Paros Property Trust Limited v Faith
[2014] NZHC 2826
•13 November 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-1906 [2014] NZHC 2826
UNDER Part 4 of the Property Law Act 2007 IN THE MATTER
of an application for an order for possession
BETWEEN
PAROS PROPERTY TRUST LIMITED Applicant
AND
PAUL MICHAEL FAITH Respondent
Hearing: 20 October 2014 Counsel:
D R Bigio and A J Steel for Applicant
E J Grove for RespondentJudgment:
13 November 2014
JUDGMENT OF FOGARTY J
This judgment was delivered by me on 13 November 2014 at 4.30 p.m., pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors:
Brown Partners, Auckland
Stewart & Associates, AlexandraChris Patterson Barrister Limited, Auckland
Copy to:
D A Bigio, Auckland
PAROS PROPERTY TRUST LTD v PAUL MICHAEL FAITH [2014] NZHC 2826 [13 November 2014]
Introduction
[1] The applicant is the lessor and the respondent is the lessee of a residential property in Auckland. This is a lease of the property to the lessee for 21 years, with the right of the lessee to renew the lease indefinitely at the expiry of each term, at a new rent set for that term. The parties described this as a modified Glasgow lease. The term of this lease expired on 30 September 2013.
[2] On 9 October 2013 the lessor advised the lessee that a valuer had been instructed to ascertain the new ground rental. On 25 November the lessor advised the lessee of a new ground rental rate of $34,450 per annum, calculated on the land value of the property being $530,000 and the rental rate set at 6.5 per cent of that sum.
[3] The letter of advice of 25 November referred to a term of the lease requiring the lessee to notify the lessor in writing within two calendar months whether he will accept a renewal of the lease at the rent specified in the notice.1
[4] The letter advised that two months from the date of the notice was 25 January
2013, [sic 2014].
[5] On 16 December the lessee’s then solicitors wrote to the lessor as follows:
We act for Paul Faith. Our client has provided us with details from you in respect of the revised annual ground rent. Our client wishes to exercise his right contained in the lease to purchase the lessor’s estate. You understand that the ground rental assessment is not appropriate for a purchase. Accordingly, please let us know your valuer of choice for a current market valuation of the land.
Under the terms of the lease the cost of such valuation shall be paid for by the lessee. Please let us know the likely costs so we can obtain payment from our client and confirm this to you.
1 The lease was subject to the Public Bodies Leases Act 1969 Schedule 1.
[6] On 10 March 2014 solicitors for the lessor advised the solicitors for the lessee that the rent had been set at $34,450 per annum and they had received instructions to prepare a new lease accordingly.
[7] The lessee’s lawyers replied on 13 March reminding the lessor that their client had given notice that it may wish to freehold the property and has paid for a freehold valuation and has not yet received the valuation and suggested it was pointless to prepare a lease until the valuation had been forwarded.
[8] On 18 March the lessor made an offer to sell its fee simple interest in the property in the sum of $600,000 plus any outstanding ground rent.
[9] On 7 April the lessor invoiced the lessee for the new rent from 1 October
2013. On 6 May the lessor served notice of intention to cancel the lease on the grounds of failure of the lessee to pay the rent. On 27 May the lessor served notice of intention to re-enter the premises and thereby determine and put an end to the lease.
[10] On 29 July the lessor, as applicant, commenced these proceedings in the High Court applying for possession of the property, cancellation of the lease, orders that the lessee pay rent up to date, reasonable expenses of $800 incurred in giving notice of intention to cancel, and the costs of these proceedings.
[11] The respondent’s grounds of opposition are threefold:
(a) Estoppel.
(b) No renewal of lease and no agreement to the new rental rate. (c) Breach of contract.
Analysis
[12] I analyse the issues between the parties in chronological order for ease of comprehension.
Due date of rental assessment
[13] Clause 16 of the lease provides for renewal and in doing so incorporates provisions of the First Schedule to the Public Bodies Leases Act 1969:
On the expiration of the term of this Lease the Lessee shall have the right to obtain a new Lease of the said premises for a further term of twenty-one years and so on from time to time in perpetuity at a rent to be ascertained each twenty-one years in accordance with the provision of the First Schedule to the Public Bodies Leases Act 1969 as follows:
(a) In making the valuations provided for by Clauses 2 and 3 of the said Schedule no account shall be taken of the value of any improvements now or hereafter erected or made on the said land.
[14] The First Schedule provides (relevantly):
2.Not earlier than 9 calendar months and not later than 3 calendar months before the expiry by effluxion of time of the term of the lease hereby granted, or as soon thereafter as may be, the lessor shall cause a valuation to be made by a person whom the lessor reasonably believes to be competent to make the valuation of the fair annual rent of the land hereby demised, so that the rent so valued shall be uniform throughout (the whole term of the renewal lease)
…
4.As soon as possible after the said valuation has been made, the lessor shall give to the lessee notice in writing informing him of the amount of that valuation and requiring him to notify the lessor in writing within 2 calendar months whether he will accept a renewal lease at the rent specified in the notice.
5.Within 2 calendar months after the giving of that notice to the lessee, he shall give notice in writing to the lessor stating—
(a) That he desires to accept a renewal lease at the rent stated in the notice given to him by the lessor; or
(b) That he requires the rent for the renewal lease to be determined by arbitration; or
(c) That he does not desire to accept a renewal lease.
6.If the lessee fails to give to the lessor within the time specified in clause 5 hereof the notice referred to in that clause, he shall be deemed to have agreed to accept a renewal lease at the rent specified in the notice given to him by the lessor.
(Emphasis added.)
[15] It will be recalled the lessor did not commission a rental valuation until after the term expired. The lessee contends that thereby the lessor breached cl 16 of the lease and cl 2 of the First Schedule by not causing a rental valuation at least three calendar months before the term expired, that is by the end of June. The lessee argued that it was obvious that the reason for this term is to enable the lessee to make a decision before the expiry of the term whether or not to accept the new rental.
[16] In answer to that allegation of breach of the lease, the lessor argued that cl 16 did not mandate advice of the new rental valuation three months before the term expired. This is because of the qualification “or as soon thereafter as may be”. Counsel for the lessor argued that that standard should be applied having regard to the 21 year term of the new lease so that a small delay over a 21 year term was neither here nor there. He pointed out that the late arrival of the new valuation did not prevent the lessee from exercising the four options open to a lessee at the expiry of a term of this Glasgow lease, being the three options in cl 5 set out above: acceptance of the new rent, seeking arbitration, or non-acceptance of a new lease, or to take the fourth option in s 6 described as the “do nothing option” by Greig J in
Cromcorp Quay Street Ltd v Auckland Harbour Board,2 whereby he is deemed to
have accepted a renewal lease at the rent specified.
[17] I do not think that the argument for the lessor can be sustained. This is for at least three reasons. The first is that the First Schedule must be interpreted purposively, like any other statutory provision. The Schedule manifests a purpose that the lessee have two calendar months, before expiry of the lease, to consider whether or not to accept a renewal of the lease at the rent specified. That opportunity cannot be realistically adopted if it does not arise until after the commencement of the term of a new lease. Rather, the intent is that the two calendar months to consider whether or not to accept a renewal of the lease is prior to the term of the lease expiring. The qualifying phrase “or so soon thereafter as may be” allows some slippage in the minimum time limit “not later than three calendar months”, but not such slippage as to deprive the lessee of the opportunity to have at least two
calendar months to consider the proposed rental and whether he will accept a
2 Cromcorp Quay Street Ltd v Auckland Harbour Board (1990) ANZ Conv R 307 at 309.
renewal of the lease or take other options, to be discussed later, but including arbitrating the lease.
[18] This construction is reinforced by the very terms of the proviso to the 9 – 3 month timeframe to obtain a new rent valuation. There is nothing to suggest from its context that it is to be judged against a timeframe of 21 years. It is in the same sentence as the expression of nine and three calendar months.
[19] This interpretation is reinforced by the lessee’s option at anytime to purchase the lessor’s interest. It makes sense to consider this if the lessee considers the new rent to be so high that it would be cheaper to borrow to purchase the freehold.
[20] Given the lessee’s security of title under the perpetually renewable 21 year term of the lease, the value of the lease to the lessee is materially affected by the annual rental. It can be likened to a fixed interest mortgage for 21 years. If paid, the lessee enjoys all the rights of possession of the land and enjoyment of the improvements, and if lost, loses not only the right to possess the land and enjoy the same, but the value of the fixtures on the land, which pass to the lessor.3
[21] This interpretation is also reinforced by the procedure that follows should the lessee request the lessor to appoint a valuer of the lessor’s choice to complete a valuation of the fee simple interest in the context of considering to purchase the fee simple and leasehold interest. As we have seen, if the prospect of a new high rental is the catalyst for the purchase of the whole of the estate, it makes sense to have the benefit of that valuation prior to the expiry of the term of the lease.
[22] Accordingly, I find that the lessor was in breach of cl 16 of the lease and cl 2 of the First Schedule of the Public Bodies Leases Act 1969, by not commencing the process of instructing a valuer to ascertain the new ground rental no later than three calendar months before 30 September, that is by 30 June, or at the very latest within a week or two thereafter (applying the qualifier). The breach by the lessor gave no
opportunity at all for the lessee to assess the competing merits of paying the new rent
3 See clause 6 “and will so yield up the same (all buildings, structures, fixtures, fences and drains) at the end or other sooner determination of the said term (fair wear and tear, damage or fire and earthquake, tempest or inevitable accident excepted).
for the next 21 years or going to arbitration or electing to commence the process of purchase to obtain the fee simple before the expiry of the lease.
Was there a rental assessment?
[23] The lessee argues that no rent review has yet been conducted in accordance with the terms of the lease.
[24] Clause 16 of the lease provides that at the end of each 21 year term:
…the Lessee shall have the right to obtain a new Lease of the said premises for a further term of twenty-one years and so on from time to time in perpetuity at a rent to be ascertained each twenty-one years in accordance with the provision of the First Schedule to the Public Bodies Leases Act
1969 as follows:
(a) In making the valuations provided for by Clauses 2 and 3 of the said Schedule no account shall be taken of the value of any improvements now or hereafter erected or made on the said land.
[25] The lessee also relied on clause 2 of the First Schedule set out above and particularly the concept of “fair annual rent”.4 Counsel for the lessee argued that this term had been authoritatively interpreted by Henry J in Feltex International Limited v JBL Consolidated Limited (In Receivership), particularly these passages: 5
The term "fair annual rent" occurs in the Public Bodies' Leases Act 1969, and has been the subject of judicial consideration. It is now well established law in New Zealand that what is required to determine a fair annual rent is the application of the so-called "prudent lessee" test, which is said to have been laid down in Drapery & General Importing Company of New Zealand Ltd v Mayor, etc, of Wellington (1912) 31 NZLR 598. In that case it was held that the valuers, in order to determine the fair annual ground rent of the land in question "must ascertain what the prudent lessee would give for the ground-rent of the land for the term, and on the conditions as to renewal and other terms, etc, mentioned in the lease" (p 605). That was followed in Re Lund's Lease [1926] NZLR 541, and then by the Court of Appeal in Re Brechin & Drapery Importing Co Ltd [1928] NZLR 241. More recently the same principle was adopted again by the Court of Appeal in Wellington City Council v National Bank of New Zealand Properties Ltd [1970] NZLR 660. In particular at p 671 North P stated:
"In my opinion, what the umpire was saying was this: the principle laid down in the DIC case required him to ascertain what a prudent lessee would give as a ground-rent of the land for the new term of 21
4 See [14] above.
5 Feltex International Limited v JBL Consolidated Limited (In Receivership) [1988] 1 NZLR 668 (HC) at 670 and 671..
years. This being so he was obliged to consider what factors would be taken into account by a prudent lessee. In short he was only concerned with matters which will affect the mind and ultimately the judgment of a prudent lessee in making his offer to the landlord."
Turner J expressed similar views at p 678.
It is, however, necessary to keep in mind that the valuation must still be fair. The requirement of fairness means that it is not simply a matter of determining the least amount which the lessee will pay, as obviously he will pay as little as he can. Rather the inquiry is as to what a prudent lessee would pay for these premises, having regard to the term and conditions of the lease. This must represent the amount which he can reasonably expect to pay for the rights and obligations which are undertaken in the lease. That is where the element of fairness lies, as the lessee cannot expect to receive the benefits without payment of a fair consideration for them.
[26] Mr Grove also relied upon the judgment of the Court of Appeal in Masport
Limited v Morrison Industries Limited.6
[27] Mr Grove then went on to critique the lessor’s valuation report, particularly the references in it to “the market rent”, “current market rent”, and the absence of any reference to “fair annual rental”.
[28] The lessor had engaged the firm of Prendos, a firm which I have previously observed both parties sought to engage. I have read the Prendos valuation report. It is open to the criticism that Mr Grove refers to. There are frequent references to the market, including under methodology paragraph 8.1 “ground rentals are usually set by one of two accepted approaches”. We are told that “the first and most reliable approach is known as the classical approach. This involves the analysis and application of open market ground rental agreements”. Then the report identifies a second approach, known as the traditional approach, which it says “has become the more commonly used method throughout the country. It involves the assessment of the underlying freehold land value and the application of a rental rate of return to derive the ground rental”. “The approach typically prescribes a ground rent can be assessed on this basis where:
The valuers shall disregard any possibility that the land may be used for a purpose or developed in a way otherwise than as developed for residential use. The annual rent from the review date shall be assessed as the current
market rent based on the current market value of the land as agreed or determined pursuant to the foregoing provisions.
…
The rental percentage is also varied according to the term of the rental review and for residential leases typically stands at:
·Five year review term – 5 per cent no recent settlements but considered to be at 5 per cent currently.
·Seven year review term – 5.5 per cent with recent and historic settlements confirming this.
·21 year review term – 6.65 per cent with recent and historic settlement confirming this.”
[29] Mr Grove critiques the report also in respect of the absence of any reference
to a “fair annual rental”, in either the “classical” or the “traditional” method.
[30] The Prendos report does not narrate any of the terms of this lease requiring the rental to be the “fair annual rental”. While Glasgow leases are commonplace throughout New Zealand, their rent setting terms vary. For example, a comparison can be drawn between the terms of this lease with the rent setting terms of the Glasgow leases of the Cornwall Park Trust Board which were examined by the Supreme Court in Mandic v Cornwall Park Trust Board.7 Paragraph [28] of that judgment is as follows:
[28] Clause 13 of the Cornwall Park Memorandum of Lease provides for rental assessment as follows:
(a) On the expiration by effluxion of time of the term hereby granted and thereafter at the expiration of each succeeding term to be granted to the Lessee … the outgoing Lessee shall have the right to obtain in accordance with the provisions hereinafter contained a new lease of the land hereby leased at a rent to be determined upon the basis of the valuation to be made in accordance with the said provisions for the term of twenty-one years computed from the expiration of the expiring term and subject to the same covenants and provisions as this lease as may be applicable to such new lease.
(b) Within twelve calendar months previous to the expiration by effluxion of time of the term hereby granted or such succeeding term as aforesaid 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.
(c) The said valuation shall be made by two indifferent persons as arbitrators one of them shall be appointed by the Lessors and the other by the Lessee and such arbitrators shall before commencing to make the valuations together appoint a third person who shall be an umpire as between them.
(d) The decision of the two arbitrators if they agree or of the umpire if the arbitrators do not agree or in such respects as they do not agree shall be binding on all parties.
…
(h) Before the expiration by effluxion of time of such term as aforesaid or if the valuation be not completed at an earlier period than two months before such expiration of the said term then within two calendar months of the decision of the arbitrators or umpire as the case may be and the giving of notice thereof to the Lessee the Lessee shall give notice in writing signed by [ ] or [ ] agent duly authorised in that behalf and delivered to the Lessors stating whether [ ] desires to have a renewed lease of the said land at an annual rental equal to five pounds per centum on the gross value of the land after deducting therefrom the value of the substantial improvements of a permanent character as fixed by the respective valuations as aforesaid. [Emphasis added.]
[31] Neither counsel before me relied upon Mandic, no doubt because the rent setting terms of those Glasgow leases cannot be equated to this lease.
[32] It is a matter for expert opinion of valuers, but I am inclined to suppose that although there are different criteria in different Glasgow leases for the fixing of rent, which must be examined and applied, inevitably the valuers will, in one way or another, obtain assistance from having regard to the state of the economy, the location of the land and general market conditions. For that reason this Court is in no position to make a determination as to whether the failure of Prendos to specifically address the fair annual rental standard in this lease significantly undermines its conclusion.
[33] For the lessor, Mr Bigio argued that the difficulty in assessing a fair annual rental is addressed in the lease by providing the right of the lessee, dissatisfied with the lessor’s offer, to go to arbitration. Mr Bigio argued that, in this case, because of the presence of that right, the Court should be loathe to strike down the lessor’s report for error of law on the grounds that it contains references to market rent which
may be inapplicable. Mr Bigio also referred to the fact that within the valuation report there is regard to the concept of the prudent lessee.
[34] Mr Bigio also relied upon Feltex International Ltd and read passages which he saw in his clients’ favour, particularly the following: 8
It is proper to infer a qualification to the written words, and that is done by inserting the word "fair" before the words "annual rental" where they first occur in cl 2. …
The term "fair annual rent" occurs in the Public Bodies' Leases Act 1969, and has been the subject of judicial consideration. It is now well established law in New Zealand that what is required to determine a fair annual rent is the application of the so-called "prudent lessee" test, which is said to have been laid down in Drapery & General Importing Company of New Zealand Ltd v Mayor, etc, of Wellington (1912) 31 NZLR 598. … More recently the same principle was adopted again by the Court of Appeal in Wellington City Council v National Bank of New Zealand Properties Ltd [1970] NZLR 660.
[35] Henry J went on to cite North P and Turner J in Wellington City Council v National Bank of New Zealand Properties Ltd9 both of whom emphasised that the judgment by the arbitrator should be after considering factors that would be taken into account by a prudent lessee. That went on to the following passage by Henry J at 671, particularly relied upon by Mr Bigio:
Mr Dunning went on to submit, and I think rightly so, that "market rent" does not necessarily equate "fair rent", because the former may exclude the subjective factors which could influence the determination of what is fair as between two particular parties. Although the distinction between market and fair rent does exist, in some circumstances the market rent may also represent the fair rent, and in others ascertainment of the fair rent may well warrant consideration of market rent. Here it was for the arbitrator to give such weight to evidence of market rent as he thought fit. (Emphasis added.)
[36] I agree with this passage. Accordingly, I agree with Mr Bigio’s submission that rather than seeking to judicially review the Prendos report, Mr Faith should have invoked arbitration, as the lease provided.
[37] I conclude accordingly that there was a valid rental assessment obtained by the lessor, albeit susceptible to being altered by an arbitrator as it was derived
8 Feltex International Ltd v JBL Consolidated Ltd (In Receivership), above n 4, at 670.
9 Wellington City Council v National Bank of New Zealand Properties Ltd [1970] NZLR 660 (CA).
without expressly applying the standard “fair annual rent”.10 This application by the lessee is made in reliance on the statutory provisions for relief against forfeiture under Part 4 of the Property Law Act 2007. I do not regard this Court, in such an application, to have any rental setting power. Rather, under the lease such a dispute is to be resolved by arbitration.
[38] The lessee has not so far complied with cl 5 of the First Schedule and advised whether he requires the rent to be determined by arbitration. Clause 5 requires that notice within two calendar months of receipt of the valuation. It does not readily lie in the favour of the lessor to insist on timetable compliance when it grossly breached its timetable. I will turn later in this judgment to examine the Court’s powers in this regard to extend the time.
[39] The terms of this lease do not spell out how soon after receipt of the valuation of the freehold the lessor should give the lessee notice in writing. But, along the lines analysed above, the intent of cls 2 and 4 of the First Schedule is in combination to give the lessee an opportunity before the expiry of the term of the lease time to consider the proposed quantum. Assuming good faith performance, the lessee would normally give at least two months notice of the new rent before that time expires. In fact, the lessee did not know the new rent until 25 November, nearly two months after the lease expired. This is an unauthorised delay of at least four months. The lessor’s counsel sought to rely upon the phrase “or so soon thereafter as may be” but there was absolutely no evidence which suggests that the lessor had any practical, unexpected difficulties in causing a valuation to be made.
Is there a valid valuation of the freehold?
[40] The lessee argued that the valuation of the freehold was also ineffective. This is for the reason that although the right to purchase was on the lessor’s valuer’s valuation, the lessor was obliged to advise the lessee of the appointment of the valuer before the valuation was obtained. Mr Grove argued that the reason for this was to avoid the lessor gaming by obtaining valuations from a number of valuers selecting
the best and then formally appointing that valuer for the purposes of the lessor’s
10 See discussion of the distinction by Robertson J in Masport Ltd v Morrison Industries Ltd, above n 5, at 21, 24 and 25.
offer. He also argued another reason for requiring disclosure of the identity of the valuer was to avoid appointing a person not qualified to be a valuer. He did not suggest for a moment that that latter reason applied here.
[41] The terms of the lease do require prior notice of appointment of the valuer and I accept that the failure to do so could in some circumstances be a vitiating element in holding the lessor to the valuation. It is, however, a question of degree. Neither side criticised as inappropriate the valuer actually selected. The lessee did not argue and could not argue that had the valuer been disclosed they would have objected. So this was a breach of no consequence.
[42] Second, the lessee argued that the valuation of the bare land at $600,000 by the lessor’s nominated valuer, Eyles McGough, is fundamentally flawed. For the purposes of challenge of the rental valuation, the lessee had retained a valuer, Mr Comley, who came in with a much lower fair annual rental. I have not discussed that valuation evidence for the reason that I think it is a matter for an arbitrator to resolve. In this context, however, the same valuation is used to refer to Mr Comley’s assessment of the value of the bare land at $568,000. Mr Grove also points out that Prendos in its ground rental valuation value the bare land at $530,000. However, Eyles McGough came in with a higher figure at $600,000. That valuation is criticised by Mr Grove on the basis that Eyles McGough have not taken into account that in that area the value of land per square metre tends to decrease once the total size of the land is above 400 square metres, the area required to build a residence. Mr Grove submitted that this meant that the Eyles McGough valuation had not been conducted in a bona fide manner.
[43] It is not possible to resolve a dispute such as this on such a simple proposition. That is a serious submission to make.
[44] There is also another suggestion that the lessor had shopped around for valuers, having first started Prendos to prepare an earlier valuation. That was denied from the bar and I accept that denial.
[45] In this case, having rejected the contention of fact that there was shopping around, I do not accept the submission that Eyles McGough’s valuation is fundamentally flawed. The respective valuations of $530,000, $568,000 and
$600,000 fall within the range of differences of opinion and certainly, in the case of Mr Comley, who is the lessee’s valuer, with Eyles McGough. The difference between them is $32,000. Accordingly, I reject the proposition that the lessor’s valuation to freehold is fundamentally flawed.
[46] The second issue on the point of validity of the valuation is the delay in provision of the lessor’s valuation. The provision in the lease, cl 24, the lessee’s right to freehold at any time, is balanced by the lessor’s right to nominate the valuer, albeit giving notice to the lessee prior to the valuation being obtained.
[47] As noted in the introduction11, the lessee, through his solicitors, advised the lessor on 16 December 2013 that he wished to exercise the right contained in the lease to purchase the lessor’s estate. This triggered cl 24 which provides:
24The lessee may at any time purchase the fee simple and the leasehold interest in the Lessor’s title (“the Lessor’s Estate”) on the following terms and conditions:
(a) Upon written request of the Lessee the Lessor shall forthwith appoint an independent registered valuer of the Lessor’s choice to complete a valuation of the fee simple interest comprised in the Lessor’s Estate (“Land”) such valuation to be the then current market value of the Land at the date of the Lessee’s request excluding all improvements made to the Land. The cost of such valuation shall be tendered by the Lessee to the Lessor with the Lessee’s written request for a valuation PROVIDED THAT if the Lessee completes the purchase of the Lessor’s Estate in accordance with this clause the cost of such valuation shall be deducted from the purchase price payable.
(b) The purchase price for the Lessor’s Estate shall be the value of the
Land fixed by the valuation referred to in subclause (a) above.
(c) The Lessor shall, by notice in writing, advise the Lessee of the purchase price payable as calculated under this clause.
(d) The Lessee shall within two weeks of receipt of advice from the Lessor of the purchase price advise the Lessor in writing of the Lessee’s acceptance or declination of the purchase price and if accepted, shall complete the purchase of the Lessor’s Estate within a
11 See [5] above.
period of six weeks from the date of this Lessor’s advice of the purchase price and otherwise on the terms of the attached Agreement for Sale and Purchase.
(e) Completion of the purchase shall be effected by the exchange of a registrable transfer of the Lessor’s Estate in favour of the Lessee (such transfer to be prepared by the Lessee at the Lessee’s expense and tendered to the Lessor at least fourteen days prior to completion) together with Certificate of Title to the Lessor’s Estate and the Lessor’s copy of this Lease for payment in cash in one sum of the purchase price. The rent payable under this Lease shall be apportioned between the Lessor and the Lessee as at the date of completion.
(Emphasis added.)
[48] It will be noticed that the obligation on the lessor is to forthwith appoint a valuer. The lessor did not advise in writing the valuation, and so the purchase price payable, until 18 March 2014, three months after the lessee’s request, even though the valuation had been completed on 17 February. Clause 24(c) does not set a time limit on the lessor’s obligation to provide the valuation to the lessee. However, (c) needs to be read with (a), and the imperative “forthwith”. It does not make sense to impose that obligation on the lessor to obtain the valuation, and yet to construe (c) as merely requiring the lessor to provide the valuation once obtained at a time convenient to the lessor. For there is no discretion allowed by the lease to the lessor to ask the valuer to come to a different view. The valuer is required by (a) to be independent. I find therefore that there has been a breach of cl 24(c) of the lease by the lessor. It is not a breach, however, that invalidates the valuation.
Lessee’s liability to pay rent from 30 September
[49] The lessee pleaded that the lessor had represented to the lessee that the rental due remained the same until the applicant had obtained a valuation of the new rental; and, subsequently, after Mr Faith had advised he wished to purchase the property until that sales process had occurred.
[50] It will be recalled the previous term of the lease expired on 30 September. On 9 October, the lessor wrote to the lessee and advised that while a rent review was underway the lessee should “in the interim, please pay any rental invoices as they are received”. Counsel for the lessee submitted there is nothing in that letter that
indicated to the lessee he was potentially becoming liable for rent above and beyond the current rental and that the lessor did not notify the lessee of the new proposed rental until 25 November. That letter advised the lessee he had “the right to renew this lease for an additional twenty-one years…” and that that he had two months to notify whether he accepted a renewal of the rent specified which would expire on
25 January. That the lessor did not in that letter advise the lessee he was already accruing liability at the new rental rate. That from October 2013 to 1 April 2014 the lessor had invoiced the lessee for rent at the old rate, which was $3,480 per annum rather than the new rate of $34,450 per annum. That the lessee had never agreed to the payment of the new rental.
[51] The lessee’s argument leaves out the fact that the invoices going out during this interim period had under the total of the invoice these two lines in capitals reading as follows:
ISSUED ON ACCOUNT ONLY OF NEW RENT FOR THE ABOVE PERIOD. BALANCE TO BE INVOICED WHEN NEW RENT HAS BEEN AGREED.
[52] Those words are clear. The lessee was at all material times advised by solicitors. The first requirement of an estoppel is a clear representation. The authorities do allow a representation to be collected by a number of facts combined in context.
[53] I am not satisfied that any representation, let alone the pleaded representation, has been made out. Rather, to the contrary, a warning in capital letters on the invoices is crystal clear and in accordance with commonsense. Every lessee of a Glasgow lease knows that one of the huge advantages of tenure is that there are no rent reviews for 21 years. However, the rent review at the end of 21 years is always going to be awaited with apprehension, as inevitably there will be a huge lift in the annual rent, as there was here. The notion that the application of that new rent might be postponed until resolution of the dispute over the new rent does not make any sense. It is contrary to the provision in the lease for notification of the new rental before the expiry of the term. Of course that provision may not allow sufficient time for resolving the new rental before expiry of the term. But the three calendar month notice gives a real opportunity to submit the rent rate to arbitration before the expiry
of the existing term. It is inherently unlikely that the terms of the lease would allow the tenant to dispute the new rental and obtain a delay in paying the new rental simply by disputing it whether it had good grounds for doing so or not. And this lease does not do so.
[54] It does not follow that the lessor is entitled to delay notice of the new rental, in breach of the lease, yet insist the new rent be backdated to the start of the new term. There has been a gross failure to provide the new rental assessment, so far as possible three calendar months prior to the expiry of the lease term. The lessee has been deprived of the opportunity to have two calendar months to consider his position before the new term of lease, and a new rental would commence.
Application to cancel the lease under s 245 of the Property Law Act 2007 and relief for the lessee
[55] The following are all extracts from Chapter 11: Leasehold Estates, contributed by the late Professor Hinde, Principles of Real Property Law:12
(b) Relief is discretionary
A lessee is not entitled to relief against cancellation as of right. Before the Property Law Act 2007 came into force on 1 January 2008 relief against forfeiture for non-payment of rent was based on the jurisdiction of Courts of equity to grant such relief. Equity regarded the proviso for re-entry on non- payment of rent merely as a security for the rent and therefore, provided that the lessor and other persons interested could be put in the same position as before the cancellation, the lessee, or other applicant was normally entitled to be relieved against the cancellation on payment of the rent and any expenses to which the lessor had been put. This principle apparently remains unaffected by the provision of the Property Law Act 2007.
Although the jurisdiction to grant relief against cancellation for non-payment of rent is now conferred by statute, the powers of the Court are discretionary and it would seem that the general principle upon which the discretion will be exercised continues to be as described by Jenkins LJ in Gill v Lewis in these terms:
… [S]ave in exceptional circumstances, the function of the Court in exercising this equitable jurisdiction is to grant relief when all that is due for rent and costs has been paid up, and (in general) to disregard any other causes of complaint that the landlord may have against the tenant. The question is whether, provided all is paid up, the landlord will not have been fully compensated; and the view taken by the
12 G W Hinde, D W McMorland, N R Campbell QC Principles of Real Property Law (2nd ed Lexis
Nexis, Wellington, 2013) at 11.243(b).
Court is that if he gets the whole of his rent and costs, then he has got all he is entitled to so far as rent is concerned, and extraneous matters of breach of covenant, and so forth, are, generally speaking, irrelevant.
…
In QT Hospitality Ltd v Oxford Holdings Ltd Asher J concluded that “it will only be in the most extraordinary circumstances that relief against forfeiture [now cancellation] will be refused in the event of non-payment of rent when the rent has been brought up to date or can with certainty be brought up to date. This principle was reaffirmed in Wood Bay Enterprises Ltd v Wise, where Gilbert J said that:
It has long been established that the right of forfeiture [now cancellation] for non-payment of rent is security for the payment of rent. In all but exceptional circumstances, for example where a tenant is hopelessly insolvent, a tenant will be entitled to relief against forfeiture or cancellation of a lease upon payment of the rent.
[56] The reason for this policy is that the courts of equity traditionally intervened to protect property rights which would otherwise be lost for defaults of relatively minor proportion measured against the gain to the lessor in obtaining a cancellation of the lease, as is set out in the opening paragraph quoted above. Accordingly, it is important to appreciate from the outset that an application to cancel a lease for essentially non-payment of rent is pleading against a policy many centuries old. I also note that in the case of rent arrears, should the lease be cancelled, the lessor enjoys the benefit of the fixtures on the land, the value of which may well exceed arrears of rent.
[57] The lessor’s application relies on s 245 of the Property Law Act 2007. The scheme of that section requires breach on the part of the lessee of the lessee’s obligations particularly rental arrears which have not been remedied within a reasonable time by the lessee. Sections 245(3)(d) and (e) provide:
245 Cancellation of lease for breach of covenant to pay rent
(3) The notice required by subsection (1)(b) or (2) must adequately inform the recipient of all of the following matters:
(a) … (b) … (c) …
(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.
[58] Section 244 requires the lessor to make an application to the High Court for an order for possession of the land.
[59] Section 253 provides for relief against cancellation, the relevant provisions being ss 1(a) and 3(a)::
253Relief against cancellation of lease for breach of covenant or condition
(1) All or any of the following persons may apply to a court for relief against the cancellation, or proposed cancellation, of a lease on the ground of a breach of a covenant or condition of the lease:
(a) the lessee:
(3) Relief may be sought in—
(a) a proceeding brought by the lessor for an order for possession of the land; or
[60] The power of the Court to grant relief is discretionary. Section 256 provides:
256 Powers of court on application for relief
(1) In determining an application for relief against the cancellation, or proposed cancellation, of a lease, under section 253, a court may grant—
(a) the relief sought on any conditions (if any) as to expenses, damages, compensation, or any other relevant matters that it thinks fit; and
(b) an injunction restraining any similar breach in the future.
(2) The court may grant relief against the cancellation, or proposed cancellation, of a lease even though—
(a) the cancellation is for a breach of an essential term of the lease; or
(b) the breach is not capable of being remedied.
(Emphasis added.)
[61] Although breach of the conditions requiring early notice of the new rent was pleaded in the notice of opposition, the lessee did not plead damages. Mr Bigio, for the lessor, anticipating a finding of breach against his client, argued that it was too late now for the lessee to seek damages. The lessee does not have to plead an award of damages to enable the Court to apply its powers under s 256. The lessee has sought to avoid paying any increase in rent in the meantime. I have rejected his entitlement to estoppel. But the lessee has not waived breaches of the lease by the lessor.
[62] Mr Bigio did not argue, nor could he argue, the Court does not have discretionary powers to set terms upon which to grant application for relief in favour of the lessee. Section 256(1)(a) makes it clear the Court can impose conditions. Section 256(2)(b) makes it clear the Court may grant relief even though the breach of the lessor is not capable of being remedied.
[63] Counsel did not engage upon what the terms should be, should relief be granted. No doubt this was because there were so many prior issues to be resolved by the Judge, that it was hard to submit usefully on the terms of relief.
[64] My solution to that difficulty is to indicate now, how I am minded to grant relief but I reserve leave to both parties to file submissions, within seven working days of the judgment, seeking either a further hearing, or making written submissions seeking to alter the proposed terms.
Proposed conditions accompanying relief against forfeiture of the lease
(a) The just response to the late notice of the rental valuation is to compensate the lessee by deferring the application of the new rent to two calendar months from 25 November, that is, until 25 January
2014.
(b)To provide the lessee with the option of invoking arbitration but placing a time limit on that of one calendar month from the date of this judgment.
(c) In response to both the late valuation of the rent and to the finding that the rental valuation did not address expressly the rent setting formula in the lease, the lessor shall continue to invoice the lessee under the old rent pending the lessee electing to arbitrate or not. If the election to arbitrate is taken, the old rent is payable pending the outcome, but the new rental will be backdated to 25 January 2014. If arbitration is not elected, the new rental will apply as from 25 January 2014.
(d)In the meantime the lease is not cancelled. There is leave to apply to renew the application for cancellation of lease depending on the response of the lessee to the preservation of his rights made above.
[65] I have found that the lessor’s valuation for freeholding is valid. It came late. However, there was nothing to stop the lessee from taking it up. But there is a time limit in cl 24(d) of two weeks.
[66] During the life of the lease the lessee can take advantage of cl 24 at any time by requesting the lessor to appoint a valuer, tendering the cost of the same at the time. There is no need for any relief in respect of the valuation for freeholding.
[67] Costs are reserved.
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