AThe appeal is dismissed.
BThe appellants are to pay the respondent costs of $15,000 and reasonable disbursements in connection with this appeal, as fixed by the Registrar if necessary.

REASONS

Para No

Elias CJ [1]
Blanchard, Tipping, McGrath and William Young JJ [24]

ELIAS CJ

The appeal concerns the correct application of the rent-setting provision on renewal at 21-year intervals of a perpetual lease first granted by the Cornwall Park Trust Board as lessor in 1910. The lease restricts use of the land contained in the lease to a single dwelling, unless the lessor waives the restriction at the request of the lessee.[1] Upon expiry of each 21-year term the lessee has the right to accept a renewed lease on the same covenants and provisions and on the basis of an annual rental of five per cent “on the gross value of the land after deducting therefrom the value of the substantial improvements of a permanent character”.[2] The gross value of the land and the value of the permanent improvements are as established by separate valuers for the parties and an umpire, according to the method specified in cl 13(b) of the lease agreement:
(b) ... two separate valuations shall be made namely a valuation of the then gross value of the fee simple of the land then included in the lease and also a valuation of all substantial improvements of a permanent character made or acquired by the Lessee and then in existence on the land.
[1]See cl 4 of the lease. Other restrictions to residential use are contained in cl 9, but it is not necessary to refer specifically to them.
[2] Clause 13(h).
The lessees applied to the High Court for declarations that the effect of cl 13 of the lease is to arrive at a residual value for the land (to which the annual rental of five per cent applies) either as actually occupied by existing improvements on the land or on the basis of its use for a single dwelling. The lessor contended, rather, that the residual value specified by cl 13 is the unimproved value of the bare land according to its highest and best use, unconstrained by either existing development on the land or by the restriction on its use contained in the lease (although the restrictions in the lease had been taken into account by its valuers in previous rental reviews). Courtney J in the High Court found in favour of the lessor.[3] The Court of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Mandic v Cornwall Park Trust Board

Details

AGLC: Mandic v Cornwall Park Trust Board [2011] NZSC 135
Case: [2011] NZSC 135
Decision Date: 11 November 2011

CaseChat Overview and Summary

In the Supreme Court of New Zealand, the appeal of Mandic v Cornwall Park Trust Board was dismissed, with the appellants ordered to pay the respondent's costs of $15,000. The appeal concerned the correct application of the rent-setting provision on renewal at 21-year intervals of a perpetual lease granted by the Cornwall Park Trust Board. The lease restricted the use of the land to a single dwelling unless the lessor waived the restriction at the request of the lessee. Upon expiry of each 21-year term, the lessee has the right to accept a renewed lease on the same covenants and provisions and on the basis of an annual rental of five per cent on the gross value of the land after deducting therefrom the value of the substantial improvements of a permanent character.

The court agreed with the Court of Appeal's determination that the residual value of the land to which the rental formula applies is obtained by deducting from the then gross value of the fee simple the value of the "substantial improvements of a permanent character," as provided for in cl 13(h) of the lease. The court also agreed that it did not matter how the valuation was approached, as long as it resulted in a residual value that was the gross value of the fee simple (land plus improvements) less the value of the improvements.

However, the court differed from other members of the Court in taking the view that the restriction on the use of the land contained in the lease was a relevant consideration in fixing the gross value of the fee simple of the land and the residual value reached after deduction of the value of improvements. The court held that the restriction as to use must be material in any market for the lease and that ignoring the restriction is contrary to the objective intention of the parties in the lease.

The court concluded that the restriction of the land to use for a single dwelling should be taken into account in the valuation of the land for rental purposes, as it was the context in which the rental provision falls to be interpreted. The court held that the appeal should be allowed and a declaration made that cl 13 requires the rental to be set on the basis of the restriction of the land to use for a single dwelling.

Orders