to support its position. We explain those covenants at [10]–[14].
Associate Judge Smith issued declarations consistent with the meaning of the covenants advocated by AAL.[1] In issuing his declarations in favour of AAL, the Associate Judge also dismissed a cross-application for summary judgment sought by Justitiae. We summarise the High Court judgment at [20]–[27]. Justitiae now appeals that judgment. The other unit owners have adopted neutral positions in relation to this litigation.
Background
[1]AAL Holdings Ltd v Dai [2020] NZHC 211 [High Court judgment].
Originally, a large homestead was on the property which is situated on a slightly elevated site that provides views over the Waitematā Harbour. In December 1989, the then-owner, Mr Jones, executed a crosslease over what became dwelling unit 1, containing the covenants in cls 32–36 relating to the relevant area. In 1990, Mr Jones transferred 90 per cent of the fee simple estate to Art and Architecture Ltd, a property development company. Later, the lease of dwelling unit 1 along with the other 10 per cent of the fee simple estate were transferred to Mr Aitken.
Art and Architecture Ltd built two new dwelling units (units 2 and 3), which it sold along with 10 per cent of the fee simple estate attached to each dwelling unit. Justitiae became the owner of dwelling unit 3 in April 2008.
Art and Architecture Ltd sank into financial difficulties before it was able to complete the development of another dwelling unit. In 1991 a mortgagee sold Art and Architecture Ltd’s interest (then 70 per cent of the fee simple estate) to Taylor Trading Co Ltd, another development company which managed to complete and sell a fourth dwelling unit, again with 10 per cent of the fee simple estate.
In October 1992, Taylor Trading Co Ltd sold its interest (by then 60 per cent of the fee simple estate) to a Mr Reeves. In the ensuing years there were a number of sales and purchases of the 60 per cent interest in the fee simple estate, culminating in AAL purchasing it in 2018. By that time, the units and relevant area were depicted on the certificate of title to the property in the following way:
The covenants
The memoranda of crosslease are registered interests against the freehold certificate of title to the property. The crossleases contain a series of conventional covenants which Justitiae accepts bind the successor lessees. Examples of standard covenants found in the leases include:
11.USE OF EXCLUSIVE AND COMMON AREAS
The Lessee shall not without the written consent of the Lessors in any way use or enjoy any part of the said land except: (a) The Flat (b) That part of the said land relating to the Flat marked or shown … on Deposited Plan No. 141791: (c) That part of the said land marked or shown on Deposited Plan 141791 but only for the purposes of reasonable ingress and egress by vehicle or on foot.
…
14. LESSEES OWNERSHIP OF SHARE IN FEE SIMPLE
The Lessee shall remain the owner of the Land share in the fee simple of the land while he continues to be a Lessee hereunder. If the Lessee (unless by these presents expressly authorised so to do) shall deal with either his interest hereunder or his interest in the fee simple in such a manner that both leasehold and freehold interests are not owned by the same person then this Lease shall immediately determine without however discharging the Lessee from payment of any moneys owing hereunder or releasing him from liability arising from any other breach previously committed provided always that this Clause shall not apply to the first Lessee hereof.
…
16. QUIET ENJOYMENT
The Lessee performing and observing all and singular the covenants and conditions on his part herein contained and implied shall quietly hold and enjoy the Flat without any interruption by the Lessors or any person claiming under them.
The dispute concerns the special covenants set out in cls 32–36 of the leases.
Clause 32(a) of the crosslease defines “the relevant area” by reference to marked areas on the Deposited Plan. Clause 32(b) then defines “the Lessors” for cls 32–36:
the expression “the Lessors” shall mean (to the exclusion of any other person or persons) such of the registered proprietors of an estate in fee simple in the said land as are not the registered proprietors of an estate in leasehold in any flat or dwellings erected on the said land.
Clause 33 provides that “the Lessors” shall at any time be entitled to erect dwelling units and garages on the relevant area. Clause 33 is subject to:
(a)the requirements of local authorities concerning the development of the relevant area; and
(b)the terms of any agreement between “the Lessors” and “the Lessee” relating to the building of further dwelling units.
Clause 33 also provides that “the Lessors” and their representatives, including contractors, may enter onto and remain on the relevant area at all reasonable times to erect dwelling units provided they take reasonable steps to minimise inconvenience to the lessees.
The relevant parts of cl 34 provide that upon “substantial completion by the Lessors of the dwelling units” on the relevant area, “the Lessee” shall:
… when so requested by the Lessors join in and execute as a Co-Lessor a Lease of the dwelling units for a term corresponding with the unexpired period of this Lease, … and the Lessee shall do all such things as shall be necessary or desirable in order to enable registration of such lease … and the Lessors shall at the Lessor’s expense with all due speed register such Lease.
Clause 35 provides for the appointment of a Power of Attorney in favour of “the Lessors” on behalf of “the Lessee” in the latter’s capacity as lessee and as an owner of an interest in the fee simple of the property, so as to enable “the Lessors” to execute for “the Lessee” any lease created pursuant to cl 34. Clause 35 states:
35.THAT in consideration of the granting to the Lessee of this Memorandum of Lease the Lessee doth hereby irrevocably nominate constitute and appoint the Lessors and any nominee of the Lessors to be the true and lawful attorneys and attorney of the Lessee both as Lessee and as registered proprietor of any interest in the fee simple of the said land and on behalf of the Lessee as Lessee and/or such registered proprietor and as fully and effectively as the Lessee either as a Lessee and/or such registered proprietor could do if personally present to execute for the Lessee in any capacity the Lease referred to in Clause 34 hereof and to sign and use the name of the Lessee in any capacity to such Lease and to do all such other acts and things (including signing any new Flats Plan) as shall be necessary or desirable to effect registration of such Lease.
Clause 36 provides that, in the event of “the Lessee” or “the Lessors” transferring their share in the fee simple of the property, then a Power of Attorney shall be executed whereby “the Lessors” shall be appointed Attorney of the new lease on the same basis set out in cl 35. Clause 36 states:
36.THAT in the event of the Lessee or the Lessors transferring or otherwise disposing of the whole or any part of their respective share in the fee simple estate in the said land, then on the occasion of such transfer or other disposition:
(a)A Power of Attorney shall be executed whereby the Lessee or the Lessee’s transferee or disposee, as the case may be, appoints the Lessors or the Lessors’ transferee or disposee, as the case may be, the Attorney of the Lessee or the Lessee’s transferee or dispose[e], on the same basis and with the same powers as are set forth in Clause 35 hereof.
(b)The Power of Attorney shall be prepared by the solicitors for the Lessors and shall be given and executed prior to the registration of the transfer or other disposition hereinbefore in this Clause referred to. A copy of the Power of Attorney shall forthwith thereafter be deposited in the Land Transfer Office.
(c)The costs of preparation, stamping and registration of the Power of Attorney shall be borne by the person transferring his interest in the fee simple estate in the said land.
The reference in this Clause to a transfer or other disposition by the Lessee or the Lessors of the whole or any part of their respective share in the fee simple estate in the said land shall extend to and include the exercise by any mortgagee or other person of a power of sale in respect of a share in the fee simple estate in the said land.
Under cl 37, once the new dwelling units are completed and the lease under cl 34 registered, then cls 32–36 cease to have effect.
Previous decisions
The property has been the subject of previous litigation involving similar issues to the present dispute:
(a)In Taylor Trading Co Ltd v Aitken,[2] the High Court rejected an argument by Mr Aitken, the co-owner of unit 1 (who is also one of the fourth respondents in the current appeal) that cls 32–36 of the crosslease were not enforceable as between assignees of the crosslease. Mr Aitken wished to enforce what he thought was a height restriction on further dwelling unit developments on the relevant area. Master Towle held there was privity of contract between the parties by reason of s 4 of the Contracts (Privity) Act 1982.[3] A writ of specific performance was issued to compel Mr Aitken to comply with his obligations under the covenant.
(b)In Werder v Aitken,[4] Master Kennedy-Grant issued summary judgment forcing Mr Aitken to again comply with his obligations under the covenants.
(c)In another Werder v Aitken judgment,[5] Blanchard J dismissed Mr Aitken’s application for special leave to appeal the judgments referred to in (a) and (b) and required Mr Aitken to immediately comply with his obligations under the covenants.
[2]Taylor Trading Co Ltd v Aitken (1992) 2 NZ ConvC 191,212 (HC).
[3]Now ss 12 and 17 of the Contract and Commercial Law Act 2017.
[4]Werder v Aitken HC Auckland CP339/93, 7 July 1993.
[5]Werder v Aitken HC Auckland CP339/93, 17 May 1994.
The judgments referred to above have been criticised by academic commentators, in particular Associate Professor Thomas, who is concerned the judgments reflect a misunderstanding of legal principles relating to crossleases.[6]
Ongoing litigation
[6]Rod Thomas Cross Leases and Future Development Covenants (1992) 6 BCB 113; Elizabeth Toomey (ed) New Zealand Land Law (3rd ed, Thomson Reuters NZ, Wellington, 2017) at [11.6.01] and [11.7.04] citing Rod Thomas. See also DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [14.089].
There are two other sets of proceedings that may be affected by the way we determine this appeal:
(a)AAL has applied for orders under s 339 of the Property Law Act 2007. It seeks to have the High Court divide the property into freehold titles.
(b)Mr Aitken and his co-owner have initiated proceedings against AAL concerning the refusal of AAL to transfer to them a specified portion of the property. That proceeding has been adjourned pending the outcome of this appeal.[7]
[7]Aitken v AAL Holdings Ltd HC Auckland CIV-2019-404-1016, 9 October 2020.
Thus, to date the issues arising from the legal status of the various interests in the property and the meaning of the covenants have given rise to six proceedings in the High Court.
High Court judgment
The Associate Judge found that cls 32–36 created an agreement to lease the relevant area and any dwelling units built on the relevant area pursuant to those clauses (the “agreement to lease”), between the unit owners’ predecessors as lessors and AAL’s predecessor as lessee.[8] Critical to the Associate Judge’s finding was his determination that each agreement to lease was concluded by the unit owners’ predecessors in their capacities as registered co-owners of the property’s fee simple estate.[9]
[8]High Court judgment, above n 1, at [82].
[9]At [74].
The Associate Judge then found that the covenants in the agreement to lease “ran with the land” under ss 231–233 of the Property Law Act.[10] The Associate Judge therefore held that the covenants not only bound the unit owners’ predecessors and AAL’s predecessor, but also all subsequent transferees. The Associate Judge held that upon satisfying its obligations under cl 34, AAL was entitled to call on the existing unit owners to execute leases for further dwelling units on the relevant area.
[10]At [64]–[68].
The Associate Judge also disposed of other challenges to the declarations sought by AAL:
(a)Justitiae argued that there was not a sufficient lis or dispute between the parties to engage the High Court’s jurisdiction to issue a declaration. This point was also referred to in the notice of appeal, but it was not pursued in counsel’s submissions. For completeness, we record that in Mandic v Cornwall Park Trust Board,[11] the Supreme Court made clear that there need not be an existing dispute or lis in order to engage the Court’s jurisdiction to issue a declaration under s 3 of the Declaratory Judgments Act 1908. Although not referred to in the Court below, Mandic v Cornwall Park Trust Board would appear to be a complete answer to the jurisdictional argument that Justitiae advanced before the Associate Judge.
(b)In view of the principal conclusions reached by the Associate Judge, he did not engage in an alternative argument concerning the application of s 303 of the Property Law Act and ss 12 and 17 of the Contract and Commercial Law Act 2017.[12] The same argument has been pursued as an alternative submission before us. We need only consider this alternative argument if we disagree with the Associate Judge’s principal findings.
(c)The Associate Judge also rejected Justitiae’s argument that AAL’s only recourse was to seek relief under s 339 of the Property Law Act.[13] The Court below was satisfied that all AAL was seeking to do was to obtain definitive rulings on the meaning of the covenants and that it was not, in this proceeding, seeking to affect the legal status of the lessees’ interests in the property.
[11]Mandic v Cornwall Park Trust Board [2011] NZSC 135, [2012] 2 NZLR 194.
[12]High Court judgment, above n 1, at [83].
[13]At [86].
Ultimately, the Associate Judge concluded that it was appropriate to exercise his discretion to issue declarations in favour of AAL.[14] The Associate Judge also reached the corollary conclusion that Justitiae’s application for summary judgment had to be dismissed.[15]
[14]At [87].
[15]At [88]–[91].
The formal declarations made by the Associate Judge mirrored the terms of cls 33–35 of the lease.[16] As to cl 33, the declaration states:[17]
…
(i)there is an area of land at 121 Shelly Beach Road, Herne Bay, Auckland on which the registered proprietor of the plaintiff’s share in the fee simple estate (“the registered owner”) is entitled to erect dwellings and, if desired, garages and/or other buildings normally appurtenant to or associated with dwellings (“the dwelling units”), being the area marked … (“the relevant area”);
(ii)there are no restrictions under each cross lease as to how many dwelling units may be erected on the relevant area, where the dwelling units may be erected within the relevant area, or as to the dimensions of the dwelling units, apart from the requirements that the dwelling units be erected within the relevant area and conform in all respects to the requirements of Auckland Council and any other “Authority” having jurisdiction for dwelling units on the site and also to any requirements of any agreement between the registered owner and the Lessee under each cross lease relating to the erection of the dwelling units.
(iii)…
[16]AAL Holdings Ltd v Dai [2020] NZHC 691 [Declaratory judgment].
[17]Declaratory judgment, above n 16, at [2(1)].
The declaration concerning the meaning of cl 34 states:[18]
(i)on substantial completion of each of the dwelling units on the relevant area the Lessee under each cross lease shall at the cost in all things of the registered owner and when requested by the registered owner join in and execute as a co-Lessor a Lease of each of the dwelling units for a term corresponding with the unexpired period of the lessee’s cross lease which new Lease(s) shall contain a restrictive covenant in the same form as clause 31 of each cross lease in respect of the relevant area exclusive of the dwelling units and shall otherwise contain the same terms and conditions as are contained in each cross lease (excluding clause 32 to 37 of the cross lease);
(ii)the Lessee under each cross lease shall do all things necessary or desirable in order to enable registration of such new Lease(s) on the relevant area (including cooperating in the deposit of a new Flat Plan) and to obtain the consent thereto of any mortgagee of the estate or interest of the Lessee under each cross lease in the land;
(iii)the registered owner shall, at the registered owner’s expense, with all due speed register such new Lease(s).
[18]At [2(2)].
The declaration concerning the meaning of cl 35 states:[19]
the Lessee under each cross lease irrevocably nominates, constitutes and appoints the registered owner, and any nominee of the registered owner, to be the true and lawful attorneys and attorney of the Lessee under each cross lease, both as Lessee under each cross lease and as registered proprietor of the interest held by that Lessee in the fee simple of the land, and on behalf of the Lessee under each cross lease as Lessee and/or as registered proprietor, and as fully and effectively as the Lessee under each cross lease (either as a Lessee and/or as a registered proprietor) could do if personally present, to execute for the Lessee under each cross lease in any capacity the new Lease(s) referred to in clause 34 and to sign and use the name of the Lessee under each cross lease in any capacity to such new Lease(s) and to do all such other acts and things (including signing any new Flats Plan) as shall be necessary or desirable to effect registration of such new Lease(s).
[19]At [2(3)].
No declaration was issued concerning the meaning of cl 36.
The appeal
Justitiae did not address in submissions the ground of appeal relating to the jurisdiction to issue a declaration in the absence of a lis or dispute between the parties. As we have noted at [22(a)], there was, in any event, no merit to this ground of appeal.
The remaining grounds of appeal can be distilled to two broad questions:
(a)Did the Associate Judge err when he held that the covenants in issue could be enforced against Justitiae by AAL?
(b)Did the Associate Judge err when he exercised his discretion to issue declarations in circumstances where, according to Justitiae, the proper course was for AAL to pursue an application for orders under s 339 of the Property Law Act?
Can the covenants in issue be enforced against Justitiae by AAL?
Justitiae’s submissions
Mr Goodall advanced several reasons as to why, in his submission, the Associate Judge erred in finding that cls 32–36 created an agreement to lease the relevant area and any dwelling units built on it:
(a)Mr Goodall submitted that cls 32–36 never created an agreement to lease because:
(i)Clause 33 was at most a licence to occupy the relevant area, and cl 34 was merely part of a “development option” that would only create a lease after it was exercised.
(ii)The original parties lacked the capacity to grant a lease.
(iii)The original parties did not agree to a lease.
(iv)Auckland City Council rules and consents were not complied with.
(b)Mr Goodall also submitted that, even if cls 32–36 created an agreement to lease between the original parties, such an agreement to lease no longer exists because:
(i)Any agreement to lease was not registered so would have been defeated by the registration of later interests in the fee simple.
(ii)Any agreement to lease would have been cancelled by a new agreement AAL entered into with one of the unit owners.
To support its submissions in [30(a)(iv)], Justitiae gave notice that it wished to adduce evidence about applications made by prior owners to build further units and the terms of consents issued by the Auckland City Council. To support its submissions in [30(b)(ii)], Justitiae wished to adduce evidence about proceedings between AAL and other unit owners. However, on the day before the hearing of the appeal, Justitiae withdrew its application to adduce further evidence and it did not advance the grounds of appeal to which the application to adduce further evidence related.
Justitiae also challenged the applicability of ss 231–233 of the Property Law Act, which allow covenants to run with the land. According to Justitiae, ss 231–233 only apply to legal leases, not equitable leases. Therefore, even if cls 32–36 created an agreement to lease, it would only be an equitable lease, and ss 231–233 would not apply to allow the covenants to run with the land.
AAL’s submissions
Mr Fisher for AAL supported the Associate Judge’s finding that cls 32–36 created an agreement to lease the relevant area and any dwellings built on it, and the finding that ss 231–233 of the Property Law Act allow the covenants to run with the land.
Mr Fisher also pursued an alternative argument on appeal that did not rely on finding that cls 32–36 created an agreement to lease the relevant area and any dwellings built on it. It is common ground that AAL and the unit owners are lessor and lessees of the existing dwelling units, so Mr Fisher submitted that cls 32–36 could run with the land as part of those leases.
Analysis
We shall commence our analysis by examining the approach followed by the Associate Judge. In doing so, we will address the arguments put forward by Mr Goodall when he submitted the approach taken by the Associate Judge was wrong.
Agreement to lease?
In the High Court, Justitiae conceded that cl 33 gave exclusive possession. In this Court, Mr Goodall, who was not counsel below, argued that the concession was wrong and that, at most, cl 33 created a licence to occupy but did not confer exclusive possession upon AAL.
The Associate Judge relied on the plain meaning of cl 33, when he concluded there was an agreement to lease the relevant area, and that cl 34 extended the agreement to lease to any dwelling units built on the relevant area.
Like the Associate Judge, we are satisfied that cl 33 did grant exclusive possession of the relevant area. Clause 33 allows “the Lessors” to enter and build on the relevant area. This is supported by cl 11, which prohibits the unit owners from using any part of the land except their unit and the common area. The effect of these clauses is that AAL has exclusive possession of the relevant area.
Merely a development option?
Mr Goodall submitted that cl 34 did not create an agreement to lease any dwelling units built on the relevant area. He argued that cl 34 was merely part of a “development option”, where no agreement to lease could be created until the dwelling units had been built.
Mr Goodall relied on Showa Shoji Australia Pty Ltd v Oceanic Life Ltd to support this part of his submissions.[20] In that case, the owner of a tower, Burns Philp, leased floors to two entities, Telecom and McIlwraith. Burns Philp also agreed with a third entity, Oceanic, that if Telecom and McIlwraith did not renew their leases, it could require Oceanic to take a lease of those floors. Burns Philp sold the tower to Showa Shoji. Telecom and McIlwraith did not renew their leases, and Showa Shoji argued that it could require Oceanic to take a lease. The New South Wales Supreme Court disagreed. It held that Burns Philp and Oceanic did not enter an agreement to lease. It was only a put option that, if exercised by Burns Philp while it was still the owner, would have created an agreement to lease.
[20]Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 (NSWSC).
We are, however, satisfied that Showa Shoji is quite a different type of case:
(a)First, it can be distinguished by the type of condition that was engaged. In Showa Shoji, the put option was conditional on third parties not renewing their leases. Burns Philp could not control whether the condition was satisfied, so it could not have an agreement to lease. In this case, cl 34 is conditional on “the Lessors” building on the relevant area. Whoever are “the Lessors” have control over whether the condition is satisfied, so it is logically possible to treat “the Lessors” as already having an agreement to lease.
(b)Second, Showa Shoji can also be distinguished by the context of the agreement. In Showa Shoji, the put option was the only agreement between Burns Philp and Oceanic. In this case, cl 34 must be considered within the broader agreement between the parties. We have already held that cl 33, in combination with cl 11, created an agreement to lease the relevant area. It therefore follows cl 34 extended this to dwelling units built on the relevant area.
Capacity
Mr Goodall also submitted that the parties lacked the capacity to grant a lease. This argument was based on the fact that cls 32–36 referred to the other unit owners as “the Lessee” rather than as co-owners.
The Associate Judge explained, however, that:[21]
… the expression “the Lessee” in cls 33-35 was intended only to identify the party concerned, and not to specify the capacity (lessee or co-owner) in which the person referred to as “the Lessee” was required to act.
[21]High Court judgment, above n 1, at [72].
The interpretation adopted by the Associate Judge was the only sensible meaning that could be attributed to the term “the Lessee” in the covenant and was entirely consistent with cls 35 and 36 in which “the Lessee” appoints “the Lessors” to be its Attorney, not only to take steps that “the Lessee” might have taken in its capacity as a lessee of its unit, but also as a “proprietor of any interest in the fee simple” of the land.
Does an agreement to lease subsist?
The next issue is whether the agreement to lease still subsists. Mr Goodall argued that any agreement to lease would no longer subsist, because it would not have been registered, so it would have been defeated by the registration of later interests in the fee simple.
It is common ground that the leases of the existing dwelling units are registered, and that the lease instruments have been deposited. Mr Fisher argued that those lease instruments contain cls 32–36, which create the agreement to lease, so the agreement to lease is also registered.
The agreement to lease was not registered as a separate lease. It was merely contained within the clauses of another registered lease. The purpose of registration is to allow parties to quickly check the register for interests in land. Requiring parties to look through the clauses of deposited instruments might be thought to be contrary to this purpose.
Nevertheless, the depositing of the caveats in issue does provide a mechanism for checking the interests in the land and no evidence was placed before the Court to suggest the parties were unaware of the covenants at the time they acquired their interests in the property. We are satisfied that this ground of appeal cannot succeed.
Do the covenants run with the land?
The principal statutory provisions that govern whether or not lease covenants run with the land are to be found in ss 231–233 of the Property Law Act:
231 Burden of lessor’s covenants to run with reversion
(1)If the reversion expectant on a lease ceases to be held by the lessor (whether by transfer, assignment, grant, operation of law, or otherwise), the obligations imposed by every covenant of the lessor—
(a) run with the reversion; and
(b)may be enforced by the person who is from time to time entitled to the leasehold estate or interest against the person who is from time to time entitled to the reversion.
(2)Subsection (1) applies unless a contrary intention appears from the lease or from another circumstance.
(3)In subsection (1), the reference to every covenant of the lessor is,—
(a)for a lease that comes into operation before 1 January 2008, a reference to every covenant of the lessor that refers to the subject matter of the lease; and
(b)for a lease that comes into operation on or after that date, a reference to every covenant of the lessor, whether it refers to the subject matter of the lease or not.
232 Rights under lease to which section 233 applies
(1) Section 233 applies to all or any of the following rights under a lease:
…
(b)the right to enforce every covenant of the lessee, including a covenant relating to a subject matter that was not in existence when the covenant was made:
…
(d) all rights and remedies of the lessor.
(2)In subsection (1)(b), the reference to every covenant of the lessee is,—
(a)for a lease that comes into operation before 1 January 2008, a reference to every covenant of the lessee that refers to the subject matter of the lease; and
(b)for a lease that comes into operation on or after that date, a reference to every covenant of the lessee, whether it refers to the subject matter of the lease or not.
…
233 Benefit of lessee’s covenants to run with reversion
(1)If the reversion expectant on the lease ceases to be held by the lessor (whether by transfer, assignment, grant, operation of law, or otherwise), the rights to which this section applies—
(a) run with the reversion; and
(b)may be exercised by the person who is from time to time entitled to the income of the land, whether or not the lessee has acknowledged that person as lessor (that is, with or without attornment be the lessee).
(2)Subsection (1) applies unless a contrary intention appears from the lease or from another circumstance.
The leases of the dwelling units came into operation before 1 January 2008, so only covenants that refer to “the subject matter of the lease” will run with the land. This reflects the common law position that an assignee of a lease or a transferee of the reversion is only bound, subject to any agreement to the contrary, by covenants in the lease that “touch and concern” the relevant leasehold estate.
In Specialist Diagnostic Services Pty Ltd v Healthscope Ltd,[22] the Court of Appeal of Victoria adopted the following test for determining if a covenant in a lease touches and concerns the land:
(a)The covenant benefits only the lessee for the time being, and if separated from the lease ceases to be of benefit to the lessee.
(b)The covenant affects the nature, quality, mode of user or value of the leased land.
(c)The covenant is not expressed to be personal (that is to say neither being given only to a specific lessor nor in respect of a specific lessee).
Do the covenants benefit only the lessee for the time being?
[22]Specialist Diagnostic Services Pty Ltd v Healthscope Ltd [2017] VSCA 175, (2012) 305 ALR 569.
We are satisfied that the covenants in cls 32–36 benefit only the lessee for the time being. The covenants are dependent on the lease granted and enjoy no independent standing.
Are the covenants personal?
We are also satisfied that the covenants in cls 32–36 are not expressed to be personal. Clauses 32–36 refer to “the Lessors” and “the Lessee”. They are not confined to the original parties to the crosslease.
Do the covenants affect the leased land?
We are also satisfied that the covenants in cls 32–36 affect the leased land. The leased land is the relevant area, and cls 32–36 affect the relevant area.
Mr Goodall relied upon the judgment of Buckley LJ in Dewar v Goodman.[23] That case concerned the lease of land on which were built 211 houses containing a covenant by the lessee to maintain and repair with a provision permitting the taking of the premises by the lessor in the event of a breach of the covenant by the lessee. The lessee gave a sublease in relation to two houses in which the sublessor covenanted to perform the covenants in the headlease in so far as they related to the other 209 houses not leased by the sublease. Both parties then assigned their interests in the sublease. The new sublessor failed to maintain and repair the other 209 houses, and the headlessor terminated both the headlease and the sublease. The new sublessee made a claim against the new sublessor for breach of the covenant to maintain and repair the other 209 houses, alleging that the breach effectively destroyed the sublease. The English Court of Appeal held the covenant in question could not be enforced because it did not touch or concern the two houses leased in the sublease.
[23]Dewar v Goodman [1908] 1 KB 94 (CA).
Dewar v Goodman is not relevant to the analysis we have taken, because, in this case, cls 32–36 mainly relate to the leased land. We nevertheless make the following points about Dewar v Goodman in deference to Mr Goodall’s submissions.
It may be noted that the House of Lords upheld the decision of the Court of Appeal.[24] Lord Collins explained that the covenants in question were merely collateral but he also said he could envisage “covenants to do things on land other than that demised which touch and concern so nearly the land demised as to run with it”.[25] What Lord Collins was saying is that it is conceivable that covenants may touch and concern demised land even though the covenants are attached to adjoining property. Such a situation may arise where the land that is covenanted is intertwined with the land in issue.
[24]Dewar v Goodman [1909] AC 72 (HL).
[25]At 77.
The reasoning in Dewar v Goodman was later criticised by the English Court of Appeal in Kumar v Dunning for its failure to address, amongst other concerns, its apparent inconsistency with Dyson v Forster,[26] a contemporaneous decision of the House of Lords. Lord Browne-Wilkinson VC said it was “very difficult, if not impossible, to reconcile” the two cases,[27] and explained why the reasoning in Dyson v Forster was preferable to that in Dewar v Goodman.
[26]Kumar v Dunning [1989] 1 QB 193 (CA) at 205–206; and Dyson v Forster [1909] AC 98 (HL). See also Congleton Corporation v Pattison (1808) 10 East 130 (KB).
[27]Kumar v Dunning, above n 26, at 205.
We have also found the decision of the New South Wales Supreme Court in Hurlfite Pty Ltd v Coles Myer Ltd to be more apposite than Dewar v Goodman, and to be a case that reflects the type of scenario envisaged by Lord Collins.[28] Hurlfite Pty Ltd v Coles Myer Ltd concerned a lease of a shopping centre where a clause in the lease said the lessor could not build on car parks next to the shopping centre. The lessor transferred ownership of the shopping centre and the new lessor refused to be bound by the clause. The new lessor argued the clause related to car parks rather than to the shopping centre, so it did not touch and concern the leased land. The New South Wales Supreme Court disagreed. It held the car parks were highly beneficial to the shopping centre, so covenants relating to the car parks also touched and concerned the shopping centre. That case can be accurately described as one in which for all practical purposes the covenants relating to the car parks touched and concerned the leases of the shopping centre.
Can covenants in equitable leases run with the land?
[28]Hurlfite Pty Ltd v Coles Myer Ltd (1990) NSW ConvR 55 (NSWSC).
Mr Goodall raised an argument that ss 231–233 of the Property Law Act do not apply to equitable leases. We do not think it is necessary to traverse in detail the evolution of the status of agreements to lease. Suffice to note that the author of the relevant part of Hinde McMorland and Sim Land Law in New Zealand observes:[29]
Before the Property Law Act 2007 came into force … it was practically certain that the burden of the lessor’s stipulations in an informal lease fell on an assignee of the revision, the reasoning being similar to that which was applied in relation to the passing of the benefit of the lessee’s stipulations in an informal lease to the assignee of the reversion. Any remaining uncertainty has now been removed by the Property Law Act 2007 …
We also observe that the sentence we have quoted is consistent with the conclusions of other authorities, such as the Property Law and Equity Reform Committee.[30]
Conclusion in relation to approach taken by the Associate Judge
[29]McMorland and others, above n 6, at [11.206]. (Footnotes omitted).
[30]Minister of Justice Property Law and Equity Reform Committee — Final Report on Legislation Relating to Landlord and Tenant (November 1986) at [65].
We are satisfied that the Associate Judge was correct when he treated cls 32–36 as covenants to lease the relevant area and any dwelling units built on that area and that those covenants do run with the land under ss 231–233 of the Property Law Act.
Alternative grounds
Our findings in relation to the principal grounds of appeal also render it unnecessary for us to consider the alternative ground put forward by AAL which we have summarised at [34]. It is also unnecessary to consider the arguments relating to s 303 of the Property Law Act and ss 12 and 17 of the Contract and Commercial Law Act.
Section 339 of the Property Law Act
In the High Court, Justitiae argued that AAL’s only recourse was to seek relief under s 339 of the Property Law Act. This it has done by commencing proceedings in the High Court for orders to divide the property into freehold titles.
This element of Justitiae’s case really engages the issue of the exercise of the Associate Judge’s discretion to grant a declaration. We think the fact that AAL has now made application under s 339 of the Property Law Act does not undermine the way in which the Associate Judge exercised his discretion to issue a declaration because, as he correctly identified that all AAL was seeking to do was have the Court explain the parties’ rights and interests under the covenants. That is quite separate from the consequences which may flow from an application under s 339 of the Property Law Act. The current proceedings and the application under s 339 of the Property Law Act are not mutually exclusive, indeed, we were advised that the latter application may be assisted by this Court’s decision concerning the meaning of the covenants.
Result
The appeal is dismissed.
The declarations issued by the High Court are upheld.
The appellant must pay the first respondent costs for a standard appeal on a band A basis plus usual disbursements.
Solicitors:
Hucker & Associates, Auckland for Appellant
Brown Partners, Auckland for First Respondent
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