Nicol v Ali
[2022] NZHC 2414
•20 September 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2022-404-000555
[2022] NZHC 2414
BETWEEN PERCIVAL ARTHUR BRIAN NICOL
Plaintiff
AND
BRETT ALI
Defendant
Hearing: 12 September 2022 Appearances:
NLK Stone & V Kumar for the Plaintiff Mr Ali (Defendant) in person
Judgment:
20 September 2022
JUDGMENT OF TAHANA J
[Application to cancel a lease]
This judgment was delivered by me on 20 September 2022 at 3.30pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
Snedden & Associates, Auckland Doug Cowan Barrister, Auckland Copy to: Defendant
NICOL v ALI [Application to cancel a lease] [2022] NZHC 2414 [20 September 2022]
Introduction
[1] Mr Nicol is the owner and lessor of a property at 12 Weymouth Road, Manurewa, Auckland (the Property). On 1 August 2007, Mr Nicol entered into a lease with himself (the Lease) to enable him to sell the leasehold in the Property. The Lease provided for annual rent of $5,000 and for the lessee to pay the rates for the Property.
[2] Mr Nicol then sold the leasehold interest to Mr Ali for $49,000 pursuant to a sale and purchase agreement dated 6 February 2008 (the Agreement). While Mr Ali made some rate payments until 2015, a significant amount remained unpaid.
[3] The Auckland Council then issued proceedings against Mr Nicol for payment of the outstanding rates. Mr Nicol paid the outstanding rates and sought to recover this amount from Mr Ali, who, as at the date of the hearing, has still not paid any of the rates’ arrears.
[4] The Lease also provided for triennial rent reviews on the anniversary of the Lease. Mr Nicol sought to increase the rent from 1 August 2021 to $45,000 per annum. Mr Ali has not paid the increased rent.
[5] Mr Nicol now seeks to cancel the Lease; recover unpaid rates and rent (with interest and costs); and regain possession of the Property.
Background
[6] Despite swearing a detailed affidavit setting out the background to, and the terms of, the Lease, Mr Nicol failed to mention the Agreement which required Mr Ali to pay $49,000 to Mr Nicol (of which, $27,000 was financed by Mr Nicol who registered a mortgage on the leasehold title). Mr Nicol gave no explanation as to why the Agreement was not provided to the Court.
[7] Mr Ali provided the Court with a copy of the Agreement at the hearing. He said he did not see the terms of the Lease nor did he receive any legal advice when he signed the Agreement. While Mr Ali says he did not receive a copy of the Lease, he
did pay rates sporadically and he does accept that Mr Nicol is entitled to a rent review. Mr Ali says the review must be seven per cent of the land value (based on the government valuation) and not seven-and-a-half per cent of the land value as valued by a private valuer.
[8] I find it difficult to accept that Mr Ali has not seen the Lease as both of these obligations (rates and rent review) are contained in the Lease and not the Agreement. He must therefore have seen the terms of the Lease.
[9] The Agreement refers to an estate of leasehold by lease No. L 7488744.1, which is the reference number for the Lease. The Lease records that the term is 20 years, with a new lease term of 20 years and a final termination date of 31 July 3006 (Schedule A).
[10]The terms of the Lease require the lessee to pay rates, as follows:
2.2.1 The Lessee will pay all rates, charges, assessments, duties, impositions and fees at any time or from time to time payable to any Authority in respect of the Land and/or Building irrespective of the ownership thereof or paid or payable by the Lessor in consequence of the receipt of rent or other moneys pursuant to these presents, or in consequence of the Lessor having any estate or interest In the Land or the Building (but excluding income tax or any tax on rental income or other tax assessed in respect of the Lessor’s income or profits).
[11] If the lessee does not pay the rates, the lessor is entitled to recover the costs to remedy the default (cl 2.2.5). Additionally, cl 10.3 of the Lease provides that:
10.3Lessor may Remedy Lessee’s Default
10.3.1Without prejudice to the other rights powers and remedies of the Lessor the Lessor may elect to remedy at any time without notice any default by the Lessee under this Lease and whenever the Lessor so elects all costs and expenses incurred by the Lessor (including legal costs and expenses) in remedying such default shall be paid by the Lessee to the Lessor forthwith on demand.
[12] The Lease also provides for rent reviews every three years (cl 2.3) with the rent review dates specified in Schedule A as “every THIRD anniversary from the commencement date.” The commencement date is 1 August 2007.
[13] If the lessor wishes to review the rent, the lessor must provide written notice to the lessee at any time not earlier than four months prior to each of the successive rental review dates specified in Schedule A. The Lease notes that in this regard, time is not of the essence.1
[14] The lessor’s written notice must set out the amount which the lessor considers to be the “current market rent.”2 For the purposes of cl 2.3, “current market rent” is defined as the sum which represents seven-and-a-half per cent of the value of the land.3
[15] Unless the lessee disputes the rent review in writing within one month of receiving the lessor’s notice, the rent specified in the lessor’s notice will become the annual rent.4 The Lease prescribes a dispute resolution process for disputed rent reviews.5
What has happened?
[16] The Auckland Council initially sent invoices for rates addressed to Mr Ali at the Property’s address. On 1 October 2018, Auckland Council then sent a letter to Mr Nicol to the physical address of the Property and to a PO Box number at Royal Oak. The letter indicated that $6,580.60 was outstanding for rates and said:
While we [Auckland Council] understand that there is a registered lease in place for this property the lessee is unable to be entered as the ratepayer for the property because the lease does not comply with s 11 of the Local Government (Rating) Act 2002.
Accordingly, as the owner you [the applicant] are liable for the outstanding rates. We note that the last payment received was on 10 October 2015 for
$500.00 and the rates are now significantly in arrears and continuing to accrue penalties.
[17] Mr Nicol says he did not receive this correspondence. He only became aware of the letter in June 2020 after Auckland Council filed proceedings against him.
1 Lease, cl 2.3.1.
2 Lease, cl 2.3.1.
3 Lease, cl 2.3.3.
4 Lease, cl 2.3.1.
5 Lease, cl 2.3.4.
[18] On 9 July 2020, Mr Nicol’s solicitors sent a demand letter to Mr Ali for payment of $12,109.08 for the outstanding rates and costs. Mr Ali did not pay or respond to that letter and further demands dated 17 November 2020 and 4 December 2020.
[19] On 25 May 2021, Mr Nicol paid Auckland Council $16,554.06 to settle the claim. He has continued to pay the rates.
[20] Mr Nicol then served Mr Ali with a “notice of breach and intention to cancel the lease” dated 10 June 2021. The notice demanded payment of $16,554.06 for outstanding rates and costs, to be paid within 30 working days. A further notice dated 9 November 2021 was delivered to Mr Ali on 20 January 2022. It required Mr Ali to remedy the breach within 10 working days of receiving the notice. Mr Ali did not do so.
Rent review
[21] Mr Nicol’s solicitor sent Mr Ali a rent review letter dated 22 July 2021, notifying him that the new rent for the Property had been assessed at $45,000.00 per annum plus GST, pursuant to a valuation report which was enclosed. Mr Ali was requested to increase his rental payments to $4,312.50 per month. At the time, the monthly rental payments were $690.
[22] Mr Nicol’s solicitor sent a further letter dated 3 August 2021 enclosing a “Deed of Rental Review.” The new rental would be payable from 1 August 2021. The letter again requested that Mr Ali adjust his monthly rental payments to $4,312.50 per month.
[23]Mr Ali did not increase his rental payments and has continued to pay rent at
$690 per month.
Originating application
[24] Mr Nicol filed the originating application on 11 April 2022 seeking cancellation of the Lease; possession of the Property; payment of outstanding rates and rent; and payment of interest and costs.
Analysis
Non-payment of rates
[25] As set out above, the Lease requires Mr Ali as lessee to pay the rates. Mr Ali accepts he is responsible for paying rates but says he was entitled to a discount on the rates because of his low income. Mr Ali explained that he stopped paying rates because he was unhappy with the Council’s work when installing stormwater infrastructure near the property. The correspondence from Auckland Council indicates that Mr Ali made rates payments sporadically until 2015, when he ceased paying at all.
[26] Mr Ali also says he was unable to pay the rates because the Auckland Council would not deal with him as he is not the listed ratepayer. He says he requested a letter from Mr Nicol to authorise him to deal with the Auckland Council, but this was never provided. Mr Ali is willing to pay rates but only if these are discounted given his low income.
[27] I understand Mr Ali’s concerns, but the Lease is clear. He is responsible for paying the rates. He, however, cannot be named as the ratepayer because the Auckland Council does not consider that the Lease complies with s 11 of the Local Government (Rating) Act 2002. Section 11 requires that the Lease be registered, be for a term of not less than 10 years, and that the Lease provide that the lessee be entered in the rating information database and the district valuation roll as the ratepayer. The Lease does not satisfy the last requirement so this is likely the reason the Auckland Council will not list Mr Ali as the ratepayer.
[28] The effect of the above is that Mr Ali is not the ratepayer so is not eligible for the rates rebate. This issue could be addressed by Mr Ali and Mr Nicol agreeing to
amend the Lease to require that the lessee be entered in the rating information database and district valuation roll as the ratepayer. Then, Mr Ali would be able to apply for the rates rebate. This, however, is irrelevant to the amount that Mr Nicol has been required to pay to Auckland Council for rates, and is not a legal basis for Mr Ali to refuse to pay.
[29] Mr Ali’s concerns do not remove his obligation to pay rates under the Lease at the amount they are currently charged by Auckland Council. Mr Nicol is entitled under s 246 of the Property Law Act 2007 (the PLA) to apply to cancel the Lease.
[30]Section 246 of the PLA states:
246 Cancellation of lease for breach of other covenants
(1) A lessor may exercise a right to cancel a lease because of a breach of a
covenant or condition of the lease (except the covenant to pay rent) only if—
(a)the lessor has served on the lessee a notice of intention to cancel the lease; and
(b)at the expiry of a period that is reasonable in the circumstances, the breach has not been remedied.
(2) The notice required by subsection (1)(a) must adequately inform the recipient of all of the following matters:
(a)the nature and extent of the breach complained about:
(b)if the lessor considers that the breach is capable of being remedied by the lessee doing or stopping from doing a particular thing, or by the lessee paying reasonable compensation, or both,—
the thing that the lessee must do or stop doing; or
(ii) the amount of compensation that the lessor considers reasonable; and
(c)the consequence that, if the breach is not remedied at the expiry of a period that is reasonable in the circumstances, the lessor may seek to cancel the lease in accordance with section 244:
(d)the effect of section 247(1) and (2):
(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.
[31] Mr Nicol did purport to provide notice under s 246(2) of the PLA. While the 10 June 2021 notice did not include an explanation as to the effect of s 247(1) and (2), this was rectified in the 9 November 2021 notice. That notice therefore complied with the requirements of s 246(2) of the PLA.
[32] Mr Ali has had notice that he is required to pay rates for a very long time. The Auckland Council correspondence indicates that rates invoices were addressed to Mr Ali until 2018. Further, from at least 9 July 2020 when Mr Nicol’s solicitors sent a letter of demand for the outstanding rates, Mr Ali has been aware that he is responsible for paying the outstanding rates despite Mr Nicol’s name being on the rates invoices. Mr Ali was also aware from at least 10 June 2021 that if he did not pay, Mr Nicol could apply to cancel the lease. This was followed up with further letters which Mr Ali continued to ignore.
[33] Mr Ali explained that he had tried to speak with Mr Nicol’s solicitors but they would not take his calls. The correspondence from Mr Nicol’s solicitors confirm that they would not take his calls. They say this is because they do not act for Mr Ali. Mr Ali however, was unrepresented and in those circumstances, Mr Nicol’s solicitors were obliged to deal with him in relation to the disputes, until he instructed counsel. This however, does not excuse Mr Ali’s continued non-payment of rates.
[34] In these circumstances, Mr Ali has failed to comply with the obligation to pay rates under cl 2.2.1 of the Lease and Mr Nicol is entitled to cancel the lease. Mr Ali’s failure to pay rates resulted in Mr Nicol being sued, which understandably would have caused stress to him. Mr Nicol has responsibly paid the outstanding rates and now seeks to recover from Mr Ali.
[35] I am therefore satisfied that it is appropriate to cancel the Lease in accordance with s 246 of the PLA. I am also satisfied that Mr Ali is liable to pay the rates’ arrears as claimed by Mr Nicol.
[36] Mr Nicol also applies for possession of the Property. Section 251 of the PLA 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.
[37] Counsel for Mr Nicol, refers to Terminus Restaurant and Bar Ltd v Caples Court Motel 2007 Ltd,6 a case in which the applicant sought similar orders from the Court. If the provisions of ss 245 or 246 apply, it will be appropriate for the Court to consider s 251 of the PLA.
[38] Given my finding that the Lease be cancelled it follows that Mr Nicol is entitled to possession of the Property and I order accordingly.
Rent review
[39] As set out above, the Lease provides for rent reviews “every THIRD anniversary” from the commencement date. The commencement date is specified in the Lease as 1 August 2007. The rent review dates were therefore 1 August in 2010, 2013, 2016, 2019 and 2022. The most recent rent review date is therefore 1 August 2022.
[40] The notices to increase the rent were dated 27 July and 3 August 2021, so were premature. Any rental increase arising from a rent review is only effective as from the
6 Terminus Restaurant and Bar Ltd v Caples Court Motel 2007 Ltd [2013] NZHC 1812.
“particular review date,” which is 1 August 2022, being the third anniversary of the previous review date.
[41] Clause 2.3.1 of the Lease also states that notice is not to be provided at any time earlier than four months prior to the review date, meaning the earliest date notice could be provided was 1 April 2022. While the clause says time is not of the essence, I interpret this to mean the date on which the notice is given is not of the essence, provided it is not earlier than four months prior to the rent review date. Mr Nicol was therefore able to provide notice as from 1 April 2022 but only for increased rent to apply from 1 August 2022.
[42] For these reasons, the rent review notices do not comply with the Lease and are invalid as there is no right to impose a rent review at a date that is earlier than the rent review date, being 1 August 2022. I therefore find that Mr Ali is not liable to pay the increased rental set out in the rent review notice dated 3 August 2021.
Interest and costs
[43] Mr Nicol also seeks payment of interest in accordance with cl 10.2.1 of the Lease. Clause 10.2.1 provides that interest is payable on monies owing under the Lease at the rate of four per cent above the highest overdraft interest rate charged by the lessor’s banker at the due date of payment. Mr Nicol is entitled to interest on the outstanding rates at this rate.
[44] Mr Nicol seeks costs in accordance with cls 10.3.1 and 11.1 of the Lease which provide that:
10.3.1 … the Lessor may elect to remedy at any time without notice any default by the Lessee under this Lease and whenever the Lessor so elects all costs and expenses incurred by the Lessor (including legal costs and expenses) in remedying such default shall be paid by the Lessee to the Lessor forthwith on demand.
…
11.1 … the Lessee shall pay –
…
(b) all costs, charges and expenses for which the Lessor shall become liable in consequence of or in connection with any breach or default by the Lessee in the performance or observance of any of the terms, covenants and conditions of this Lease.
[45] I accept that cls 10.3.1 and 11.1 entitle Mr Nicol to claim all costs (including solicitor/client costs) relating to Mr Ali’s failure to pay the outstanding rates. This does not include any costs relating to the purported rent review.
Result
[46]The application is successful.
[47]The Court hereby orders, pursuant to s 251 of the PLA:
(a)The Lease between Mr Nicol and Mr Ali relating to the Property, being the premises at 12 Weymouth Road, Manurewa, Auckland, with the identifier 374177 and an encumbrance number of 7775631.2 on the freehold title of NA988/271 is cancelled.
(b)Mr Ali is to deliver up possession of the Property peaceably to Mr Nicol and do all things necessary to give effect to Mr Nicol’s possession within 14 days from the date of this judgment.
(c)Mr Ali is to pay Mr Nicol $19,188.75 for rates’ arrears (the Rates’ Arrears).
(d)Mr Ali is to pay interest on the Rates’ arrears in accordance with the interest rate specified at cl 10.2.1 of the Lease.
(e)Mr Ali is to continue to pay rent at $690 per month up to the date on which Mr Ali provides possession of the Property to Mr Nicol.
(f)Mr Nicol is to file and serve, within 14 days from the date of this judgment, a revised schedule of:
(i)all costs and expenses incurred by Mr Nicol (including legal costs and expenses) in remedying Mr Ali’s default in paying the Rates’ Arrears; and
(ii)all costs, charges and expenses for which Mr Nicol has become liable in consequence of, or in connection with, Mr Ali’s failure to pay the Rates’ Arrears.
[48] The quantum of costs to be awarded will be determined on the papers after receipt of the revised schedule referred to at [45(f)].
[49] Given that the quantum of costs is yet to be determined and the date of possession is not yet known, leave is reserved for Mr Nicol to apply for any further orders which may be required regarding payment of the Rates’ Arrears, rent, outgoings and interest.
Tahana J
1
1