Saisatnam Limited v Edmonds Marshall Trustee Services no 3 Limited
[2017] NZHC 2509
•13 October 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE WHANGANUI-Ā-TARA ROHE
CIV-2016-485-737 [2017] NZHC 2509
UNDER sections 253 & 261 Property Law Act
2007
IN THE MATTER
of the purported cancellation of lease over Unit 3L & AU B7, 219 Willis Street, Wellington
BETWEEN
SAISATNAM LIMITED Applicant
AND
EDMONDS MARSHALL TRUSTEE SERVICES NO 3 LIMITED AND JULIE DIANE HAWKES AS TRUSTEES OF THE HAWKES FAMILY TRUST Respondents
Hearing: 20 March 2017 Appearances:
J R Grace for Applicant
L M McKeown for RespondentsJudgment:
13 October 2017
JUDGMENT OF CLARK J
Pursuant to r 11.5 of the High Court Rules I direct the delivery time of this judgment is 2:30 pm on
13 October 2017
SAISATNAM LIMITED v EDMONDS MARSHALL TRUSTEE SERVICES NO 3 LIMITED AND JULIE DIANE HAWKES AS TRUSTEES OF THE HAWKES FAMILY TRUST [2017] NZHC 2509 [13 October 2017]
Introduction
[1] Saisatnam Ltd, the applicant, leases units in residential apartment buildings under long-term leases and sublets the units as furnished residential apartments. Saisatnam leases 30 such units at 219 Willis Street, Wellington.
[2] The respondent, Hawkes Family Trust (the Trust), is the owner of one of those apartments, Unit 3L. Saisatnam has leased Unit 3L from the Trust since 2001. In early 2016 the Trust advised Saisatnam the lease would not be renewed.
[3] Saisatnam has filed an originating application under the Property Law Act
2007 (the PLA) seeking relief against the purported cancellation of its lease.
Issues arising for determination
[4] The parties signed a memorandum of offer for the lease of Unit 3L. The memorandum provided for a 20 year term comprising 10 two-year options to renew. A complication in the proceeding arises from Saisatnam’s reliance on a generic lease document which Saisatnam claims was attached to the memorandum of offer. Saisatnam relies on the generic lease as reflecting the terms of the lease of Unit 3L.
[5] In short, Saisatnam’s position is that the memorandum of offer contains sufficient terms to be enforceable but further terms of the generic lease can be implied. Even if its terms are not implied the lease is not void for uncertainty. Saisatnam was entitled to renew the lease of Unit 3L in 2011 and 2016. Saisatnam accepts it has been in breach of some of the terms of its lease and submits this is a case in which relief ought to be granted.
[6] The Trust’s position is that the memorandum of offer lacks a sufficient degree of certainty to be enforceable. Even if the memorandum of offer had sufficient certainty to be enforceable, there is no evidence the parties reached a binding agreement that the first option had been exercised when the first two-year term expired on 31 March 2003. Saisatnam therefore occupies the property under a monthly tenancy pursuant to s 105 of the Property Law Act 1952 and had no right to
renew the lease after that date. Saisatnam cannot be considered a “good tenant” and
the Trust opposes any grant of relief under the PLA.
[7] Accordingly, the following issues are raised for my determination:
(a) Do the terms of the memorandum of offer for Unit 3L have sufficient certainty to constitute an enforceable agreement to lease; and can the terms of the generic lease document be implied?
(b) Was Saisatnam entitled to renew the lease of Unit 3L on 31 March
2016, and if so, was the lease validly renewed?
(c) Has Saisatnam been in breach of the terms of the lease of Unit 3L?
(d) Should orders be made granting Saisatnam renewal of the lease of
Unit 3L?
Background to the dispute
[8] The trustees of the Hawkes Family Trust purchased Unit 3L as an investment property in 1998. Upon purchase, the property was vested in Richard Hawkes, Julie Hawkes and Rodney Willis as trustees.
[9] A memorandum of offer was signed on 23 March 2000 by Richard Hawkes to lease Unit 3L to Howman RP Ltd. Howman RP Ltd was a franchisee of Quest, a serviced apartment accommodation provider.
[10] The memorandum of offer contained two proposals specifying property management arrangements, one of which the owner of a unit (here, the Trust) was to elect. “Proposal One” comprised two phases. Phase one was the operation of a management agreement for the 12-month period between 1 April 2000 and 31 March
2001. Phase two provided that a new lease agreement would be established between the parties to come into operation on 1 April 2001 and would embody the following terms:
(a) Minimum rent: $7,520.00 pa ($160 x 47 weeks) for the apartment;
$2,340 ($45 x 52 weeks) for the car park;
(b) Term: 20 years from 1 April 2001 with 10 x two-year options;
(c) Rent review: minimum rent to increase two per cent annually with a market review at the end of each option period;
(d)Rent arrears: rental arrears to be paid in 36 equal monthly instalments commencing May 2001;
(e) Council rates and body corporate fees: for landlord to pay;
(f) FF/E: ownership and obligation for furniture upgrade/replacement transferred to Quest; ownership and obligation for hard fitout, upgrade/replacement to remain with landlord;
(g)Bonus distribution: where one third of the pooled monthly room turnover is greater than the minimum rent, the difference between the one third and the minimum rent will be distributed to each landlord as a bonus distribution.
[11] Richard Hawkes agreed to accept Proposal One. The memorandum of offer specified that the landlord’s signature and countersigning by Howman RP Ltd would form a legally binding agreement for the purpose of establishing a new lease agreement that embodied the key terms and conditions outlined within phase two of Proposal One.
[12] At the time the memorandum of offer was signed, Manjit Singh was the General Manager of Howman RP Ltd. In 2002 Ms Singh, as director of Saisatnam, purchased 50 per cent of the shareholding of Howman RP Ltd and took an assignment of the leases owned by Howman RP Ltd, including the lease of Unit 3L.
[13] Ms Singh’s evidence was that Howman RP Ltd’s practice was to attach a copy of a generic Quest franchise deed of lease to its memoranda of offers. All
generic leases had an expiry date of 31 March 2021, made up of either an initial term of 10 years plus one 10-yearly option to renew; or an initial term of five years plus three five-yearly options to renew. Under the generic lease, the lessee could exercise an option to renew in writing not less than three months prior to the expiration of the previous term.
[14] Both parties, however, have accepted there is no evidence of a generic lease being attached to the memorandum of offer in respect of Unit 3L or that one was ever executed.
[15] From 2001, Saisatnam retained possession of Unit 3L and paid rental to the Trust. No notice of renewal was given in the first two years. Rather, the lease of Unit 3L was renewed first, in 2006, and again in March 2011.
[16] In a letter to Julie Hawkes dated 3 March 2011 but sent on 30 March 2011 (the March 2011 letter) Saisatnam notified its intention to renew the lease for a further term of five years “so that the new expiry date is now 31 March 2016”. In a subsequent email dated 10 October 2011 Saisatnam stated the March 2011 letter was sent “as per the first right of renewal” but recorded the “final expiry date” as being
2021.
[17] On 21 January 2016, Ms Hawkes wrote to Saisatnam indicating she did not intend to renew the lease past 31 March 2016 as she wished to sell the apartment. Saisatnam replied stating the term of the lease was to expire on 31 March 2021 following the exercise of the first right of renewal in 2011.
[18] By letter dated 21 March 2016 solicitors for Saisatnam advised the Trust the lease comprised two 10-year options and the final expiry date was 31 March 2021. Two days later, solicitors for the Trust replied stating the lease expired on 31 March
2016. In reply, on 31 March 2016, solicitors for Saisatnam maintained the end of the term was 31 March 2021 as per earlier correspondence to which the Trust had taken no exception. On the same day Saisatnam also wrote to Ms Hawkes repeating the reference to a renewal of five years in the March 2011 letter was a mistake; the lease, renewed in 2011, was to expire in 2021.
[19] By letter dated 7 June 2016 solicitors for the Trust advised Saisatnam that the renewal letter of March 2011 was a clear variation of the terms of the lease such that the expiry date was 31 March 2016. Formal notification under s 263 of the PLA of refusal to extend or renew the lease was served and vacant possession demanded.
Statutory Framework
[20] The principal provisions relevant to Saisatnam’s application for relief are contained within subpart 6 of part 4 of the PLA. Sections 244 to 264 of the PLA codify the requirements for cancellation of a lease and any relief in respect of cancellation or refusal to renew may be given only in the exercise of the powers conferred by ss 253 to 264.1
[21] Where a lessor refuses to renew and the lessee has not complied with the terms of an option to renew by breaching a covenant in some respect or failing to observe time limits established in the lease for the exercise of the option, the lessee may apply to the court for relief under ss 261-264 of the PLA.
[22] Under s 261 a lessee may apply to the court for relief against a lessor’s
refusal to enter into a renewal:
261 Relief against lessor’s refusal to enter into renewal or sell
reversion to lessee
(1) This section applies to a lease if—
(a) the lessor has covenanted in writing with the lessee that,—
(i) on the expiry of the term of the lease, the lessor will extend the term of the lease, renew the lease, or enter into a new lease of all or part of the premises to the lessee; or
…
(b) the obligation of the lessor referred to in paragraph (a) is conditional on—
(i) the fulfilment of any condition or the performance of any covenant or agreement of the lessee; or
1 Property Law Act 2007, s 243.
(ii) the lessee giving notice, within a specified time or in a specified manner, of the intention to exercise the right to require an extension or a renewal of the lease or the entering into of a new lease or the transfer or assignment of the reversion; and
(c) the lessee is in breach of the condition, covenant, or agreement, or has failed to give the notice within the specified time or in the specified manner; and
(d) the lessor has refused to extend or renew the lease, or enter into a new lease, or transfer or assign the reversion, as the case may be.
[23] The extent of the court’s remedial jurisdiction in respect of an application under s 261 is set out in s 264:
264 Relief court may grant on application
(1) On an application under section 261, the court may grant relief against the refusal of the lessor to extend or renew the lease, or enter into a new lease, or transfer or assign the reversion, as the case may be.
(2) In particular, the court may—
(a) do either of the following:
(i) order the lessor to extend or renew the lease or enter into a new lease with the lessee, mortgagee, or receiver; or
…
(b) grant relief under paragraph (a)(i) or (ii) on any conditions (if any) as to expenses, damages, compensation, or any other relevant matters that the court thinks fit.
…
Is the memorandum of offer sufficiently certain to be enforceable and can the terms of the generic deed of lease be implied?
[24] The parties accept there is no evidence a generic deed of lease was attached to the memorandum of offer. They dispute the sufficient certainty of the terms of the memorandum of offer to form an enforceable agreement to lease and whether the terms of the generic lease can be implied.
Principles
[25] Contracts for the disposition of land are not enforceable unless the terms are recorded in writing and signed.2 To be enforceable, an agreement to lease must include the essential terms of the bargain namely, the parties, the premises, the period of the lease (commencement and duration) and the rent or other consideration payable.3
[26] In BP Refinery (Westernport) Pty Ltd v Shire of Hastings the Privy Council laid down a five-point test for the implication of contractual terms:4
…for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
[27] The BP Refinery test imposes a “stringent standard”: “the device is not an
invitation to the courts to rewrite contracts”.5
[28] However, where the parties intended to contract the court will “do its best to give effect to their intent and, if at all possible, to uphold the contract despite any omissions or ambiguities”.6 If the parties have only a rudimentary written framework the courts may imply terms reasonably readily.7 In McNeill v Gould the Court of Appeal cautioned against the application of such a stringent approach as the
Privy Council’s BP Refinery test to situations where there had not been a high degree of care taken over complex documentation.8 In cases lacking a detailed contract the Court of Appeal considered it more appropriate to adopt the test, formulated in
Chitty on Contract, that a term may be implied in two situations: if it is “necessary to
2 Property Law Act, s 24.
3 Northcott Lands Ltd v Ritchie HC New Plymouth CIV-2008-443-439, 17 March 2009 at [15].
4 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 (PC) at 376.
5 J Burrows, J Finn and S Todd Law of Contract in New Zealand (5th ed, LexisNexis, Wellington,
2016) at 204.
6 Fletcher Challenge Energy Ltd v Electricity Corp of New Zealand Ltd [2002] 2 NZLR 433 (CA)
at [58].
7 Burrows, Finn and Todd, above n 5, at 209–210.
8 McNeill v Gould (2002) 4 NZ ConvC 193,557 (CA) at [25]–[26].
give business efficacy to the contract” or “where the term represents the obvious, but unexpressed, intention of the parties”.9
Submissions
[29] The Trust submits the memorandum of offer lacks sufficient certainty to be enforceable and the uncertainty cannot be cured by implying the terms of the generic lease. The memorandum of offer fails to stipulate when rent is payable and whether it is paid in advance or arrears; how, when and by whom any right of renewal could be exercised; and the machinery and formula for any rent review.
[30] Relying on the BP Refinery test the Trust submits the terms of the generic lease cannot be implied: leases must be in writing; it cannot be assumed that the terms of the generic lease were “what the parties really meant” and to imply all the terms of the generic lease “goes well beyond giving business efficacy” to what the parties agreed, particularly where the terms of the generic lease are inconsistent with the terms of the memorandum of offer. The memorandum of offer does not refer to the terms of the generic lease or require the parties to enter into that lease. Any suggestion that the signatories agreed to be bound by the generic lease is mere speculation. Indeed, there is no evidence that Mr Hawkes (or any other trustee) ever saw the generic lease.
[31] Saisatnam submits the memorandum of offer contains sufficient terms to be enforceable. It contains all the terms commonly included in heads of agreement. Even if the terms and conditions of the generic lease cannot be implied, the matters raised by the Trust do not render the lease void for uncertainty.
[32] In any event, Saisatnam submits, the terms and conditions of the generic lease can be implied to the extent they are not inconsistent with the memorandum of offer. Howman RP Ltd was a franchisee of the Quest franchise and entered into the lease of Unit 3L as part of its franchise business. The name “Quest” is used in the memorandum of offer. It is also apparent, from the memorandum of offer, that the lease of Unit 3L was being managed alongside other Quest franchise leases in
219 Willis Street because the memorandum refers to the income and expenditure being pooled and distributed on a unit entitlement basis.
Assessment
[33] Turning to the terms that are essential for an enforceable lease in this case there is no dispute about the parties or premises that are the subject of the lease. The disputed terms are the period of the lease and the rental or other consideration payable.
[34] I consider these terms are clearly stated in the memorandum of offer. Coming into operation on 1 April 2001, the term is for 20 years with 10 two-year options. Minimum rent is stipulated as $8,225 per annum, comprising $175 x 47 weeks. Rental arrears are to “be paid in 36 equal monthly [instalments] commencing May 2001.” Accordingly, the four essential terms required for an enforceable lease10 are certain on the memorandum of offer.
[35] The Trust submits there is uncertainty in regard to how, when and by whom any right of renewal could be exercised. A right of renewal may be exercised by the lessee (unless the contract provides otherwise) and in the absence of a contractual procedure, the lease may be renewed by sending an unequivocal letter.11
[36] The memorandum of offer provides for a market rent review at the end of each option period. The provision is sparse. It fails to provide, for example, for the timing of a review, the procedure for a review, or who is to instigate the review. Despite the lack of such detail, I do not regard the provision, in the context of this agreement, as so essential that the agreement to lease is unenforceable on that account. There is no evidence the parties considered the review provision to be so important that they would not have entered into the lease unless assured of
substantial performance of the term.12 The brevity of the provision itself supports
that conclusion.
10 See above [25].
11 Tom Benion & Ors Land Law (2nd ed, Thomson Reuters, Wellington, 2009) at [LS13.02].
12 Northcott Lands Ltd v Ritchie, above 3, at [32].
[37] I turn, then, to consider whether the memorandum of offer also contains terms implied from the generic lease. I do not consider it does.
[38] First, there is no evidence Ms Hawkes or her husband had ever seen the generic lease and there is no reference to the generic lease in the memorandum of offer. The parties were unable to locate a copy of any such generic lease. While the terms of the memorandum of offer contemplate the parties’ agreement to a new lease, it cannot be said that the parties, and particularly the Trust, turned their minds to any of the terms in the generic lease.
[39] Secondly, the terms of the generic lease are not required in order to give business efficacy to the contract represented by the memorandum of offer. The contract would be effective to lease the unit without any of the terms of the generic lease. The generic lease is 23 pages, contains 22 clauses, one annex and a schedule. Its terms are not so obvious as to go without saying. They essentially create a new and more complex tenancy agreement than that contemplated by the memorandum of offer.
Was Saisatnam able to renew the lease in March 2011 and again in March
2016?
[40] The memorandum of offer provided for two-year lease periods with options to renew for further two-yearly periods. The initial period of lease for Unit 3L ran from 1 April 2001 to 31 March 2003. Saisatnam did not renew the lease until 2006. It renewed the lease again in 2011. The issue, therefore, is whether Saisatnam was entitled to renew the lease at five-yearly intervals.
Principles
[41] Section 24 of the PLA requires the renewal of a lease to be in writing and, as I have observed, a renewal may be effected by a party sending an unequivocal letter.13 In circumstances, such as those in the present case, where a lessee may remain in possession of premises at the expiry of a term without completing renewal procedures of a lease the doctrine of part performance may give effect to the parties’
intentions. The Court must consider the points which Tipping J in T A Dellaca v
PDL Industries framed as follows (but adjusted to the PLA):14
(a) Was there a sufficient oral agreement such as would have been enforceable but for s 24?
(b)Has there been part performance of that oral agreement by the doing of an act which:
(i)clearly amounts to a step in the performance of a contractual obligation or exercise of a contractual right under the oral contract; and
(ii)when viewed independently of the oral contract the step taken was, on the balance of probabilities, done on the footing that a contract relating to the land such as that alleged was in existence?
(c) Do the circumstances in which that part performance took place make it unconscionable for the defendant to rely on s 24?
Submissions
[42] If the memorandum of offer is enforceable then the Trust accepts there was a right to renew on 31 March 2003 (at the end of the initial two-year period). But there is no evidence Saisatnam exercised the right of renewal or that Saisatnam had undertaken any acts of part performance. Therefore the premises were occupied under a tenancy at sufferance or a tenancy at will pursuant to s 105 of the Property Law Act 1952. The Trust submitted Saisatnam had to pay rent regardless of the nature of the tenancy; possession, payment and acceptance of rent is not inconsistent
with a tenancy at will and does not amount to an informal renewal of a lease.15 The
Trust submits the March 2011 letter was not a valid renewal because the right to
14 T A Dellaca Ltd v PDL Industries Ltd [1992] 3 NZLR 88 (HC) at 109. See also Mahoe
Buildings Ltd v Fair Investments Ltd [1994] 1 NZLR 281 (CA).
15 Citing Matamata Metal Supplies Ltd v Waipa District Council [1996] 3 NZLR 190 (CA).
renew had expired and the tenancy by that time was either a tenancy at sufferance or a tenancy at will.
[43] Saisatnam accepts the lease was not renewed in the manner contemplated in the memorandum of offer because the parties were, mistakenly as it transpired, renewing the lease every five years. That important fact cannot be avoided. There is no evidence the parties considered Saisatnam occupied Unit 3L on a month by month basis. The correspondence shows the parties considered a valid lease existed and both parties refer to rights of renewal being exercised in 2011. Saisatnam points to Ms Hawkes’ evidence that she simply assumed Saisatnam was following the terms of the lease.
Assessment
[44] In addition to the communications between the parties which is set out in some detail in the background section of this judgment the following evidence is relevant to my assessment:
(a) Ms Hawkes stated that after receiving Saisatnam’s March 2011 letter seeking to renew the lease for a further five years (rather than the two years for which the lease made provision), she simply assumed Saisatnam was following the terms of the lease. No attempt was made to correct the renewal period because, like Saisatnam, she had no deed of lease to cross-reference.
(b) As earlier set out, Ms Hawkes received an email dated 10 October
2011 from Saisatnam confirming the “final expiry date” of the lease
was in 2021. Ms Hawkes deposed to not remembering receiving
10 October 2011 email but in any event she thought it was likely that she regarded the reference to the “final expiry date” of 2021 as a mistake because the March 2011 letter clearly stated the expiry was
2016.
(c) Ms Hawkes’ evidence was that it was clear from later correspondence she was under the assumption the lease expiry date was 31 March
2016.
[45] Under s 213 of the PLA a lessor who accepts rent for any period after the period of the lease has expired is not, only because of that fact, assumed to have consented to the lessee remaining in possession.
[46] However, the Trust has not “merely” accepted rent and allowed Saisatnam continued possession. Saisatnam exercised its option to renew in writing, although late. While there is no evidence the Trust expressly accepted a renewal, an effective renewal may be inferred from the conduct of the parties. Specifically, in 2006 and
2011 the lease was renewed for five-year terms and both parties proceeded on the basis of valid renewals with five-year renewal periods. In accordance with the parties’ conduct the lessee seeks to renew the lease for another term from 2016 to
2021:
(a) Increased rental has been paid by Saisatnam at a rate of two per cent per year (with the exception of the years 2011–2016, which I discuss below).
(b)Correspondence between the parties and their solicitors is consistent with the existence of a renewed lease. Renewals in 2006 and 2011 were not disputed. Rather, renewals were effected. The latest notification to renew is contested on the ground that Saisatnam purportedly waived its right to a further renewal past 2016 in 2011.
(c) Ms Hawkes’ evidence in cross-examination was that in 2011 she was happy for the lease to renew until March 2016. She understood the lease was on a five-year basis not a monthly tenancy.
[47] I do not regard the March 2011 letter as capable of implying a waiver or variation of the rights of renewal beyond 2016. The two-sentence letter clearly communicated Saisatnam’s notice of intention to renew the lease to the next expiry date, being 31 March 2016. The letter does not carry, and is not capable of carrying, the implication that Saisatnam would thereafter exercise no further right of review.
Indeed, the very contrary intention is conveyed by Saisatnam’s email on 10 October
2011 clarifying that the “final expiry date” of the lease is 2021 not 2016. Ms Hawkes’ insistence that the lease ended in March 2016 is in the face of evidence of communications from Saisatnam to very different effect.
[48] I find the parties conducted themselves on the basis of an agreement that Saisatnam could renew the lease at five-yearly intervals. The doctrine of part performance applies and Saisatnam’s renewal of the term of the lease in writing, in
2006, 2011 and again in 2016 were valid exercises of the right of renewal.
Is Saisatnam in breach of the lease? If so, to what extent?
[49] A precondition to the exercise of the court’s jurisdiction to grant relief under
s 264 of the PLA is a breach of a covenant or condition of the lease by the lessee.16
Saisatnam accepts it has been in breach of some of the terms of the lease, though the extent of those breaches is in dispute. On the basis Saisatnam has accepted it was in breach of the covenant to pay a two per cent increase in rent during the period 2011–
2016, at which time the Trust refused to renew the lease, jurisdiction to award relief under s 264 is properly invoked.
[50] Before turning to the question of the exercise of discretion it is necessary to address aspects of the accepted breaches and the further alleged breaches. These are relevant to the exercise of my discretion under s 264.
Submissions
[51] The Trust submits Saisatnam has breached the terms of occupancy by: (a) unilaterally imposing charges on the Trust;
(b) failing to uplift the rent by two per cent per annum;
(c) unilaterally decreasing the rent; and
16 Property Law Act, s 264.
[52] The Trust submits in 2013 Saisatnam commenced back-charging the Trust for alleged internet infrastructure ($25/month for seven years). The generic lease provides for the landlord to pay all costs and charges associated with the connection of services, but the memorandum of offer does not. An email from Saiastnam to the Trust on 18 April 2013 advised Saisatnam intended to “commence back charging landlords for $25.00 per month for 7 years as [Saisatnam is] legally permitted”. A sum of $1,800 was to be deducted over either nine or 12 months. In 2016, Saisatnam advised it would stop charging $25 per month for internet. Ms Singh accepted in cross-examination there was no provision in the memorandum of offer for the back-charging of infrastructure payments.
[53] The Trust further submitted Saisatnam failed to pay the two per cent annual increase in rent between 2011 and 2016. Saisatnam sought to rectify the error in
2016 but the Trust submits there are errors in Ms Singh’s calculations:
(a) There have been failures to uplift on the car park rental between 2006 and 2008; and in 2013 the car park rental had reduced and the reduced amount was still being paid in 2015.
(b)According to Ms Singh’s calculations the monthly rent for the year beginning April 2011 should have been $815.54. That amounts to an annual rent of $9,786.48. This cannot be correct, given the annual rent specified in the memorandum of offer (some 10 years earlier) was
$9,860.
[54] Finally, the Trust submitted the market review contemplated by the lease at the end of each option period, had never been undertaken.
[55] Saisatnam accepts it failed to pay the two per cent annual increase in rent between 2011 and 2016 but submits the failure was rectified in 2016. Ms Singh said the two per cent increase was not applied in 2011 because the market valuation was done in that year. Ms Singh also picked up on her failure to include the car park
rental in her calculations and it was her evidence that approximately $273 was paid overnight before the trial.
[56] Ms Singh stated in cross-examination a market rental review was “sent” to Ms Hawkes in 2011. That market rent review increased the rent payable on the unit, but decreased the rent on the car park. The amount owed to the Trust on the basis of the market rent review was applied against an amount the Trust owed Saisatnam for capital upgrades to the Unit 3L.
Assessment
[57] As I have observed the rent review term in the lease is sparse. No provision is made for the process by which a market rent review is to be conducted. It was open to either party to initiate a rent review. That a rent review was not conducted does not constitute a breach of the lease by Saisatnam.
[58] Saisatnam was not entitled by the memorandum of offer to back charge internet infrastructure costs. Ms Singh accepted that. Saisatnam did, however, fail to meet rent payment and two per cent accrual obligations on the basis of its mistaken understanding the cost of the work undertaken by Saisatnam was able to be applied against the rental owed by Saisatnam to the Trust.
[59] The Trust provided a spreadsheet of calculations showing the yearly two per cent increase in rent from 1 April 2001 to 1 April 2016. Those calculations, it is said, correctly reflect the amount of rent that should have been paid if the rent stipulated in the memorandum of offer for both the apartment and the car park were uplifted at two per cent annually.
[60] Ms Singh also supplied a spreadsheet of calculations. They differed markedly from the Trust’s. Ms Singh gave a number of explanations as to why the Trust received less rent than provided for in the memorandum of offer:
(a) The rental for the car park was not included in Ms Singh’s
calculations. That error was rectified the night before trial.
(c) The Trust was invoiced for internet infrastructure costs.
(d)The Trust was obliged to pay for body corporate fees and council levies.
(e) The market rent review performed in 2011 altered the rent payable on the apartment and car park.
[61] It is difficult for me to assess with accuracy whether and to what extent Saisatnam may have imposed unilateral charges on the Trust or failed to uplift annual rent. No evidence of invoices for capital upgrades, internet infrastructure, body corporate fees or council levies were produced. There is no evidence a market rent review took place and if it did, by how much the rent for the apartment or car park was changed. Ms Hawkes acknowledged she received an email which advised that “gross rental offered for [Unit 3L] is in accordance with market rental as per the lease” but said that she had never received an independent market valuation of the rental for the property.
[62] There is no clear evidence before the Court of any actual sum owed by
Saisatnam to the Trust.
[63] I accept the Trust’s calculations of the effect of a two per cent uplift over the period April 2001 to April 2016 but the calculations do no more than that. The Trust has not attempted to establish a fixed figure in arrears.
[64] On the other hand Ms Singh has produced her own calculations to demonstrate the extent to which deductions from the amounts said by the Trust to be payable are justified. Ms Singh was cross-examined on her figures and, in the course of her submissions, Ms McKeown herself calculated a car park shortfall.
[65] The end result is a dispute about sums which should have been paid over time
but were not (the Trust’s position) and deductions justifiably made from the sums
otherwise owing, the deductions thereby resulting in reduced sums actually paid
(Saisatnam’s position).
[66] Given the lack of relevant evidence the Court is in no position to assess the competing arguments much less determine that particular dispute. It is not necessary to do so. The salient point is that Saisatnam accepts it was in breach by failing to pay the two per cent increase when it was due. The parties continue to disagree about whether Saisatnam has in fact paid all that was owing. I return to this point at the end of my judgment.
Should relief be granted?
[67] Mr Grace submitted a helpful guide to the way in which the court might approach the discretion under s 261 is found from an overview of the way in which the courts approached s 120 of the Property Law Act 1952, the predecessor to s 261. I agree with Mr Grace’s submission.
[68] More recently, in Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd Asher J listed the following (non-exhaustive) factors as relevant to the exercise of discretion to grant relief:17
(a) the reasons for the failure of the lessee to give notice;
(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 lessee’s intentions; and
(g)the interests of third parties and how they may be affected by any order.
[69] The court’s discretion to grant relief is broad.18 The principle underpinning the jurisdiction to grant relief is “[t]o prevent one man from forfeiting what in fair dealing belongs to someone else by taking advantage of a breach from which he is not commensurably and irreparably damaged”.19
Submissions
[70] The Trust submits Saisatnam has breached the terms of occupancy. No fault can be attributed to the Trust for Saisatnam’s breach of lease. Saisatnam cannot be considered a “good tenant”: the failure to uplift rental is ongoing, could have been easily remedied and the breach is serious as the payment of rent is a primary obligation of a lessee. Citing Sibrad Co Ltd v Kanters Saisatnam’s breaches should
weigh heavily against the renewal of the lease.20
[71] The Trust submits Unit 3L is only one of Saisatnam’s leased apartments and any loss of income is not likely to be significant. On the other hand, the Trust will suffer prejudice. Letting to Saisatnam is not commercially viable due to Saisatnam’s breaches and mistakes. The Trust contends “[t]his is not a case of the respondents entering into a bad bargain and complaining about having to now live with the consequences of it. Rather, the respondents are not even receiving the full rental they bargained for.” There has been interest in the property from a potential purchaser who requires vacant possession. The sale has not been able to progress due to difficulty in obtaining vacant possession.
[72] The Trust submits if relief is granted the Court should order Saisatnam to remedy its breaches of the lease and if it does not remedy the shortfall, the lease
should be cancelled immediately.
18 At [27].
19 At [28] citing Weatherall Jewellers Ltd v J Hendry and Son Ltd CA135/83, 11 September 1984 at 3.
20 Sibrad Co Ltd v Kanters HC Hamilton CIV-2008-419-440, 28 May 2008 at [20].
[73] Saisatnam submits the reasons for breach of lease and failure to give notice were inadvertent. Saisatnam shared with the Trust mistakes relating to the lease. That Saisatnam was behind in rent was a mistake discovered by Saisatnam and rectified by Ms Singh. Saisatnam managed the leased premises, creating infrastructure to lease the unit, obtaining a suitable tenant and providing services to the tenant that has resulted in an income stream. The Trust will not be prejudiced if relief is granted. Ms Hawkes’ motivation for refusing to renew the lease is because she wants to be relieved of the consequences of the lease. She believes she can get a better price in the sale if the apartment is sold with vacant possession.
Assessment
[74] There is animosity between the parties. The property has become a significant source of anxiety for Ms Hawkes not only because the return has decreased significantly but also because she has little faith in the integrity and ability of Saisatnam. However, animosity alone should not be a reason to deny possession to the lessee.21
[75] Nor, as the Trust submits, should so-called innocent and inadvertent failures by the lessee result in relief to the lessee.
[76] Saisatnam failed to pay the two per cent increases in rent in accordance with the lease (although now says it has done so). That past breach does not amount to a complete failure to pay rent on time though there is a considerable shortfall. Saisatnam has paid $6,028.91 to fully compensate the Trust based on Ms Singh’s calculations as to the amount outstanding. The evidence, such as there is, of the reasons for failure to pay the increases suggests inadvertence.
[77] Saisatnam did not have authority under the memorandum to back charge infrastructure payments to the Trust. Saisatnam claimed these charges on the assumption that the generic lease empowered it to do so. But as I have found the generic lease provisions did not form part of the contract, express or implied, between the parties. Relevantly, however, Ms Hawkes was happy to pay for the
capital upgrades to the property, stating she knew “from these types of things that you’ve got to keep them up to standard otherwise you can’t attract the right type of tenant.”
[78] There is clear prejudice to Saisatnam if the lease is not renewed for the further five-year term. Saisatnam’s business revolves around the managing of leased premises. I accept Saisatnam leases a number of properties but that does not negate prejudice to Saisatnam if the lease is lost. If the lease is lost so is the income stream Saisatnam has actively created over 15 years.
[79] The Trust claims prejudice in not being able to free itself from the bargain struck between the parties that, on its own admission, is no longer commercially attractive. Ms Hawkes acknowledged her reason for refusing to renew the lease is because she considers she is not getting a good return on the property and therefore wishes to sell.
[80] The court’s consideration of the prejudice to the lessor does not include the
failure to be freed from the consequences of the lease they had bargained for.22
Considering each of the factors relevant to the exercise of my discretion and weighing the competing interests of the lessor and the lessee, I am of the view relief should be granted against the refusal to renew and cancellation of the lease of Unit 3L.
[81] The Trust seeks as a condition of renewal that Saisatnam should be required to pay the shortfall in rent. In the circumstances I cannot be confident that Saisatnam is in fact in arrears.
[82] Saisatnam has been in past default but has attempted to remedy those defaults when they have come to light. It was plain to me that Ms Hawkes wishes to rid herself of the investment property which is no longer providing the return she
expects.
22 Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd, above n 17, at [46].
[83] I am persuaded that Saisatnam is entitled to the relief it seeks and that, subject to conditions relating to repayment of any money owed and a market rent review, the lease should be renewed.
Result
[84] The following orders are made:
(a) The lease is renewed for a period of five years expiring on 31 March
2021.
(b)Any arrears are to be paid to the Trust within 15 working days of this judgment.
(c) A rent review is to be undertaken by a person agreed between the parties with effect from 1 April 2016.
[85] The normal course is that costs follow the event. I propose to exercise my discretion to order that the parties bear their own costs. Saisatnam has succeeded but by a narrow margin. I regard the merits as finely balanced. I also take into account that Saisatnam’s breaches and failures to pay rent when due have contributed significantly to Ms Hawkes’ loss of faith in their commercial relationship and no
doubt, therefore, to her refusal to renew.
Karen Clark J
Solicitors:
Strachen O’Connor, Johnsonville for Applicant
Johnston Lawrence Ltd, Wellington for Respondents
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