Maan v Keys

[2017] NZHC 1967

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2017-404-1166 [2017] NZHC 1967

BETWEEN

VIKKRAM MAAN AND SONIA SINGH

AS TRUSTEES OF THE MAAN'S FAMILY TRUST

Applicants

AND

NEIL EDWARD KEYS Respondent

Hearing:	9 August 2017
Appearances:	M G Orange for the Applicants Respondent in Person
Judgment:	17 August 2017

JUDGMENT OF PALMER J

This judgment is delivered by me on 17 August 2017 at 4.00 pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

Solicitor:
Fortune Manning, Auckland
Copy to:

N E Keys

MAAN AND SINGH v KEYS [2017] NZHC 1967 [17 August 2017]

Summary

[1]      Mr Vikkram Maan and Ms Sonia Singh leased two units to Mr Neil Keys under two successive lease agreements.  Mr Maan and Ms Singh apply for an order for possession of the properties, cancellation of the second lease and payment on the basis that Mr Keys has failed to pay them rent and outgoings and continues to occupy the properties.  Mr Keys disputes the validity of the second lease agreement and  some  of  the  outgoings  though  he  concedes  he  has  failed  to  make  rental payments.   I hold the parties did not intend to create legal relations when they entered the second lease agreement so the applicants cannot enforce it.   Mr Keys appears to be in default of his rental obligations under the first lease agreement, but the applicants will have to issue a new notice and application in order to get an order for possession and cancellation of that.

What happened

The first lease agreement

[2]      In 2015 Mr Neil Keys ran a business, making taxi lights, from units 8 and 10,

529 Great South Road, Papatoetoe, Auckland.  He was offered the opportunity to buy units 8, 9 and 10 but could not take advantage of that.  He facilitated Mr Vikkram Maan and his wife Ms Sonia Singh, through their family trust, doing so.  The deal was that Mr Maan would pay Mr Keys $20,000 and Mr Maan would lease units 8 and 10 to Mr Keys for six years at $400 per week with a right of renewal for another six years at the same rental rate.  That was the same rental Mr Keys had previously been paying.  Mr Keys, Mr Maan and a witness signed a one-page agreement to that effect on 18 November 2015.

[3]      Mr Maan paid Mr Keys $4,800 in four payments in April, May and July

2016.  But the rest of the $20,000 he owed to Mr Keys was offset against Mr Keys’ obligation to pay rent to Mr Maan from 18 November 2015 until 18 September 2016 by which time the parties agree the $20,000 had effectively been paid.

[4]      Mr Keys’ evidence is the parties fell out in September 2015 when Mr Maan requested payment of water rates of $2,540 from Mr Keys.  Mr Keys says the water

fees were for the whole block of units, not just his.  Mr Maan did not reply to Mr

Keys’ evidence about this.

The second lease agreement

[5]      After  buying  the  properties,  Mr  Keys’  evidence  is  that  Mr  Maan  had difficulty raising finance.  Mr Keys says he convinced the vendor to give Mr Maan an extension.  Mr Maan asked Mr Keys to sign a more formal lease agreement in the ADLS form, for the purposes of Mr Maan raising finance.   Its terms included the payment of $11,180 rent plus GST per annum for six years with three rights of renewal for two years each. That works out at $215 per week plus GST.   It also included payment of utilities, body corporate charges and council rates.

[6]      Mr Keys reluctantly signed the second lease agreement on 10 March 2016, but his evidence is that he did so on the basis it was only for the purpose of Mr Maan raising finance and not on the basis it bound Mr Keys.   Mr Keys’ evidence is Mr Maan stated that clearly in the presence of Ms Singh and his own partner at the time, Ms Rachel Derrick.   Ms Derrick provides evidence confirming that.   Mr Keys’ evidence is Mr Maan promised to express in writing his agreement not to enforce the second lease agreement, but never did.  Mr Maan did not reply to Mr Keys’ evidence on this.  Neither lease was registered and no Deed of Lease was entered into.

Default

[7]      After Mr Keys says rental payments became payable, on 18 September 2016, his payment of rent was patchy. He paid no rent in September or October 2016.  He made four out of five payments in November 2016, one out of four in December

2016, four out of five in January 2017, one out of three in February 2017, none in March 2016, two out of four in April 2017 and none since 10 April 2017.  Mr Keys’ evidence is that he withheld rent because the buildings leak and are not fire rated. He also says he hasn’t had work he was promised by Mr Maan but there is no evidence of that.  Mr Keys’ evidence is Mr Maan refuses to speak to him. Mr Maan’s evidence, on the contrary, is that Mr Keys refuses to speak to him.

[8]      Mr Maan says Mr Keys owes him $12,400 in rental arrears until 9 August

2017,  $2,486.74  for  body  corporate  fees  and  $4,091.11  for  council  rates.    The

$12,400 is calculated on the basis of $400 per week.  Mr Maan’s evidence was that he is falling behind on his mortgage repayment.  He exhibited advice from Southern Cross Financial on 2 May 2017 that the loan is in default and accruing default interest and, on 16 June 2017, advising they will issue a notice calling up the loan if the debt was not cleared that day.

Legal proceedings

[9]      On 11 April 2017, Mr Maan served Mr Keys with a Notice of Intention to Cancel Lease.  It stated Mr Keys was in breach of certain provisions of the second lease agreement (of 10 March 2016) by failing to pay the correct rental from 18

September 2016 until 3 April 2017 and failing to pay the correct amount of Body Corporate rates.  In total, then, the amount at issue was $9,000.  The Notice stated Mr Keys was required to remedy the breaches within 12 working days otherwise Mr Maan and Ms Singh may cancel the lease under s 244 of the Property Law Act

2007 (the Act). The Notice also advised Mr Keys he could apply to court for relief against cancellation under s 253 of the Act and it would be advisable for him to seek legal advice.  On 9 June 2017 Mr Maan filed in court an originating application for order for possession of the units and supporting affidavits.  These documents were filed on Mr Keys on 27 June 2017.

[10]     Mr Keys has made no further payments.  He still occupies the units.  He filed a Notice of Opposition and supporting affidavits on 21 July 2017.  At the hearing Mr Keys acknowledged he was in default on the rental payments but said he needed clarification of the amount owed.  He disputed liability for the water rates and body corporate fees because that was only provided in the second agreement which he did not consider he was bound by.  He asked for a month to remedy the rent situation.

[11]     Mr Maan and Ms Singh apply for an order for possession of the properties, an order cancelling “the lease”, judgment for the outstanding rental and other payments and an order for costs.

The law of cancelling a lease and ordering possession

[12]     Part 4 of the Act deals with leases of land.  Subpart 6 deals with remedies and relief and the first part of subpt 6 is entitled “cancellation of leases”. Under s 2, “lease” is defined to “mean a lease of property, whether registered or unregistered, and includes a short-term lease and an agreement to lease”.  The relevant sections provide:

(a)      A lease may be cancelled only in accordance with ss 244 to 252 (s 243).

(b)A lessor who wishes to cancel a lease because of breach by a lessee of a condition may apply to a court for an order for possession of land (s 244(1)).  The cancellation takes effect from the making of the order or any later date specified in the order (s 244(3)).

(c)      A lessor may exercise a right to cancel a lease because of breach of the covenant to pay rent only if rent has been in arrears for not less than 10 working days, the lessor has served on the lessee a notice of intention to cancel the lease and the breach has not been remedied at the expiry of the period specified (s 245(1)).

(d)The notice of intention to cancel the lease is required to adequately inform the lessee of specified matters (s 245(3)).

(e)      On application, the Court may make an order for possession of the land comprised in a lease and cancel the lease.  The Court may also order the lessee to pay the rent up to the date of cancellation, order the lessee to pay reasonable compensation for the breach and impose on the lessee or lessor any other conditions it thinks fit (s 251).

(f)      A  lessee   can   apply  to   the  Court   for  relief  against   proposed cancellation of a lease on the ground of breach of a condition (s 253).

Should the lease be cancelled and possession orders granted?

[13]     Mr Maan asks me to cancel the second lease agreement.  Mr Keys says it was not the intention of him or Mr Maan that Mr Keys should be bound by the second lease agreement.  He only signed it for the purposes of assisting Mr Maan to finance his purchase of the units.  Mr Maan has not offered evidence disputing that.

[14]     It is highly risky to sign a legal document on the basis it won’t be used against you.  Mr Orange, for Mr Maan, said any agreement not to enforce the second lease was only a gentlemen’s agreement and there was no evidence of it.  However, the affidavits of Mr Keys and Ms Derrick were clear and are evidence of it.    Mr Maan offered no evidence contradicting it. And Mr Maan’s calculation of rent on the basis of the $400 per week set in the first agreement, rather than the $215 per week plus GST in the second agreement, supports Mr Keys’ contention.  I am satisfied on the evidence that Mr Maan and Mr Keys had agreed the second lease agreement would not be binding between them.

[15]     Given that finding, I consider it clear that the parties did not intend to create legal relations, or legally enforceable obligations, between themselves when they signed the second lease.1   Alternatively the doctrine of equitable estoppel is likely to weigh against the Court exercising its discretion to allow Mr Maan to enforce the second lease agreement.2   It is also possible the second lease is illegal, and hence of

no effect under s 6(1) of the Illegal Contracts Act 1970,3 but further evidence would

be required to determine that.  In any case, the consequence of the lack of intention to create legal relations is that Mr Maan cannot enforce the second lease agreement against Mr Keys in this proceeding.

[16]     That means that Mr Maan’s claim for body corporate fees and council water

rates, based on the second lease agreement, falls away.  They are not mentioned in the first lease agreement.  The problem for Mr Keys is that, even under the first lease

1      Fleming v Beevers [1994] 1 NZLR 385.

2      The uncleanliness of Mr Keys’ hands, in signing the agreement, may inhibit him from deploying equitable estoppel as a defence.  But clean hands is a defence to a plaintiff invoking equitable relief.    See A Butler  (ed)  Equity and  Trusts  in  New  Zealand  (2nd  ed, Thomson Reuters, Wellington, 2009) at [38.2].

3      From 1 September 2017, this will be s 73 of the Contract and Commercial Law Act 2017.

agreement he says is valid, he has defaulted on rental payments.  He has failed to remedy that default.   On the basis of the agreement he says is valid, he owes Mr Maan $12,400 as at 9 August 2017.  Mr Maan is entitled to rental payments of $400 per week under the first lease agreement.

[17]     Mr Orange, for Mr Maan, requested cancellation of both lease agreements. But the problem for Mr Maan is the Notice of Intention to Cancel Lease is directed only at the second lease agreement.  That is the lease that is said by the Notice to be at issue and in respect of which Mr Keys is said to be in breach.  There is no notice of intention to cancel the first lease.

[18]     Section 245(1) is explicit that the lessor has power to exercise a right to cancel “a lease” because of breach of the covenant to pay rent “only if ... (b) the lessor has served on the lessee a notice of intention to cancel the lease”.4    Section

251 is explicit that, “on application to a court for an order for possession of the land comprised in a lease”, the Court has power to make the order and to “cancel the lease”.  I do not consider the Act confers jurisdiction to cancel a lease in respect of which there has been no application.

[19]     Mr Maan and Ms Singh will have to issue a new notice if they wish to pursue this matter further.  I consider the arguments Mr Keys offered against having to pay the rent he owes under the first lease agreement are insubstantial.  If Mr Keys has no better argument in relation to the first lease, he will need to remedy the non-payment of rent within the period specified in the second notice.  He would be best to do so. Otherwise the Court is likely to grant the order of possession and cancel the first lease agreement.  It is likely to be in the interests of both parties to settle this matter

rather than returning to court.  But they each have a right to do so.

4      Emphasis added.

Result

[20]     I decline the application.  Costs will lie where they fall.

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

Palmer J