Paros Property Trust Ltd v Smith

[2021] NZHC 2163

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-2593

[2021] NZHC 2163

BETWEEN

PAROS PROPERTY TRUST LIMITED

Plaintiff

AND

TIMOTHY ERIC BRUCE SMITH

First Defendant

TONI ADRIANNE SHAW

Second Defendant

Hearing:

14 – 17 June 2021

Appearances:

L McEntegart and A Steel for the Plaintiff First Defendant appears in Person

Second Defendant appears in Person

Judgment:

19 August 2021

JUDGMENT OF HARLAND J

This judgment was delivered by me on 19 August 2021 at 11:00 am Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar  Date:……………………….

Counsel/Solicitors:

L McEntegart, Waterloo Tower Chambers, Auckland A Steel, Chancery Street Chambers, Auckland Brown Partners, Auckland

Copy to:

First Defendant; and Second Defendant

PAROS PROPERTY TRUST LIMITED v SMITH [2021] NZHC 2163 [19 August 2021]

Introduction

[1]    It is generally thought to be preferable to own a freehold rather than a leasehold interest in land. This is because a leasehold interest attracts the payment of rent for the use of the land, which is typically subject to review and the prospect of the rent increasing. In Auckland, where the price of land has increased exponentially, the payment of ground rent payable under such leases has also increased – sometimes dramatically.

[2]    In this case, following their separation and with their life savings, the defendants purchased the leasehold interest in a townhouse at 54 Napier Street, Freemans Bay in Auckland in which the plaintiff owns the fee simple. The lease contains a clause providing a right to freehold the property in certain circumstances and subject to certain conditions. The interpretation of this clause and whether it was legally engaged is at the heart of this case. The plaintiff landlord says the clause was not engaged, and that rental arrears amounting to $237,625 are owed to it by the defendants. The first defendant (Mr Smith) says the clause was engaged, and that the plaintiff’s failure to comply with it justified him cancelling the lease on behalf of both defendants. The second defendant (Ms Shaw) seeks an indemnity from Mr Smith should she and Mr Smith be found liable to the plaintiff for the rental arrears.

Background

[3]    The property at 54 Napier Street is one of 30 terraced townhouses in a development known as “Freemans Close”, which was constructed and sold by the Auckland City Council in the early 1970s. The Council retained ownership of the freehold estate in the land, and the townhouses and a common area were sold to various parties with their leasehold interests recorded in a lease. The term of the lease was 99 years commencing on 14 November 1972, with a rent review period of       21 years.

[4]    In the 1990s, as part of local government reorganisation, the Council sold its interest in the freehold estate over the land to private interests. This meant that there were more lessors involved, many of whom were investors and some of whom owned the fee simple in several townhouses. At the first rent review…