KOL Holdings Limited v Xu
[2022] NZHC 2426
•22 September 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1082
[2022] NZHC 2426
IN THE MATTER of an application under section 244 of the Property Law Act 2007 BETWEEN
KOL HOLDINGS LIMITED
Applicant
AND
ZHEN XU
First Respondent
/cont
Hearing: 21 September 2022 Appearances:
D Chisholm KC for the Applicant No appearance for the Respondents
Judgment:
22 September 2022
JUDGMENT OF GORDON J
This judgment was delivered by me
on 22 September 2022 at 11 am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors/Counsel:
Hornabrook Macdonald Lawyers, Auckland D Chisholm KC, Auckland
KOL HOLDINGS LTD v XU [2022] NZHC 2426 [22 September 2022]
JACK MEIN HO
Second Respondent
SUSAN MILNES and GRAHAM MONCKTON MILNES
Third Respondents
JULIUS DOMENICO
TREMAMONDO REGENTIO
Fourth Respondent
EDOUARD MELAMED
Fifth Respondent
CAROL ANNE MEYRICK
Sixth Respondent
POH KHEAN TAN and
ELIZABETH GRACE TAN
Seventh Respondents
CAROLYN FRANCES CRITCHLEY
Eighth Respondent
ENIGMA RESIDENTIAL LIMITED
Ninth Respondent
A E HANS TAN
Tenth Respondent
SHIMING LI and HUI QIONG WANG
Eleventh Respondents
[1] This is an originating application seeking orders for possession and cancellation of a lease pursuant to s 244(1)(a) and s 251 of the Property Law Act 2007 (PLA) and additional orders under s 251 for outstanding rental/compensation as well as outgoings/expenses.
[2] The applicant, KOL Holdings Ltd (KOL), is the registered proprietor and lessor of a property in Remuera (the property).1 The property is an apartment complex and comprises 21 separate units. Each unit has a separate registered leasehold record of title recording both the lease and internal leasehold arrangements between unit title holders.
[3] There are eleven respondents. Each respondent is a lessee of the property, having leasehold interests in one or more of the units. The respondents have all been served with the requisite PLA notices and affidavits of service have been filed. No notices of opposition have been filed. The application accordingly proceeded on a formal proof basis.
[4] KOL has entered into agreements with the third, fifth and ninth respondents for them to co-operate as regards vacating the premises and to pay sums to reduce the arrears. KOL now no longer seeks monetary orders against those respondents.
[5]The orders sought are as follows:
(a)For possession of the property;
(b)Cancellation of the lease;2
1 267 Remuera Road, Auckland; Record of Title NA80D/939, Lot 1, Deposited Plan 36186 (North Auckland Registry).
2 Given the lease is a registered lease, KOL must arrange for the lease to be removed from its title. Section 98 of the Land Transfer Act 2017 contemplates a lessor applying to the Registrar of Land to note the record of title. Such an application must be accompanied by a copy of the Court’s order.
(c)Requiring the respondents (other than the third, fifth and ninth respondents) to jointly and severally pay KOL:
(i)Outstanding rental in the sum of $1,036,242;
(ii)A sum equivalent to the outstanding rates being $115,128.66; and
(iii)Costs and disbursements (including the cost of serving notices under the PLA and notice of intention to cancel) in the sum of
$27,891.50).3
[6] Alternatively, KOL asks the Court to appoint an arbitrator to resolve any issues in dispute. It says, however, there is no tenable dispute between the parties; it invited the respondents to participate in an arbitration process out of an abundance of caution.
[7] A sworn affidavit of Anthony David Frith, a director of KOL, dated 14 June 2022, was filed in support of the application. Since then Mr Frith has filed two further affidavits dated 1 August 2022 and 12 September 2022. The second and third affidavits mainly provide updates as to quantum.
Relevant law
[8] The application is brought pursuant to ss 244 to 251 of the PLA, which govern the cancellation of a lease.
244 Cancellation of lease for breach of covenant or condition: general
(1)A lessor who wishes to exercise a right to cancel a lease because of a breach by the lessee of a covenant or condition of the lease may—
(a) apply to a court for an order for possession of the land; or
(b) re-enter the land peaceably (and without committing forcible entry under section 91 of the Crimes Act 1961).
(2)However, subsection (1) is subject to sections 245 and 246.
3 Property Law Act 2007, ss 245, 246.
(3)If the lessor applies to a court for an order for possession of land for the purpose of cancelling a lease, the cancellation takes effect—
(a) on the making of the order; or
(b) on any later date that is specified in the order.
[9] Under the COVID-19 amendments to the PLA which apply here, a lessor may only exercise a right to cancel a lease for breach of the covenant to pay rent if the rent has been in arrears for not less than 30 working days;4 The further requirements under s 245(1) are that: the lessor has served a notice of intention to cancel the lease specifying breaches to be remedied; and the breach has not been remedied within the specified period.
[10]Under 245(3), the cancellation notice must adequately inform the lessee of:
(a)the nature and extent of the breach:
(b)the amount that must be paid to remedy the breach:
(c)the period within which the breach must be remedied (which must not be less than 10 working days5 after the date of service of the notice):
(d)the consequence that, if the breach is not remedied at the expiry of the period specified in the notice, the lessor may seek to cancel the lease in accordance with section 244:
(e)the right, under section 253, to apply to a court for relief against cancellation of the lease, and the advisability of seeking legal advice on the exercise of that right.
[11] Section 246 governs the cancellation of a lease for breach of covenants other than rental payment, and parallels s 245. Accordingly, the right to cancel may only be exercised if a cancellation notice has been served and the specified breach has not been remedied. Under s 246, the notice must adequately inform the recipient of the nature of the breach and, as appropriate, identify the thing the lessee must do or stop doing or the amount of compensation the lessor considers reasonable to remedy the breach. The notice must also identify a reasonable time frame to affect the remedy, the consequence of failure to remedy, and the lessee’s rights to apply for relief.
4 Property Law Act 2007, s 245(1)(a) provides that the period is not less than 10 working days. But under s 245B(2)(a) an extended period of 30 working days was introduced as part of the COVID- 19 amendments.
5 Or in this case 30 working days under the COVID-19 amendments (s 245B(2)(b)).
[12] Section 251 sets out the powers of a Court in making orders for possession. It provides:
251 Powers of court in making order for possession
(1)On an application to a court for an order for possession of the land comprised in a lease, the court may make the order and cancel the lease.
(2)If the court makes the order and cancels the lease under subsection (1), it may also do all or any of the following:
(a) order the lessee to pay the rent up to the date of cancellation or any later date on which the lessee yields up possession:
(b)order the lessee to pay reasonable compensation for the breach:
(c) impose on the lessee or the lessor any other conditions that it thinks fit.
(3)For the purposes of this section, reasonable compensation for the breach of a lease may include reimbursement of the lessor’s reasonable expenses—
(a) in giving notice of intention to cancel the lease under section 245 or 246; and
(b) in doing anything else that the lessor has reasonably done in relation to the breach.
Background
[13] The lease commenced on 1 January 2014 for an initial term of 21 years. The registered proprietor and lessor at that time was the Dilworth Trust Board. The annual rent was initially $250,000 (plus GST if applicable), subject to seven-yearly rent reviews. The rent is payable in arrears in six-monthly instalments on 30 June and 31 December each year.
KOL purchased the property, with the lease in place, in around 2017.
[15] KOL says that the respondents first breached their obligation to pay rent in 2020. Issues regarding payment of outstanding rental due at 30 June 2020 for the six months to that date were resolved following mediation. The lessees were also late in paying rental due in arrears on 31 December 2020. This rental was subsequently paid after cancellation notices were served on the respondents.
[16] On 1 December 2020, KOL gave the respondents written notice of a rent increase from $250,000 to $645,000 (plus GST) per annum, in accordance with the rent review schedule in the lease. A professional rent valuation was sent to the respondents with the notice.6 In accordance with cl 25 of the lease the notice required the lessees to advise in writing within two months if they accepted the rental or if they required to have the rental determined under the process in cl 26 of the lease. The lessees did not give any form of notice. Accordingly they were deemed to have accepted the rent stated in KOL’s notice pursuant to cl 25(h) of the lease.
[17] Each six-monthly payment due in 2021 was to be $341,850 (including GST). KOL says that the respondents failed to pay rent on 30 June 2021 and 31 December 2021. The respondents have also breached their obligation under cl 8 of the lease to insure units 1 – 20 (since February 2022).
[18] In July 2021 KOL served notices pursuant to s 245 of the PLA on the respondents giving the respondents notice to remedy the breach of failing to pay the outstanding rental for the six month period ending 30 June 2021. No rental payments were made.
[19] On various dates in March 2022, KOL served two notices on the respondents, in accordance with the PLA, of its intention to cancel the lease for breach of rent obligations for 12 months to 31 December 2021 (s 245) and the failure to insure the buildings on the property in accordance with cl 8 of the lease (s 246).
[20] KOL also discovered in March 2022 that the respondents had failed to pay outstanding rates for the property as required under cl 2(a) of the lease. This meant that KOL was potentially liable to pay the accruing rates to Auckland Council.
[21] In light of various breaches including the continuing failure to pay rental and rates, KOL resolved to give notice of dispute under cl 27 of the lease to ascertain whether this could lead to an early resolution. A notice of dispute dated 22 March 2022 was sent to each of the respondents.
6 Savills (NZ) Ltd undertook a rental valuation and determined that a fair annual rent as at 1 January 2021 would be $645,000 per annum (plus GST and all outgoings).
[22] The respondents failed to remedy the breaches identified in the notices, within the specified time frame. Accordingly, on various dates in April 2022 KOL served a notice of cancellation of lease dated 7 April 2022 on the respondents.
[23] As Mr Chisholm KC, counsel for KOL notes, such a step is sometimes informally taken in anticipation of being able to peaceably re-enter as contemplated by s 244(1)(b) of the PLA but is strictly unnecessary for the purpose of seeking an order for possession under s 244(1)(a).
[24] On 16 May 2022, KOL by its solicitors, invited all lessees to submit outstanding matters to arbitration. No reply was received.
[25] At the time the proceeding was filed and served, most of the lessees (or their tenants and/or licensees) continued to occupy the property. However, the power (electricity) to the property was recently cut off by the utility provider due to the lessees failing to pay for the power. The loss of power has resulted in all of the units on the property being vacated other than Flat 17 (owned by the second respondent Mr Ho). However, as at the date of Mr Frith’s third affidavit, Mr Ho’s tenant was in the process of moving out.
Cancellation and possession
[26] Notices under s 245 for outstanding rental were served in accordance with the requirements of the PLA. The respondents have not remedied the breach within the requisite period. They have been in breach since their failure to pay accrued rental due on 30 June 2021. Further outstanding rental has continued to accrue.
[27] The notices under s 246 for other breaches were also served in accordance with the requirements of the PLA. As regards these notices the period of notice is what is reasonable in the circumstances. The PLA notice given by KOL for failure to arrange insurance gave 15 working days to cure this breach. I accept that was a reasonable period of time.
[28] The unchallenged evidence is that, with the exception of the third, fifth and ninth respondents who have entered into agreements with KOL, the remaining
respondents (or their tenants or licensees) continued to occupy the property at least until recently without paying any rental.
[29] Given that no notices of opposition have been filed and there is no apparent tenable dispute requiring arbitration, I will make orders as sought for possession of the property and that the lease instrument be cancelled.7
Ancillary orders
[30]KOL seeks the following ancillary orders under s 251.
Outstanding rental
[31] In his third affidavit sworn 12 September 2022 Mr Frith provides an updated quantum of the outstanding rental owing at 21 September 2022. Making a deduction for the sums received from the third, fifth and ninth respondents, the amount is
$1,036,242.
[32] Pursuant to cl 21 of the lease the respondents are jointly and severally liable for the lessees’ obligations under the lease which include an obligation pursuant to cl 1 to pay rent.
[33] KOL accordingly seeks judgment against all the respondents (other than the third, fifth and ninth respondents) for this amount.
[34] The powers under s 251 as regard paying outstanding sums due and/or other compensation are broad. In the absence of any opposition I will make an order as sought.
Outstanding rates
[35] The lessees are required to pay rates pursuant to cl 2(a) of the lease. Mr Frith’s evidence is that a total of $115,128.66 in rates is presently overdue. KOL seeks judgment in this sum against all respondents other than the third, fifth and ninth
7 For an example of such an order see Mykonos Property Trust Ltd v Bird [2016] NZHC 173 at [54](b).
respondents in addition to the outstanding rental. Under the broad power in s 251 I will make an order as sought.
Costs and disbursements
[36]Clause 20 of the lease provides:
20. Costs on default
The Lessee will pay all costs reasonably incurred by the Lessor as a consequence of any default by the Lessee under the provisions of this lease, including the costs of or incidental to the enforcement (or attempted enforcement) of the Lessor’s rights, powers and remedies under this lease, and the costs of re-entry of the Property.
[37] In his third affidavit Mr Frith calculates costs incurred to date that KOL considers it is entitled to recover under cl 20. Supporting invoices are annexed to the affidavit. The total to 31 August 2022 is $215,797.40. However, to avoid any dispute as to the quantum of enforcement costs KOL seeks recovery of only its service fees (service was on numerous occasions) and scale costs and disbursements. The GST exclusive sum for process service fees is $17,503.43.
[38] Costs on a 2B basis (rather than actual costs in accordance with cl 20 of the lease) are calculated at $9,918.50, being 4.15 days at $2,390. In addition KOL seeks the recovery of the filing fee on the originating application, namely $469.57. The total of costs and disbursements is $10,388.07.
[39] The total (GST exclusive) of costs of enforcement and recovery claimed for the purpose of cl 20 of the lease amount to $27,891.50.
[40]I will make an order in that sum.
Orders
[41]I make the following orders:
(a)An order for possession for all that land described in:
(i)The freehold Record of Title Identifier NA80D/939 being Lot 1 Deposited Plan 36186 (North Auckland Land Registration District);
(ii)The leasehold Record of Title Identifiers 644993, 644994, 644995, 644996, 644997, 644998, 644999, 645000, 645001, 645002, 645003, 645004, 645005, 645006, 645007, 645008, 645009, 645010, 645011, 645012, 645013 (North Auckland Land Registration District);
(b)An order that lease instrument 9614515.1 be cancelled.
(c)An order that the respondents other than the third, fifth and ninth respondents jointly and severally pay the applicant the outstanding rental in the sum of $1,036,242 as at 21 September 2022;
(d)An order that the respondents other than the third, fifth and ninth respondents jointly and severally pay the applicant a sum equivalent to the outstanding rates being $115,128.66 as at 21 September 2022.
(e)An order that the respondents other than the third, fifth and ninth respondents jointly and severally pay the applicant’s costs and disbursements including in respect of serving Property Law Act notices and notice of intention to cancel in the sum of $27,891.50.
Gordon J
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