Saisatnam Limited v Brandons Trustee Company Limited
[2017] NZHC 538
•23 March 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2016-485-496 [2017] NZHC 538
UNDER sections 253 & 261 Property Law Act
2007
IN THE MATTER
of the purported cancellation of leases over Units 6B, 6G, 6H and 71, 219 Willis Street, Wellington
BETWEEN
SAISATNAM LIMITED Applicant
AND
BRANDONS TRUSTEE COMPANY LIMITED, N J WRIGHT AND P R WRIGHT AS TRUSTEES OF THE FERRYMANS TRUST
Respondent
Hearing: 30 November 2016;
16 December 2016 (further submissions filed)
Appearances:
J R Grace for applicant
C S Chapman for respondentJudgment:
23 March 2017
JUDGMENT OF CULL J
Introduction
[1] The applicant Saisatnam Limited (lessee), a subletting company, applies for relief under s 253 of the Property Law Act 2007 (the Act) against the purported cancellation of its leases of four Units at 219 Willis Street, Wellington and under
s 261 of the Act against the lessor’s refusal to renew the four leases.
SAISATNAM LIMITED v BRANDONS TRUSTEE COMPANY LIMITED, N J WRIGHT AND P R WRIGHT AS TRUSTEES OF THE FERRYMAN TRUST [2017] NZHC 538 [23 March 2017]
[2] The respondent, the Ferrymans Trust (lessor), as owner of the four Units, gave the lessee notice under s 261 of the Act that it refused to extend or enter into a new lease in respect of any of those units, following the lessee’s exercise of renewal.
[3] The lessor re-entered Unit 6G and took possession, subsequently re-letting it to a residential tenant.
[4] Neither party was a party to the original leases, although the lessee Saisatnam was formerly Quest on Willis (Quest) and the Director Ms Singh was a 50 percent shareholder and an employee of Quest, when Quest signed the leases in 2001.
Facts
[5] The lessee conducts a business of leasing furnished apartments to sub tenants and holds a number of commercial leases at 219 Willis Street, Wellington. The leases were entered into by the lessee with a variety of landlords. This case concerns four leases for Units 6B, 6G, 6H and 7I, which are now owned by the lessor and are sublet by the lessee.
[6] The leases all commenced on 1 April 2001 and the final expiry date was
31 March 2021. Their terms are contained in the “generic lease document” used by
the former lessee, which operated The Quest franchise.
[7] The terms of the leases differed in one respect and that concerned the rights of renewal.
(a) The leases of Units 6G and 7I were for a term of 10 years with one right for renewal of a further 10 years (the 10 year term leases);
(b)The lease of Unit 6H was for a period of five years with three rights of renewal of five years each (the five year term lease);
(c) The deed for the lease of Unit 6B was unable to be produced, so the terms of renewal of that lease were uncertain. The parties agree that it
is likely the same terms as applied to Units 7I and 6G were applicable to Unit 6B, namely, a 10 year term lease.
[8] Each lease required the lessee to give notice, not less than three months prior to the expiry of the lease, if it wished to extend the term of the lease. The lessee emailed copies of “Lease Renewal” letters to the lessor on 31 March 2011, seeking to extend each of the leases for five years. As at March 2011, the lessor was the owner of Units 6B, 6G and 7I. In respect of Unit 6H, the same email was sent to its
then owner.1
[9] It is relevant to record that in 2006, a letter was sent by the lessee, in respect of Unit 7I, purporting to renew the lease for a further five year term. Unit 7I was a
10 year term lease. It is unclear, whether this letter was accepted and the lease was varied accordingly, or whether the position was corrected and left lying until 2011. It was sent to the previous owner of the unit.
[10] In sending the 2011 lease renewal letters, which extended each of the leases for five years, the lessee had mistakenly understood that all the leases were for a term of five years with four rights of renewal. For three of the units, (Units 6B, 6G and 7I), the right of renewal should have been for 10 years respectively. This is referred to as “the 2011 renewal mistake”.
[11] On 12 April 2011, solicitors for the lessor wrote to the lessee’s solicitors asserting that the leases had expired and the lessee remained a monthly tenant; that the lessee had failed to give adequate notice for a renewal; and gave notice terminating the “monthly” lease for each of Units 6B, 6G and 7I.
[12] Four days later on 16 April 2011, the solicitors for the lessee responded, stating that the lessee had validly exercised the right of renewal for each of the three units on 31 March 2011. They acknowledged that although the lessee had not exercised the rights of renewal strictly in accordance with the leases (by sending a
letter instead of a notice) the renewals were nevertheless validly exercised and the
1 The lessor ultimately purchased Unit 6H in 2015.
lessor was unable to terminate the leases. No further action was taken by the lessor and the lessee remained in possession, pursuant to the leases for the next five years.
[13] On 20 December 2011, the lessee wrote to each of the landlords proposing that it carried it out work on the apartments and that costs be deducted from the rent payable under the terms of the leases. The work was then carried out in February
2012. There was no adverse response from the landlords.
[14] Over three years later on 16 July 2015, the lessor sent an email to the lessee seeking a rent increase of two per cent per annum, in accordance with the lease terms, which had not occurred since 2008. The lessee did not reply.
[15] As at 29 February 2016, the lessor owned each of the four units that are the subject of these proceedings. On that date, the lessor’s solicitors wrote to the solicitors for the lessee, complaining that there was a significant lack of documentation and extrapolating from the lease for Unit 6H, they presumed the leases were due to terminate on 31 March 2016. Because the lessee had not made any requests to renew the leases, the lessee expected the lease arrangements to terminate on 31 March 2016 and required the lessee to vacate by that date. The letter sought details of the respective tenants and copies of the leases, under which the lessee claimed an interest.
[16] The lessor’s solicitor wrote again on 15 March 2016, noting that nothing had been received by the lessee and confirmed the lessor’s expectation that the lessee would yield up the units with vacant possession on 31 March 2016.
[17] The lessees, through their solicitors, replied on 22 March 2016, asserting that each of the leases allowed one right of renewal of 10 years and that each lease had been renewed in 2011. This meant, they said, that the leases would expire in 2021.
[18] On 30 March 2016, four letters were sent from the lessee to the lessor directly, seeking to renew each of the leases for a further five years. The lessor says it never received them. On 31 March, the lessee’s solicitors wrote to the lessor’s solicitors describing the circumstances of the 2011 renewal mistake and the
documentation, with the contractual obligations, that applied to each of the respective units. The letter then referred to the lessee’s 2016 right of renewal, stating that “it is being exercised by the enclosed letters” and that the ultimate expiry date for the leases was 31 March 2021, on the basis there were two additional terms of five years available, rather than one 10 year term. Four lease renewal letters dated
31 March 2016, signed by the lessee together with an email, were sent to the lessor on 31 March 2016.
[19] On 6 April 2016, the lessor served a s 261 notice under the Act on the lessee, advising that the lessor refused to extend or enter a new lease in respect of the four units. In an accompanying letter, the lessor claimed that the parties negotiated a variation to the leases in 2011 by renewing them for a period of five years and that no right of renewal remains. In respect of Unit 6H, the lessor contended that the right of renewal was not exercised within the contractual timeframe. The lessor also asserted that the lessee was in breach of the lease terms by failing to increase the rentals by two per cent per annum. On 18 April, the lessor re-entered Unit 6G and has subsequently leased the Unit to a residential tenant. The other units are all occupied by the lessee’s sub tenants.
Issues to be determined
[20] The parties did not file a joint statement of issues, but from the respective lists the key issues for determination are as follows:
(a) Did the lessee have a right to renew the ten year term leases on units
6B, 6G and 7I for a further five years from 1 April 2016?
(b)If yes, did the lessee give valid notice of renewal for all four units on or before 31 March 2016?
(c) If relief is granted under s 261 of the Act:
(i)should the lessee be granted possession of Units 6B, 6G, 6H and 7I at 291 Willis Street, Wellington, subject to the lessee honouring the sublease of 6G, granted by the lessor, and/or
(ii) should the lessee receive compensation? (d) If relief is not granted to the lessee:
(i) should the lessor be granted an order for possession of Units
6B, 6H or 7I, and
(ii)what mesne profits, if any, should the lessee be ordered to pay the lessor?
[21] There was an additional issue concerning the lessee’s rental arrears payments, which was resolved prior to the hearing, by the lessee making payment to the lessor on the eve of the hearing of $20,000. This appeared to be in excess of the schedule of arrears of rent owing as at 31 March 2016 of $16,661.72. The additional payment included the further rental payments from March to December 2016, inclusive of two
per cent accruals.2
The positions of the parties
[22] The key issue in determining whether the lessee had a right to renew the 10 year term leases for a further five years from 1 April 2006, turns on the implications of the renewal of leases in 2011. For these three units, 6B, 6G, and 7I, the lessee contends that the lessor is bound by the terms of the contracts, which came into operation in 2001, with an initial term of 10 years and a right of renewal of a further
10 years.
[23] The lessee accepts that when exercising their right of renewal in 2011 to extend to 2016, it was in the mistaken belief that the term was five years with four rights of renewal. The lessee contends that the final expiry date is 2021 for all four leases, as there was no intention to vary the leases. Both parties were mistaken as to
the renewal terms.
2 An affirmation was filed by the lessee after the date directed in the timetable order and leave was granted to receive that affirmation, for the purposes of annexing relevant documents referred to in an earlier affirmation.
[24] The lessor on the other hand claims that, as a matter of contractual construction on an objective view of the wording of the leases, the lease contract provided only one single right of renewal. The lessee exercised it for five years only, thus varying the leases from a 10 year term to a five year term, with the final expiry date of the lease being 31 March 2016.
[25] For completeness, the parties’ positions are itemised below.
Lessee’s Position
[26] The lessee has made application for relief against the lessor’s purported cancellation of the four leases and an order for possession of Unit 6G. The lessee relies on ss 253, 256, 261 and 264 of the Act.
[27] The lessee submits:
(a) The lessee mistakenly understood all leases were for a term of five years with four rights of renewal and, acting under that mistake, wrote to the lessor in 2011 to exercise the next five years right of renewal.
(b)The 2011 renewal mistake had no contractual ramifications and there was no evidence of any intention to vary the terms of the lease. The
2011 letters ask for a renewal for “a further term of five years” which, the lessee submits, shows that this referred to just another five year renewal.
(c) The lessor’s solicitor’s letter dated 29 February 2016, noting that there have been no requests to renew leases, shows the lessor’s expectation that he was waiting to receive requests of renewal before
31 March 2016. If the term of the lease had been unilaterally varied
by the lessee, there would be no basis for the lessor’s expectation.
(d)Although the rent payable under the terms of the leases was to accrue at two percent per year, the lessee did not pay those accruals since
2011 because it carried out work on the units itself. The lateness in
paying the two percent accruals and rent should not justify the
cancellation of all of the lessee’s leases.
(e) No notice was given to the lessee for unpaid rent under s 245 of the
Act.
(f) If rent is owing, the lessee should pay it (which it had by the time of hearing) and because the lessee retained no evidence of the value of the work undertaken on the units, it will bear the costs itself.
Lessor’s Position
[28] The lessor submits:
(a) This is not a case under s 253 of the Act, because the lessor has not cancelled any of the leases. The s 261 notice to the lessee refused to extend or to enter into a new lease. It was not a notice of cancellation.
(b)The lessor has not purported to cancel for non payment of rent and no notice was required under s 245 of the Act.
(c) The leases for the ten year term leases were renewed in 2011 for five years only, thus varying the existing leases with termination dates of
31 March 2016. The leases were not cancelled; they had run their course.
(d)The Court has no jurisdiction to grant the lessee any relief under s 253 because the leases have expired.
(e) In the case of the five year term lease, the lessee failed to give notice in accordance with clause 13 of the lease in time, and there is an issue as to whether relief should be granted under s 261 of the Act.
(f) No valid notice of renewal was given in March 2016.
[29] At the close of the hearing, counsel were asked to provide legal submissions, in respect of oral assertions made in submissions, including the jurisdiction under s 261 of the Act and cases concerning the doctrine of waiver.
[30] In their further submissions, counsel addressed three different potential scenarios, related to the legal consequences of the 2011 renewal mistake. Those
2011 letters stated:
… [the tenant] hereby gives notice of its intention to renew the lease for a further term of 5 years from 31 March 2011 so that the new expiry date is now 31 March 2016.
[31] The scenarios deal with the 10 year term lease which had one right of renewal for a further 10 years. This concerns Units 6G, 6B and 7I.
Scenario 1: In 2011, the leases were renewed according to the original terms of the lease, namely 10 years
[32] The lessee favours this scenario, primarily. It submits that neither party actually intended to vary the terms of the lease and it was clearly a mistake. The only intention evident was the intention to renew the lease, for whatever term the contract provided. There was one renewal and it was exercised. It should be read as a 10 year term. The lessee asserts that the lessor is in part to blame if it misconstrued the letter because it failed to prepare a deed of lease.
[33] The lessor disagrees and points to the 2011 lessee’s letter which concludes: “We will forward a deed of renewal in due course.” This was not done.
Scenario 2: The leases were varied so that the further ten year term was replaced with two terms of five years
[34] This is the alternative option favoured by the lessee. The lessee submits that the lessor continued to treat the lease as being renewable after being advised of the mistake in 2016. According to the lessee, the lessor refused to renew the leases in
2016 because of the late notice, not because it did not recognise the right to renew further.
[35] In February 2016, the lessor only had a copy of the lease for Unit 6H, which provided for four terms of five years each. This was the basis for its assumption that the other leases were similar and the leases were renewable for two terms of five years.
Scenario 3: The leases were varied by agreement so that the term was truncated from 10 years to five
[36] The lessor says this scenario applies. The lessor says the 2011 offers to renew were unambiguous in referring to one further five year term, with the leases ending five years from that date. The offers were clearly not for a further 10 year term, and there is nothing in the letters indicating that two additional five year terms were sought.
[37] The lessor submits that, either way, the notices of renewal were not in accordance with the leases. Objectively viewed, the notices were offers to renew the leases on terms other than in the leases. There are two possible outcomes: either the lessor accepted this offer to vary by its silence and acquiescence; or it did not accept the offer and there was no new lease with the consequence that the lessee was in possession as a monthly tenant from 1 April 2011. The lessor says that the lessee accepted the offer to vary by its silence.
[38] The lessee submits that this scenario contradicts the facts of the case and is not an available interpretation. The lessee asserts that the reference to five years was a mistake and not evidence of an intention to renew for a shorter period of time and says further that the letters do not unequivocally indicate an intention to renew for five years only.
The legal principles
[39] The Act made a number of significant changes in relation to the requirements for relief against cancellation of a lease or refusal to renew a lease. Section 243 of the Act states that ss 244 to 264 are a code and any relief in respect of a cancellation of a lease or refusal to renew, may be given only in exercise of the powers conferred by ss 253 to 264.
[40] Under s 253 of the Act, the Court can grant a lessee relief against cancellation, where the lessee is in breach of a covenant or condition of the lease. The lessee has made its application for possession, because it alleges the lessor invalidly cancelled the leases, after the lessee had exercised its rights of renewal.
[41] Where the lessor refuses to renew and the lessee is in breach of covenant or is out of time with notice to renew, relief is available now under ss 261 to 264 of the Act. The lessee also claims relief under these sections, because the lessor has refused to extend or renew the lease and the lessee has failed to give the notice within the specified time.3
[42] As the authors of New Zealand Land Law4 observe:
Sections 261 – 264 [of the Act] give the court a broad discretion, which, under the predecessor provision, s 120 of the 1952 Act, has been recognised in case law.5 It requires a balancing of the rights of lessor and lessee.6
They refer to the Court of Appeal decision in Vince Bevan Ltd v Findgard Nominees
Ltd where McCarthy J discussed the “remedial character” of the former ss 120 and
121 of the Property Law Act 1952:7
… the text of the sections demonstrate not only that the Court should have the fullest powers to grant relief, but also that the jurisdiction to enter upon an issue should not be viewed narrowly.
… [the Court] should not view these sections narrowly, neither in the jurisdiction conferred nor in the relief to be granted. The obvious final intention of the Legislature was to place the Court in a position to do what it thinks fit in accordance with the justice of the particular application.
[43] In the same case, Turner J described the statutory jurisdiction of the former s 120 of the 1952 Act, as a “remedial measure” to be interpreted as conferring “a
3 Property Law Act 2007, ss 261(1)(c) and (d).
4 Tom Benion & Others: New Zealand Land Law (2nd ed, Thomson Reuters, Wellington, 2009) at
[8.13.08 (7)].
5 Boyden v New Zealand Guardian Trust Company Ltd [1995] 3 NZLR 208 (HC); see also
Jackson v Blagojevich (1997) 3 NZ Conv C 192,564 (HC).
6 Kam Holdings Ltd v Whanganui Regional Development Trust Board HC Whanganui M35-90, M38-90, 31 October 1990.
7 Vince Bevan Ltd v Findgard Nominees Ltd [1973] 2 NZLR 290 (CA) at 299.
very wide jurisdiction to do equity in relieving against refusals by lessors to renew
leases.”8
[44] The re-enacted s 264(2)(b) of the Act provides that the Court may grant relief against the refusal of the lessor to extend or renew the lease. Provided that the lessee makes an application for relief under s 261 of the Act within three months after the date on which the lessor fails to renew the lease, the Court may order the lessor to extend or renew the lease.9
[45] The above provisions of the 2007 Act have been considered in a number of more recent decisions. In Arthur Devine Ltd v Highgate on Broadway Ltd, MacKenzie J made orders for the re-instatement of the lease and for restoration of the property, following a dispute over Devine’s entitlement to possession of the
premises.10 The lease was for a term of five years with one right of renewal for a
further five years. Highgate wrote to Devine recording that Devine wished to renew the lease and that the documentation would be prepared by Highgate’s solicitors. The documentation was not a renewal of the exisiting lease but a new lease on different terms. No new lease was finalised. Devine had fallen behind with its rent payments and Highgate re-entered the premises. MacKenzie J noted that there was a high degree of animosity between the parties, but found that that was not a reason to
deprive a lessee of their contractual right to renew.11
[46] MacKenzie J canvassed the new provisions of the 2007 Act, noting that s
255(3) specifically provides that the court may grant relief against cancellation without determining whether there has been a breach of the lease by the lessor. MacKenzie J states:12
That wording suggests that the Court may, in appropriate cases determine that question. If that is so, it would be odd if, having determined that question and held that no breach had occurred, the Court had no power to grant relief against the wrongful cancellation of the lease. I do not consider that such an interpretation is consistent with the purpose of the legislation.
8 At 297.
9 Property Law Act 2007, ss 262(b) and s 264(2)(a)(i).
10 Arthur Devine Ltd v Highgate On Broadway Ltd (2011) 13 NZCPR 276 (HC).
11 At [20].
12 At [11].
For these reasons … there is no jurisdiction to grant relief under s 253
because the lease was never validly cancelled.
[47] MacKenzie J also considered s 261 and the letter sent to Mr Devine recording his indication of his desire to renew the lease. Although there was no finding on the renewal documentation, MacKenzie J noted that there was “at least arguably, a concluded agreement to renew the lease, by the lessor’s letter”.13 If there was a concluded agreement to renew the lease, then the Court’s discretion did not arise in relation to the renewal of the lease. But if the correspondence did not constitute a
concluded agreement, relief against the refusal to renew the lease was required, subject to whether there was anything in the conduct of the lessee which would justify the refusal of relief. MacKenzie J concluded there was nothing in the conduct of the lessee which would justify the refusal of relief.
[48] The relief sought by the lessee in that case was both under ss 253 and 261 of the Act and the lease was reinstated with immediate effect, as a result of the wrongful cancellation under s 253 of the Act. Under s 261, the lessees were given the right to renew the lease for a five year term, to be exercised by a certain date and to be on the terms provided for in the lease.
[49] In Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd the lessee was required to give three months notice of its intention to renew before the expiry of the term.14 The lessee had overlooked giving notice of its intention to renew the lease and on the day of the lease term expiry, the lessor sent a fax to the lessee advising that the lease was terminated because the lessee had not given notice of its intention to renew. The lessee’s solicitor sent a fax to the lessor’s solicitor that same
day giving notice to renew. The lessor sued for possession and the lessee sought relief against forfeiture under s 120 of the 1952 Act. The lessee was granted relief, because the failure to renew was inadvertent and the lessee would suffer substantial prejudice if a renewal was not granted. Asher J noted further that the lessee had been a good tenant, third parties would also suffer prejudice and no prejudice would be suffered by the lessor, other than its ability to take advantage of the inadvertent
failure to renew.
13 At [21].
14 Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd (2005) 7 NZCPR 48 (HC).
[50] Asher J identified the following factors as being relevant to the exercise of discretion in granting relief: 15
(a) The reasons for the failure of the lessee to give notice e.g. whether the failure to renew was inadvertent.
(b) Whether the cause of the default was due to any action of the lessor.
(c) The lessee’s conduct, in particular whether it has complied with all
conditions and covenants and has been a good tenant; (d) The prejudice to the lessee if the relief is not granted. (e) The prejudice to the lessor if the relief is not granted.
(f) The lessor’s motivation for the refusal to renew and understanding of
the lessees intentions;
(g)The interests of third parties and how they may be affected by any order.
[51] Under the former s 120 of the 1952 Act, relief against forfeiture only arose where the lessee was in breach of its lease. A similar requirement is contained in s
261 of the Act, where the lessee is in breach of the condition, covenant or agreement of the lease, or has failed to give notice within the specified time, or in the specified manner. There is a distinction however, where the lessee is in possession, pursuant to a valid lease. If the lessee has never lost that right, it is entitled to restoration of
possession as of right.
15 At [29]. The identification of these factors by Asher J builds on the earlier decision of Studio X Ltd v Mobil Oil New Zealand Ltd [1996] 2 NZLR 697 (HC) at 701. The 2007 Act has extended the scope of the Court’s jurisdiction.
[52] I turn then to consider the application of the above legal principles to the facts of this case and the three scenarios that were the subject of counsel’s submissions.16
Did the lessee have a right to renew the ten year term leases?
[53] In 2011, the lessee sought to renew the three ten year leases for a further five years, instead of the ten years provided for in the lease. The rights of renewal were exercised by way of letter on 31 March 2011. Although the solicitors for the lessor gave notice of termination of the four leases on 12 April 2011, because the renewals were not received three months prior to the expiry of the term, the lessee confirmed the right of renewal was exercised on 31 March 2011, asserted that it was validly exercised (although not exercised strictly) in accordance with the lease and challenged the lessor’s right to terminate the leases. No further action was taken by the lessor.
[54] The lessee mistakenly renewed the three 10 year term leases for five years, instead of the 10 years provided for in the contract. Both parties accepted that the leases had been renewed. The lessor did not bring to the lessee’s attention that it understood that the leases had been unilaterally varied in their terms, such that the three ten year term leases were now to be renewed for one term of five years only.
[55] I consider that it is self-evident that both parties were mistaken. Both had understood that the leases had been validly renewed, as if there were further terms of five plus five years for each lease (10 years in total). The renewal for five years was consistent with the terms of the lease for Unit 6H (the five year term lease), but the parties dealt with the other three leases on the same basis.
[56] As both parties were mistaken about the terms of the renewals in 2011, and both understood the leases had been validly renewed (because no further action was taken by the lessor) it follows that the parties considered the leases were validly renewed and a further renewal term was able to be exercised.
[57] In the absence of the parties’ actual agreement on the renewal of the lease in
2011, the parties’ subsequent conduct contradicts the inference, for which the lessor
contends, that the lessee remained a monthly tenant from March 2011.
[58] Even the lessor’s solicitor’s letter dated 29 February 2016 indicates that the lessor was expecting the lessee to request a renewal of the leases. This is made plain in the letter, where the lessor’s solicitors state:17
The lease of Unit 6H terminates on 31 March 2016 unless written request is made by the tenant to renew the lease for a term of five years not less than three months prior to the expiration of the term.
Extrapolating from the lease from Unit 6H, we presume that all the leases terminate on 31 March 2016.
Our client has not received any requests to renew the leases and we record that our client expects the lease arrangements to terminate on 31 March 2016 and your client to vacate by that date.
[59] It is evident from the above letter that the lessor was expecting a request for a renewal of a further five years. This gives further support to a finding that the parties both understood that the expiry of the lease was March 2021, subject to the lessee’s exercise of the renewals.
[60] The lessor also made this plain, when he gave his evidence openly and candidly, under cross-examination.
… Well I would have felt I took on the leases originally on the basis of what appears in the leases and that is that they need to advise us no sooner than three months from the time that it expires and that hasn’t happened, you know, they have done really very little, if anything, in relation to renewing the leases. If that had have been done, everything had have been done by the book, there would be no problems, we’d still have those leases in place.
…
Q: So you would have still been quite happy if they had come to you actually on 15 March 2019 asking for renewals of lease?
A: Possibly. The only other question, of course, was all this delay in the payment of outstanding rent and what have you. That was an issue which I’d been trying to address for years, from my letter to them and the figures in July, I think it was, 2015 where they told me that they were looking at it,
they told me that their solicitor, from memory, had a hip replacement or something done, he would address it shortly and that never happened. I’ve spoken to them verbally on a number of occasions and they just totally ignore everything.
Q: If they had paid all the arrears on 15th of March 2016 would you have been happy to renew the leases then?
A: If everything had’ve been brought up to date and, which I felt would have been a better relationship that we would have with them, I would probably have had no problem with that.
[61] Most importantly, the lessor acknowledged that he would have renewed the leases which he understood he was legally obliged to do. He said:
… I would have … renew[ed] the lease, which I understood I was legally obliged to do, and then I would’ve just carried on provided also that in fact all the outstanding rent arrears were actually paid up.
[62] Mr Wright referred to the difficulties that he was experiencing with the lessee, including the lack of information from requests for documentation and the failure to increase the rents by two percent. He then told the Court, when he found that the leases were not renewed three months before their expiry, he saw that as a means of ending the leases. He said:
… As far as I am concerned, it was not renewed within the period that it was supposed to. To me, to be totally frank as to that, I saw that as a means of – I was just fed up - …
- totally fed [up] with a lack of information flow and in – of interest is the fact that the outstanding rent, which has been going on now for years, actually arrived in my bank account, I think, yesterday.
[63] When asked specifically whether he expected that the lessee would have the ability to renew all four leases, Mr Wright agreed. The following are the questions and answers given in Court:
Q. … But you expected that they would have the ability to renew all four leases –
A. Yes.
Q. - so that another five years
A. Well, not if I was – yeah, okay, sure. Q. To 2021
A. Yeah, yeah.
[64] On the basis of the above acknowledgements, and the subsequent conduct of the parties, I consider there was an expectation that the lessee could renew the leases until 2021, even though they had been mistaken in 2011 in their initial application to renew for five years, for the leases on Units 6B, 6G and 7I. Although the lessee was late in exercising its renewal in 2016, the lessee did so before and on 31 March 2016, explaining how the 2011 renewal mistake had occurred.
[65] Turning then to the three possible scenarios proposed by counsel, I find that scenario two applies here, namely, that the leases were varied so that two terms of ten years were replaced by four terms of five years. In 2011, the parties understood that, in respectively renewing and accepting the renewals of lease, this was a renewal for five years, with an expectation of a further five years right of renewal. Legally, that was the position for Unit 6H, which had four rights of renewal for five years each.
[66] The evidence shows that neither the lessee nor the lessor understood that the lessee had unilaterally varied the 10 year term leases for a further five years only. Otherwise there would be no reason for the lessor’s solicitor to send a letter on 29
February 2016, specifically noting that the lessor had not received any requests to renew the leases. The letter demonstrates an expectation on the part of the lessor that the lessee had the ability to renew the leases for a further five year term.
[67] For the same reasons, scenario one, namely that all leases were renewed for
10 years from 2011 to 2021, pursuant to the terms of the lease, cannot apply to these facts. Although three of the leases had one right of renewal only for a term of ten years, the conduct of the parties indicated that they thought that the leases needed to be renewed for a further five years in 2016.
[68] The third scenario also cannot apply. For the third scenario to be upheld, namely that the leases were varied by agreement, so that the terms of the renewal were five years only, there has to be an acceptance that the leases were varied, unilaterally, by the lessee’s renewal of terms for five years only. Further, if the lessor understood that the lease was being renewed for a final term of five years only, then
the lessor did not give any indication to the lessee that that is what it understood. It is a step too far to suggest that the lessee accepted the offer to vary by its silence. The lessee was mistaken.
[69] Conversely, the lessor could have argued that once the exercise of renewal for the three 10 year term leases had been undertaken, renewal for those leases extended for 10 years, consistent with the terms of the lease. Without the lessor’s agreement, there could be no unilateral variation of the leases by a mistaken lessee. Here, both parties were mistaken and both accepted the leases were renewed in 2011 and expected a further right of renewal in 2016. With Mr Wright, for the lessor, candidly acknowledging that he understood there was a further right of renewal in 2016, this scenario cannot apply to these facts.
Contractual mistake and waiver
[70] During the course of the hearing, it was submitted that the lessee should have pleaded the Contractual Mistakes Act 1977 to seek rectification of the contract. From the submissions received and counsel’s argument, I consider that the Contractual Mistakes Act did not need to be pleaded.
[71] Despite the 2011 renewal mistake, the lessor accepted the renewal. From Mr Wright’s evidence, it became clear he too understood that there was a five plus five renewal term for all four leases. The mistake did not induce either party to enter into any agreement. There was no prejudice to the lessor in having the leases continue, provided that the lessee clarified the two percent rental increase position with the lessor. I deal with that more fully below. There was however prejudice to the lessee in losing possession of all four units.
[72] In addition, the Act provides that ss 244 to 264 are a code and that relief against a cancellation of a lease or refusal to renew a lease, may be given only in exercise of the powers conferred by ss 253 to 264. This is a change that the 2007
Act made and I accept the lessee’s submission that considerations such as mistakes, waiver and unconscionable behaviour are intended to be factors to be weighed with the facts and circumstances of each case, in the exercise of the court’s discretion
under ss 256 and 264. However these considerations are not required. Mistake and waiver are not required to be separate causes of action in themselves.
[73] I do not accept the lessor’s submission that the parties’ subjective states of mind are irrelevant, because the lessee did not plead rectification or mistake. As the authorities make plain, the former relief against forfeiture and the current relief against lessor’s refusal to enter into renewal, places the Court in a position to do what it “thinks fit in accordance with the justice of the particular application”.18 The authorities also reinforce that the conduct of the parties, the motivation for the lessor’s refusal to renew and the reasons for the lessee to give timely notice, are all factors being relevant to the exercise of discretion in granting relief.19 Thus, the intention and conduct of the parties are relevant in the exercise of the Courts discretion.
[74] During the hearing, reference was made to the doctrine of waiver. This matter was not pursued in final argument, although my attention was drawn to s 273 of the Act, as to the effect of waiver by a lessor of the benefit of any covenant or condition of a lease extending only to the instance or breach to which the waiver particularly relates. I do not consider waiver is relevant here, particularly in light of my findings on the evidence and the facts in this case.
Conclusion
[75] In answer to the first issue raised by the parties, I find that the lessee did have a right to renew the ten year term leases on Units 6B, 6G and 7I for a further five years from 1 April 2016. The findings of fact in support of this conclusion are:
(a) The lessee renewed all four leases in 2011, on the basis of two terms of five years each.
(b)In respect of Units 6B, 6G and 7I, the lessee was mistaken about the one right of renewal, which should have been for a period of ten
years.
18 Vince Bevan Ltd, above n 7 at 299.
19 Ponsonby Mall; above n 9, at [29]; and Arthur Devine, above n 8, at [15].
(c) The lessor accepted the renewal in the mistaken belief that the leases provided two further five year renewal terms.
(d) There was no unilateral variation of the leases by the lessee in 2011.
Did the lessee give valid notice of renewal for all four units on or before 31
March 2016?
[76] The facts surrounding the renewal of leases in March 2016 have been set out above.20 There were four letters dated 30 March 2016 from the lessee to the lessor, giving notice of the lessor’s intention to renew each of the four leases for a further term of five years from 31 March 2016. Each letter stated that the new expiry date was now 31 March 2021. The lessor says it never received them and nor did the lessor’s solicitors.
[77] On 31 March, by email, four further lease renewal letters for each of the units were forwarded to the lessor directly. Those letters explain the mistake in 2011, in that they were renewed for five years, when three of the leases had a right of renewal for ten years. The letter explains that some of the lessee’s leases had four rights of renewal of five years each which led to the confusion in 2011.
[78] On the same day, the lessee’s solicitors wrote to the lessor’s solicitors, in response to the letter of 29 February 2016. In that letter, the lessee’s solicitors explain the delay in replying to the issues raised by the lessor’s solicitors. The lessee’s solicitor states:21
We regret the time it has taken to reply but our client had to recover information on various hard drives, however there is sufficient documentation to establish the lease rights our client relies on.
[79] The letter then details the contractual obligations relating to each of the leases for the four units and explains the mistake that the lessee made in 2011 in exercising
the rights of renewal to 2016. The letter then refers to the current right of renewal,
20 At [17]-[19] of this judgment. On 30 March 2016 a series of letters were sent from the lessee to the lessor.
21 Letter from Strachan O’Connor to Brandons regarding Ferrymans Trust, Saisatnam Ltd, Willis
Street (31 March 2016).
stating that it is being exercised “by the enclosed letters”. It is unclear on the evidence which of the letters were enclosed with the solicitors’ letter, but it is likely that the 31 March letters were enclosed, as the lessor did not receive the letters dated
30 March.
[80] From the evidence and the submissions received, it appears that both parties accept that the 30 March letters were either not sent, or at the very least, not received and that “the enclosed letters” referred to in the lessee’s solicitors’ letter were likely to have enclosed the letters of 31 March 2016. Those letters are clearly marked “lease renewals” and confirm the lessee’s intention to remain the tenant of the units.
[81] By 2016, it is clear that there was considerable difficulty in obtaining copies of the leases. It appears that the lessor, on the purchase of its respective units, was not given copies of the relevant leases and the lessee either did not receive all the leases in 2004, when they were assigned to the lessee or it had mislaid the original copies of the leases.
[82] The lessor submits that there has been no valid renewal of the leases. The lessor states that the lessee breached clause 13 of the lease of Unit 6H by failing to give notice of renewal three months prior to 31 March 2016. In respect of the other three leases, the lessor submits that the leases were at an end. Because of my findings on the 2011 leases, I do not accept the submissions of the lessor that the leases were at an end for Units 6B, 6G and 7I. In relation to Unit 6H, it is plain that the lessee did not renew the lease three months prior to 31 March 2016 but did renew it on the last day of the lease term.
[83] The lessee’s solicitor’s letter however gives some explanation for the delay. The lessor’s letter of 29 February 2016 made strong assertions that the termination of lease date was 31 March 2016, extrapolating from the lease for Unit 6H. The lessor’s solicitors also placed the blame for the lack of documentation on the lessee, despite the facts that its client purchased those leases from the owners, without the relevant documentation being provided.
[84] Unlike the lessee in Ponsonby Mall Trust Ltd, the lessee has not overlooked giving notice of its intention to renew. It did give notice, although belatedly and attempted, through its solicitors, to answer the questions raised in respect of each lease term for the relevant units. Although the lessee was technically in breach of clause 13 in respect of Unit 6H, the lessee evinced a clear intention to renew the leases for all four units and did so, albeit on the final day. The lessor then proceeded to issue its notice six days later refusing to renew the leases as sought. The principle reason for refusing to renew the leases for at least three of the units was the lessor’s belief that the leases were at an end. The late renewal, on the lessor’s submissions, relates only to one unit, 6H.
[85] In the circumstances, I consider that the lessee has given a valid notice to renew. The endeavours by the lessee’s solicitor to answer the lessor’s concerns illustrate an attempt by the lessee to provide as much information as was available, to justify its position in relation to the leases and provide information to the lessor.
Conclusion
[86] The lessee did give a valid notice of renewal on 31 March 2016, although it did not comply with clause 13 of the lease in respect of unit 6H and it was not given three months prior to the expiry of the term of the lease.
[87] I do not accept that the leases were at an end for Units 6B, 6G and 7I. The notice of renewal given on 31 March 2016 therefore applies to these units also.
[88] I find:
(a) Although out of time in respect of Unit 6H, the lessee renewed all four leases for a further five year term to 31 March 2021.
(b) The termination date for all the leases is 31 March 2021.
Should relief be granted?
[89] The lessor submits that no relief should be given in this case, because the lessee has behaved in a most unsatisfactory way. The lessor points to the untimely notice of renewal in breach of clause 13 of the lease of Unit 6H; the arrears of rent and the failure to pay the two per cent increments; and generally, that the lessee has a contemptuous and dismissive attitude to the lessor’s rights.
[90] There is one overriding factor, which I take into account in the exercise of my discretion to grant relief. There is considerable animosity between the parties and this has had a significant impact on communication between them. I am not in a position to judge the cause of the animosity and nor is it necessary. However, disharmony or hostility between the parties should not be a reason to deny possession to the lessee, as the Court held in Arthur Devine.22
[91] In relation to the lessee’s failure to pay the rent arrears, there are two matters that need to be addressed. The first is that there was not a complete failure on the part of the lessee to pay rent on time. The lessee did however fail to apply the two per cent accruals, on a mistaken understanding that these should be retained by the lessee, because of the maintenance, work and upgrade costs expended by the lessee in respect of the units.
[92] The lessee accepts that instead of retaining the two per cent accruals, they should have been paid and reimbursement should have been sought for the work undertaken by the lessee.
[93] By the time of the hearing, the lessee had paid $20,000, which was more than the amount sought by the lessor and the lessee accepted that it could not seek reimbursement, as the invoices for the work could not be produced.
[94] Despite the lessee’s misunderstandings, both in relation to the renewal of the
leases in 2011 and the application of the two per cent rent accruals, I consider that relief should be granted to the lessee. The lessee did give notice of intention to
22 Arthur Devine, above n 8, at [20].
renew the leases in 2016 and although done on the last day, had made significant attempts to answer the requests of the lessor’s solicitors in relation to each of the leases.
[95] The lessee has complied with the conditions and covenants of the leases, although was mistaken about the two per cent rent accruals. The work was carried out by the lessee and there is no evidence to suggest that it was not done satisfactorily. However, the lessee carries the cost of having done that work, without reimbursement, because the invoice details of that work are unable to be produced.
[96] There is clearly prejudice to the lessee if relief is not granted by the return of possession of the units to the lessee. The lessor also claims there is prejudice, as the late notice of renewal disrupts the contractual process for rent fixing. Until the renewal notice has been given, neither the lessor nor the lessee can give a rent notice under clause 13.1 and the procedure for the determination of the rent is uncertain.
[97] Given that this decision resolves the renewal of leases issue, the procedure for issuing a “rent notice” if appropriate, can proceed. I do not consider this is an obstacle to the grant of relief. The lessor’s motivation for the refusal to renew the leases stems from a view it took about the validity of the renewal of lease in 2011 and the subsequent renewal in 2016. With those issues now resolved, I consider that relief should be granted to the lessee, in respect of the renewal of leases and possession.
[98] I do not propose to make any order as to compensation or costs in respect of the lessee. The communication lapses and delays by the lessee in giving explanations to the lessor, despite the difficulties between the parties, has given rise to much of the difficulty in resolving these issues. There was no claim made out for compensation and I do not propose to order any.
Result
[99] The lessee did have a right to renew the leases on Units 6B, 6G and 7I for a further five years from 1 April 2016 and did give a valid notice of renewal for these units.
[100] The lessee did give a valid notice of renewal of the lease for Unit 6H on
31 March 2016.
[101] Relief is granted to the lessee for possession of all four Units but no compensation is ordered.
Orders
[102] The application for relief is granted, with the following orders:
(a) The applicant lessee is to take immediate possession of Unit 6G, on condition that the lessee honours the current tenancy agreement; and
(b) The leases for each of Units 6B, 6G, 6H and 7I are renewed from 1
April 2016 to 31 March 2021.
[103] There is no order as to compensation or costs.
Cull J
Solicitors:
Strachan O’Connor, Wellington for lessee
Brandons, Wellington for lessor
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