Reid v Estreich
[2022] NZHC 1433
•20 June 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-009
[2022] NZHC 1433
UNDER section 3 of the Declaratory Judgments Act 1908 and section 228 of the Property Law Act 2007 IN THE MATTER OF
a landlord’s refusal to consent to the
assignment of a lease and damages for a landlord’s failure to consent to the
assignment of a lease
BETWEEN
GERALDINE MARY REID and BRANDON KIM REID
First Plaintiffs
HEENI WINIATA REID and ELIAS JOHN REID
Second Plaintiffs
AND
STEPHEN NOEL ESTREICH
First Defendant
STEPHEN NOEL ESTREICH (as executor) Second Defendant
On papers Counsel:
M C Nicholls for plaintiffs
Judgment:
20 June 2022
JUDGMENT OF TOOGOOD J
This judgment was delivered by me on 20 June 2022, at 12 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar Date……………………………..
Solicitors: Martin Nicholls Ltd, Kerikeri Copy to: Mr Estreich
REID v ESTREICH [2022] NZHC 1433 [20 June 2022]
[1] This claim for a declaration under s 226 of the Property Law Act 2007 (the Act) and for damages under s 228 of the Act is brought by formal proof, Mr Stephen Estreich not having taken any steps in the proceeding in either capacity in which he is named as a defendant.
The facts
[2] Geraldine and Brandon Reid were the owners of a leasehold interest in a rural property, now identified as NA138C/348 (the property), at 6224 State Highway 1 near Moerewa in Northland. The term of the lease is for 999 years from 1 May 1957. Stephen Noel Estreich is the owner of the freehold interest in his own right and as the executor of the interest of his former co-owner.
[3] The lease provides that the annual rental for the leasehold interest (Unique Identifier 42509, North Auckland) is $10, with no ability for the lessor to increase the rent. The lease is assignable. Clause 1(v) provides:
The Lessee shall not assign underlet or part with the possession of the demised premises or any part thereof for the whole or any part of the term hereby created without the prior written consent of the Lessor but such consent shall not be unreasonably or arbitrarily withheld.
[4] By clause 1(vi), the lessee is required to keep the property in good, clean, serviceable, substantial and tenantable repair, order and condition.
[5] Given the tenure of the lease, Geraldine and Brandon’s interest was all but equivalent to a fee simple interest. They had purchased the interest from Brandon’s father and in 2021 decided to sell it to their son Elias and his wife Heeni.
[6] It appears Geraldine and Brandon had a preliminary exchange with Mr Estreich in August 2021 in which Mr Estreich offered to sell them the freehold title to the property, but they were not interested in buying it. On 8 September 2021, Brandon and Geraldine entered into a sale and purchase agreement with Elias and Heeni for the leasehold interest in the property at a price of $400,000.
[7] On 22 September 2021, Geraldine and Brandon gave Mr Estreich formal notice of their wish to assign the lease. The consent documents were also provided. There
was no immediate response but, on 1 October 2021, Mr Estreich sent an email to Geraldine and Brandon’s solicitors saying:
I appreciate you getting in touch in regards to the lease transfer at 6224 State Highway One but at this stage it is no benefit for myself to transfer the lease over to Mr & Mrs Reid’s children.
I have intentions of retiring and building a small two-bedroom unit on my land in the near future if this cannot be resolved.
Would you like to refer to my email on the 12th August 2021 that I will relinquish the freehold title to Mr and Mrs Reid’s family for the sum of
$100,000. The other option would be for Mr and Mr’s [sic] Reid to let me purchase their dwelling for a reasonable offer.
Please can you inform Mr & Mrs Reid I will not be signing the attached document, I am open to further discussion once you have spoken to your clients.
[8] I have not been provided with a copy of Mr Estreich’s email of 12 August 2021. A legal executive employed by Geraldine and Brandon’s conveyancing lawyers sent an email to Mr Estreich in response to his 1 October 2021 email saying that she understood that her clients had originally approached him about the conversion of the title from leasehold to freehold but that what they were now requesting was the transfer of the leasehold and that they were entitled to do so without consideration.
[9] On 18 October 2021, Elias and Heeni received an offer of a loan from the Bank of New Zealand (the BNZ) of $400,0001 at an interest rate of 3.45 per cent per annum. The offer fixed the rate for 60 days on the basis that the interest rate would change if the loan was not drawn down by 17 December 2021. The offer was accepted on 1 November 2021.
[10] A further consent form was sent to Mr Estreich on 2 November 2021. He was told then that settlement of the assignment was scheduled for 5 November 2021 and that there would be costs associated with the delay that the plaintiffs would seek to recover from him should his consent not be given in time for the settlement. The consent form was re-supplied to him by email the following day, with the same warning. On 4 November 2021, Mr Estreich replied saying he would not unreasonably or arbitrarily withhold his approval of the transfer of the lease, but he
1 A valuation report for the property dated 18 October 2021 assessed the market value at $620,000.
wanted to take appropriate legal advice. He asked whether Geraldine and Brandon would pay his reasonable legal costs. By reply email, Geraldine and Brandon’s solicitor told Mr Estreich the lease did not provide for payment of his legal fees and that proceedings would be issued.
[11] On 15 November 2021, Geraldine and Brandon’s litigation solicitor notified Mr Estreich that an application would be made to the High Court for a declaration that his failure to grant consent was unreasonable. Further copies of the lease documents, the record of title of the freehold showing the leasehold interest and a consent form were attached to the email.
[12] On 22 November 2021, after receiving the documents, Mr Estreich sent a text message to the lawyer, Mr Nicholls, saying:
Ramcity [sic]2 legal advice and I am not happy with the way to properties kept [sic] so you will hear from my lawyers shortly.
[13] There having been no further communication from or on behalf of Mr Estreich, Elias and Heeni did not draw down the BNZ loan and the 18 October 2021 offer expired on 17 December 2021.
The proceeding
[14] On 12 January 2022, the statement of claim was filed, accompanied by a without notice interlocutory application seeking an interim determination, on a Pickwick basis,3 as to whether the landlord had unreasonably withheld consent. The reason Elias and Heeni sought an urgent determination by the Court was that they wished to take advantage of a new offer of mortgage finance from the BNZ, at a higher interest rate, before the offer expired on 16 January 2022.
[15] On 17 January 2022, Mr Nicholls appeared before Gault J and confirmed that the papers had been served on Mr Estreich. Gault J noted that, by that time,
2 A word which may have been produced by an errant predictive text function. Mr Estreich may have intended to indicate that he was seeking legal advice.
3 Allowing Mr Estreich or his counsel to be present at the hearing of the without notice application and to take part in order to assist the Court: Pickwick International Inc (GB) Ltd v Multiple Sound Distributors Ltd [1972] 1 WLR 1213.
Mr Estreich had not offered any ground for refusing consent other than the suggestion that the property had not been kept in good repair. It appeared to the Judge that, in more recent telephone contact just prior to the hearing, Mr Estreich had told Mr Nicholls that he was prepared to sign his consent although he was unwell and would do that when he had recovered. The Judge arranged a further VMR/telephone conference for 4pm that day to give Mr Estreich an opportunity to provide consent. The Judge observed in his minute of that appearance that, if the plaintiffs were not prepared to sign the leasehold interest without Mr Estreich’s consent, and the bank’s finance could not be extended, their remedy would be in damages. The Judge noted the risk to Mr Estreich if consent had been unreasonably withheld.
[16] At 4pm on 17 January 2022, Mr Estreich participated in the VMR/telephone conference with Gault J; Mr Nicholls joined as counsel for the plaintiffs. Mr Estreich explained his inability to sign his consent to the assignment of the lease on the form provided but confirmed that he would send a text or email to Mr Nicholls that afternoon providing consent. On that basis, Mr Nicholls informed the Judge and Mr Estreich that he would not pursue a declaration that day that consent had been unreasonably withheld but “indicated there would be a damages issue, at least in relation to the costs to [that] date and increased interest rate.”
[17] There is no evidence, however, of any form of written consent having been received by Mr Nicholls, despite Mr Estreich’s undertaking to the Court. On 18 January 2022, however, on the basis of what Mr Nicholls regarded as Mr Estreich’s oral consent, Elias and Heeni accepted a new offer of finance from the BNZ, at an interest rate of 4.19 per cent per annum, and the plaintiffs settled the assignment of the lease on 21 January 2022.
[18] Mr Estreich has not taken any formal step in the proceeding and the plaintiffs now seek a declaration and damages by default on a formal proof.
[19] In the circumstances, the position appearing to me to be free of any difficulty as to the entitlement to a declaration, I have been prepared to deal with the matter on the papers.
The applicable legal principles for a declaration
[20] In his memorandum filed in support of the formal proof application, Mr Nicholls conveniently set out the relevant legal principles and authorities for the grant of a declaration; they appear to me to be correct.
[21] Section 225 of the Act provides that ss 226 to 228 shall apply if there is a covenant in a lease that the lessee will not, without the consent of the lessor, assign the lease.4
[22]Sections 226 and 227 provide:
226Consent to assignment, etc, or change of use
(1)This section applies to a lessor who receives after 31 December 2007 an application by a lessee requesting the lessor’s consent to do 1 or more of the things referred to in section 225(1)(a) to (f) (whether the lease came into operation before, on, or after that date).
(2)The lessor—
(a)must not unreasonably withhold consent to the doing of the thing or things specified in the application (whether or not the covenant expressly provides that consent must not unreasonably be withheld); and
(b)must, within a reasonable time,—
(i)give the consent; or
(ii)notify the lessee in writing that the consent is withheld.
When consent is unreasonably withheld
(1)For the purposes of section 226(2)(a), consent is unreasonably withheld if,—
(a)as a condition of, or in relation to, giving consent, the lessor—
(i)requires the payment of an amount (whether by way of additional rent, or by way of premium or fine) or other consideration; or
(ii)imposes on the lessee any unreasonable condition or precondition; or
4 Section 225(1)(a).
(b)consent is withheld because the lessee—
(i)is bankrupt (if the lessee is an individual); or
(ii)is in receivership or liquidation (if the lessee is a company); or
(iii)is in receivership or is being liquidated under section 342 of the Companies Act 1993 (if the lessee is an overseas company).
(2)Subsection (1) does not limit section 226(2)(a), nor does it prevent the lessor from requiring the lessee, if the lease so provides, to pay the reasonable legal or other expenses of the lessor in giving consent.
(3)If the lessor refuses consent, or gives consent subject to a condition or precondition, the lessor must, on the written request of the lessee, promptly give the lessee written notice of the reasons for—
(a)the refusal; or
(b)the imposition of the condition or precondition.
[23] As Mr Nicholls submits, the applicable legal principles were summarised by the High Court in Louis Vuitton NZ Ltd v Prince’s Wharf Property Fund Ltd.5 I adopt and apply them. It is unreasonable for a lessor to refuse consent if the grounds do not reasonably relate to the covenant. Mr Estreich said he was unhappy about the state in which the property was kept but he has not provided any evidence of that. Photographs and other information accompanying the application, including the valuation report, make it clear that the property is a pleasant rural property with a large garden that is well maintained and attractive and that the substantial house on the property is maintained in good condition. There has never been an issue about the state of the property in the past and, of course, there is no question about whether Elias and Heeni can afford to pay the peppercorn rental of $10 per annum. Moreover, nothing in the assignment will change Mr Estreich’s enjoyment of the freehold interest.
[24] Considering the matter on 24 May 2022, I found that Mr Estreich was given a reasonable time within which to contemplate his response to the request for consent first made on 22 September 2021 and repeated several times. I was satisfied that:
5 Louis Vuitton NZ Ltd v Prince’s Wharf Property Fund Ltd HC Auckland CIV-2004-404-3401, 17 September 2004 at [29]–[39].
(a)the assignment of the lease would have no detrimental effect on his interest in the fee simple title;
(b)the stated reason of failure to keep the property in good condition was wholly without merit;
(c)Mr Estreich told Gault J and Mr Nicholls that he would provide written consent but failed to do so; and
(d)Mr Estreich’s failure to provide consent in writing was unreasonable.
[25] Although I was firmly of the view that the plaintiffs were entitled to the declaratory relief they sought, therefore, I was less sure about the claim for damages, which I have addressed in the next section. Rather than delay the making of the declaration, I issued a minute on 24 May 2022 in which I made the following order:
I find and declare under ss 226 and 227 of the Property Law Act 2007 that Stephen Noel Estreich has unreasonably withheld consent to the assignment of the leasehold interest in the property at 6224 State Highway 1, Moerewa being Lot 2 on DP 211225 and Record of Title (unique identifier) 42509, North Auckland, from Brandon Kim Reid and Geraldine Mary Reid to Heeni Winiata Reid and Elias Reid.
Damages under s 228 of the Act
[26] The first and second plaintiffs each claimed damages under s 228 of the Act for losses which they say have been caused by Mr Estreich’s unreasonable refusal to consent to the assignment of the lease. The section provides:
228 Damages may be recovered from lessor if consent is unreasonably withheld
(1)A person specified in subsection (2) who suffers loss because of a failure by a lessor to comply with section 226(2) may recover from the lessor—
(a)any payment required to be made or other consideration referred to in section 227(1)(a); and
(b)damages for any loss suffered because of any other failure by the lessor to comply with section 226(2).
(2)The persons referred to in subsection (1) are—
(a)the lessee; or
(b)any assignee, sublessee, mortgagee, or person in possession of the leased premises.
[27]Geraldine and Brandon say that they incurred increased legal costs of
$2,978.50 because of the extra work undertaken by their conveyancing solicitor. They have been unable to quantify the extent of the additional work, however, and no longer pursue that claim. Elias and Heeni say that because of the delay, the mortgage rate they were required to pay to their bank on the loan of $400,000 to fund the purchase increased from 3.45 per cent per annum to 4.19 per cent per annum for the first two years of the mortgage. They seek a total award of $5,920.00 and interest on the judgment sum from 1 October 2021 to the date of judgment.
The applicable legal principles for an award of damages
[28] Somewhat surprisingly, there does not appear to be any caselaw summarising the principles for an award of damages under s 228 of the Act. Although the setting for an award under s 228(1) is contractual, s 228(2)(b) extends the right to damages to parties having no contractual relationship with the lessor.
[29] Mr Nicholls has provided helpful submissions on the point. He submits that, because the list of eligible claimants in s 228(2) encompasses non-contractual relationships, it might be more appropriate to have regard to an assessment of damages based on the principles of remoteness applying in tort. Counsel argues that if the tortious test of remoteness of damage is used, it is relevant that the policy justification for holding damage to be too remote does not apply with the same force when a defendant has intended harm or intended to do the act constituting the tort, although without a specific intention as to the consequences.
Discussion of the principles
[30] It is necessary for the Court to approach the award of damages under s 228 in a principled manner.
[31]Section 10 of the Legislation Act 2019 relevantly provides as follows:
10 How to ascertain meaning of legislation (1)
The meaning of legislation must be ascertained from its text and in the light of its purpose and its context.
(2)
Subsection (1) applies whether or not the legislation’s purpose is stated in the legislation.
(3)
The text of legislation includes the indications provided in the legislation.
….
[32]The purpose of the Act is set out in s 3 as follows:
3 Purpose
The purpose of this Act is to restate, reform, and codify (in part) certain aspects of the law relating to real and personal property.
[33] That provision does not assist in the determination of the approach to be taken to the exercise of the Court’s jurisdiction in s 228 to award damages, nor is there any discussion in the Parliamentary material related to the passage of the bill through the House.
[34] It appears, however, that the purpose of the section is to introduce into the law the right of the persons named in s 228(2) to claim compensation for any loss suffered because of a failure by a lessor to provide consent within a reasonable time without having reasonable cause for doing so, where such right did not previously exist.
[35] I have been assisted by the discussion of damages claims founded on the arbitrary or unreasonable withholding of consent by a lessor in Taylor Marine Ltd v Taylor Marine Brokers (2005) Ltd.6 As Cooper J explained in that case,7 the prevailing view at common law was that, in the absence of express wording referring to the lessor covenanting with the lessee not to unreasonably withhold consent, a lessor’s obligation not to unreasonably or arbitrarily withhold consent was treated not as a separate lessor covenant giving rise to a claim for damages, but as a qualification of or proviso to the covenant of the lessee to obtain the lessor’s prior consent for which damages were not
6 Taylor Marine Ltd v Taylor Marine Brokers (2005) Ltd [2007] 3 NZLR 413.
7 At [82] – [104].
available.8 Cooper J mentioned, however, that the Property Law Bill that was then before Parliament contained provisions that would abrogate the line of authorities beginning with Treloar v Bigge.9
[36] Considering the legislative change against the background of the former common law position, I regard it as clear that the right to sue for damages rests firmly in the statute and that it does not incorporate historical contractual principles. I have contemplated whether, by including in the class of persons who might take advantage of the new statutory remedy those who have no contractual relationship with the lessor, Parliament implied a legislative intention to invoke considerations of tortious principles of remoteness into the causative element of the remedy. But I have concluded to that to treat the inquiry into damages as one resting on principles of law that do not squarely fit into the legislative context is not justified.
[37] Nor do I think it is open to the Court to import into the assessment of damages considerations of fairness related to the reasons for the lessor’s default, so far as they may be ascertained. Doing so would be to add qualifications to the claimant’s right to damages not contemplated by the wording of the section.
[38] Damages are available to compensate the claimant “for any loss suffered because of [the] failure by the lessor to comply with” s 226(2).10 Bearing in mind the simplicity of the statutory language, and in the absence of any legislative guidance, I consider the assessment of damages should be addressed as a relatively straightforward exercise of determining causation on the evidence available to the Court. For those reasons, I regard the question to be determined as being whether the claimant has proved, on the balance of probabilities, that the losses that the claimant suffered would not have been suffered but for:
(a)the unreasonable failure by the lessor to give the consent; or
8 See Treloar v Bigge (1874) LR 9 Exch 151, Rose v Gossman (1996) 201 EG 767, Cameron v Nash (1900) 19 NZLR 396, Doyle v Hancock & Co Ltd (1979) 1 NZCPR 88 and Countrywide Banking Corporation Ltd v Roni Corporation Ltd (In Liq) (1991) ANZ ConvR 380.
9 Taylor Marine Ltd v Taylor Marine Brokers (2005) Ltd above n 6, at [105].
10 Emphasis added.
(b)the lessor’s unreasonable delay in notifying the lessee before consenting.
[39]I turn to apply that approach to the facts.
The assessment of damages
[40] I have held that there is no reasonable basis on which Mr Estreich could reasonably withhold his consent to the assignment of the lease to Elias and Heeni. Mr Estreich acknowledged as much in the conference with Gault J on 17 January 2022.
[41] Moreover, although the reference in the 2 November 2021 email from Geraldine and Brandon’s solicitor to “costs associated with the delay” might be said to fall short of putting Mr Estreich on notice that he would be held liable to the assignees for increased borrowing costs, I have held that the foreseeability of such losses is not a relevant consideration. If Mr Estreich had given written consent when first asked to do so on 22 September 2021, or at any time prior to 17 December 2021 (that is, within six weeks of being warned of his susceptibility to a claim for recovery of costs associated with his delay), the additional costs would have been avoided.
[42] I am satisfied on the balance of probabilities that, but for Mr Estreich’s unreasonable refusal to provide written consent to the assignment of the lease within a reasonable time, the prospective losses attributable to the additional interest costs over two years from 21 January 2022 would not have been suffered by Elias and Heeni. I assess the damages on the basis of an additional interest cost of 0.74 per cent per annum on $400,000 for two years; namely, $5,920 as claimed.
The claim for interest
[43] Elias and Heeni seek an order for interest, pursuant to s 10 of the Interest on Money Claims Act 2016, from 18 December 2021 to the date of judgment. But the additional interest costs did not begin to accrue until after the drawdown of the BNZ loan on 20 January 2022 and the interest was not paid on that date in a lump sum. I disallow the claim for interest up to the date of judgment.
Orders
[44]I order Mr Estreich to pay damages to the second plaintiffs in the sum of
$5,920.
Costs
[45] Costs in the proceeding are sought. There is no reason to depart from the general principle that the unsuccessful party in a proceeding should make a reasonable contribution to the costs of the successful party.11
[46] I direct that, in either capacity in which he is named in the proceeding as a defendant, Mr Estreich shall pay one set of costs and disbursements to the first and second plaintiffs according to scale, calculated in accordance with the schedule on a category 2B basis. The costs shall be quantified by Mr Nicholls in a memorandum to be filed not later than 27 June 2022 and the order for costs shall be made by way of a minute of the Court.
Toogood J
11 High Court Rules 2016, s 14.2(1)(a)
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