Stylo Medical Services Ltd v Hum Hospitality Ltd
[2018] NZHC 642
•11 April 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-600 [2018] NZHC 642
UNDER the Property Law Act 2007 IN THE MATTER OF
an application under section 261 for relief against refusal to renew a lease
BETWEEN
STYLO MEDICAL SERVICES LIMITED
Plaintiff
AND
HUM HOSPITALITY LIMITED
Defendant
Hearing: 20 October 2017 Counsel:
R O Parmenter for plaintiff
M Eastwick-Field and C E Grenfell for defendant
Judgment:
11 April 2018
JUDGMENT OF KATZ J
This judgment was delivered by me on 11 April 2018 at 11:00am Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Russell McVeagh, Auckland
Winston Wang & Associates
Counsel: R O Parmenter, Barrister, Auckland
STYLO MEDICAL SERVICES LIMITED v HUM HOSPITALITY LIMITED [2018] NZHC 642 [11 April 2018]
Introduction
[1]In these proceedings Hum Hospitality Limited (“Hum”) seeks relief against
Stylo Medical Services Limited’s (“Stylo”) refusal to renew its lease.
[2] In 2008, Stylo purchased a large, but derelict, two-storied villa on Grafton Road, Auckland, adjacent to the Grafton Bridge (“Property”). Stylo’s sole director is Shen Tat Ooi, a medical practitioner. Mr Ooi initially planned to turn the Property into a medical clinic. He was unable to do so for various reasons, including a lack of funds. Mr Ooi accordingly decided to lease the Property to a third party, on terms that required the tenant to renovate the Property in exchange for an initial rental holiday.
[3] On 22 January 2011, Stylo entered into a lease (“Lease”) with Hum as tenant. Hum and its associated entity, the Falling Apple Charitable Trust (“Trust”), together form what their founder, Rosanne Armitage, describes as a social enterprise concerned with serving the community and promoting culture, art, music, education, health, sustainability and well-being in the community.
[4] The Lease is a long-term one, comprising an initial term of six years, followed by two rights of renewal of eight years each, with a final expiry date of 31 January 2033. Hum was responsible for bringing the Property up to a habitable state. In exchange, it was provided with an initial three-year rent-free period. After that, annual rent at the rate of $87,000 per annum plus GST was payable, increasing to
$100,000 per annum plus GST on 1 December 2015, and $120,000 per annum plus GST on 1 December 2016.
[5] The Lease requires Hum to give “written notice to renew the lease at least 3 calendar months before the end of the term”. Although Hum wished to continue in occupation of the Property, it overlooked giving a renewal notice within the required timeframe. As a result, Stylo, which has been keen to terminate Hum’s tenancy for some time (it has brought legal proceedings seeking to evict Hum from the site on four previous occasions) now seeks an order for possession of the Property.
[6]Hum opposes Stylo’s application and seeks relief against forfeiture for
non-renewal of the Lease, pursuant to section 261 of the Property Law Act 2007
(“Act”). It is common ground that if Hum’s application for relief is successful, then Stylo’s summary judgment application for an order for possession must fail. I will therefore focus on Hum’s relief application first.
Applicable law
[7] Sections 261 and 264 of the Act relevantly provide that where there is a right of renewal in a lease and the lessee has failed to give notice of its intention to exercise that right within the specified time, the Court may grant relief to the lessee, including by ordering the renewal of the lease.
[8] Section 264 of the Act replaced s 120 of the Property Law Act 1952, but was not intended to substantively alter the law in relation to relief against forfeiture for non-renewal.1 In the leading case on s 120 of the 1952 Act, Vince Bevan Ltd v Findgard Nominees Ltd, Turner P said:2
… I think that this section in the Property Law Act, enacted as a remedial measure, should be construed as conferring upon the Court a very wide jurisdiction to do equity in relieving against refusals by lessors to renew leases. In my opinion it would stultify the intention of the Legislature to construe this section so strictly. All its provisions seem to me to indicate that Parliament intended that it should be applied largely.
[9]A similar view was expressed by McCarthy J in the same case:3
The President in the judgment just delivered remarks on the remedial character of ss 120 and 121. I would also emphasise that. … I agree that we 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.
[10]The same view has been taken of the provisions of s 264 of the Act.4
1 Sibrad Co Ltd v Kanters (2008) 9 NZCPR 356 (HC) at [14].
2 Vince Bevan Ltd v Findgard Nominees Ltd [1973] 2 NZLR 290 at 297 to 298 (CA).
3 At 299.
4 Sibrad Co Ltd v Kanters, above n 1, at [14] and [17]–[20]. See also Transform Minerals Ltd v Gordon Wright & Sons Ltd (2010) 12 NZCPR 558 (HC) at [16]–[18].
[11] Ultimately, the Court must try to balance the rights of the lessor and the lessee.5 In Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd, Asher J set out a number of factors relevant to the exercise of the Court’s discretion, namely:6
(a)whether the failure to renew the lease was inadvertent;
(b)whether the cause of the default was due to any action of the landlord;
(c)the lessee’s conduct (in particular, whether it has been a good tenant);
(d)the prejudice to the lessee if relief is not granted;
(e)the prejudice to the lessor if relief is 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.
[12]I will consider each factor in turn.
Was the failure to renew the Lease inadvertent?
[13] Hum was required to give its renewal notice by 1 November 2016. It failed to do so. Hum appears to have been first alerted to the issue when it received an email from Stylo on 14 February 2017, after the expiry of the initial term.
[14] Ms Armitage’s evidence is that Hum’s failure to provide formal notice renewing the Lease was inadvertent and that the need to renew the Lease simply slipped her mind. Hum submitted that its general conduct, however, was clearly consistent with an intention to renew the Lease and that Stylo must have realised that.
5 Weatherall Jewellers Ltd v J Hendry and Son Ltd CA135/83, 11 September 1984 at 8 per Richardson J; KAM Holdings Ltd v Wanganui Regional Development Trust Board HC Wanganui M35/90, 31 October 1990; Timberco (1999) Ltd v Sarvee Acquisitions Ltd (2005) 7 NZCPR 429 (HC) at [22]; Sibrad Co Ltd v Kanters, above n 1, at [18]; Saisatnam Ltd v Brandons Trustee Company Ltd [2017] NZHC 538, (2017) 18 NZCPR 215 at [89]–[98].
6 Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd (2005) 7 NZCPR 48 (HC) at [29].
[15] Stylo did not challenge Ms Armitage’s evidence that the failure to renew the Lease was inadvertent, and I am satisfied that it was.
Was the failure to give notice of renewal due to any action of Stylo?
[16] There is nothing to suggest that Stylo was in any way responsible for Hum’s failure to give notice of renewal.
Is Hum a bad tenant?
[17] Although it advances a number of subsidiary arguments, Stylo’s key argument as to why Hum’s application for relief should be declined is that Hum has been a bad tenant during the initial term of the Lease. In particular, Mr Parmenter, for Stylo, submitted that:
(a)Hum was contractually bound to install a restaurant facility in the Property during the initial term and had failed to do so;
(b)Hum has had solvency issues and had frequently been late with the payment of rent and outgoings; and
(c)Hum has previously improperly used the premises for boarding house/guest accommodation, resulting in cancellation of Stylo’s insurance.
[18] Hum denies that it has been a bad tenant. It acknowledges that it has not been a perfect tenant, but says that the issues Stylo identifies are historical and do not justify Hum now being denied the relief it seeks. Although rent and outgoings have sometimes been paid late in the past, Ms Eastwick-Field, for Hum, submitted that the other criticisms levelled at Hum lack substance. Hum’s rent and outgoings payments are now up to date and there are no unresolved breaches of the Lease. To the extent that previous (in Hum’s submission, minor) breaches of the Lease have occurred, those breaches must be seen in the context of a sustained attempt by Stylo to remove Hum as lessee, including through a multiplicity of previous Court proceedings.
[19] Ms Eastwick-Field submitted that Stylo’s approach of constantly seeking court intervention to resolve matters between the parties has been unconstructive and has caused considerable difficulties for Hum. Hum’s view is that Stylo is attempting to drive it out of the Property and is seizing any excuse to do so, including trying to “burn it off” with litigation. Ms Eastwick-Field noted that in Stylo Medical Services Ltd v Hum Hospitality,7 Whata J observed that it if Stylo wished to continue with its litigious approach to rent issues, close scrutiny would need to be given to the appropriateness of costs on the applications, particularly where any rental default has been very short.
The restaurant issue
[20] Stylo submitted that Hum is a bad tenant because it has not complied with all the conditions and covenants of the Lease. Specifically, Stylo says that Hum has breached an obligation in the Lease to install and operate a “Café, Bar and Restaurant” from the premises by 31 December 2011. If the Court finds that there is no such express obligation in the Lease, then Stylo submitted that such a term should be implied, or the Lease should be rectified to include such a term.
[21] The starting point must be the relevant provisions of the Lease. Clause 16.1 of the Second Schedule provides:
Business Use
16.1THE Tenant shall not without the prior written consent of the Landlord use or permit the whole or any part of the premises to be used for any use other than the business use. The Landlord’s consent shall not be unreasonably or arbitrarily withheld or delayed in respect of any proposed use:
(a) not in substantial competition with the business of any other occupant of the property which might be affected by the use;
(b) reasonably suitable for the premises; and
(c) complying with the requirements of the Resource Management Act 1991, or any other statutory provisions relating to resource management.
…
7 Stylo Medical Services Ltd v Hum Hospitality Ltd [2015] NZHC 1150 at [31].
The First Schedule specifies the relevant “Business Use” as being “Café, Bar and Restaurant”.
[22] Mr Parmenter relied on cl 48 of the Lease as founding the obligation to install a restaurant. It relevantly provides:
Tenant’s Fit-out and other work
48.1The Landlord agrees to provide the tenant full access to the premises upon this agreement is declared unconditional.
48.2Before the commencement of the Tenant’s business the tenant shall, at the tenant’s cost complete the following work:
48.2.1Repaint and repair (if necessary) the exterior of the building;
48.2.2Repair the roof (if necessary);
48.2.3Fence around the balcony;
48.2.4Landscaping
48.2.5fitout all floors by painting, flooring and installation of toilet and kitchen.
48.2.6any other work that at the Tenant’s opinion is necessary for the Tenant’s business use of the premises.
Details of the work are listed in the attached schedule.
…
48.5The tenant must commence the renovation of the building by 1 March 2011. The work listed in above 48.2.1 to 48.2.4 in relationship to everything downstairs, landscaping out the front, all external work on the house, front fencing, etc must be completed by 31 December 2011. All other work in relation to the gardens out the back and inside upstairs must be completed by 31 December 2012. If any of the work is not completed by the time period stated above the landlord may give the Tenant 20 working days notice to complete the work…
[23] A “Check-List for Fit-Out on Grafton Road” that is annexed to the Lease under the heading “Addition to Schedule” includes several references that are consistent with a restaurant being installed on the premises, namely “Kitchen to health and safety requirements”, “Architect — amendment to plans for restaurant suitability on site” and “Airconditioning — Air circulation for main restaurant areas”.
[24] Mr Parmenter submitted that the relevant clauses would convey to a reasonable person, having all the background knowledge that would reasonably have been available to the parties at the time the Lease was entered into, that Hum was required to install a “Café, Bar and Restaurant” in the Property by 31 December 2011. He acknowledged that the drafting of the Lease is somewhat problematic in that, interpreted literally, the work listed at cls 48.2.5 and 48.2.6 “falls into a void” and does not specifically require completion by either 31 December 2011 or 31 December 2012. Mr Parmenter submitted that the reference to cl 48.2.4 in cl 48.5 should therefore be rectified to read 48.2.6 instead of 48.2.4. Such an alteration, he submitted, is consistent with pre-contractual email correspondence between the parties that envisaged that Phase 1 of the renovations would focus on “everything downstairs, landscaping out the front, all external work on the house, front fencing etc ready for opening” while Phase 2 would focus on the “gardens out the back and inside upstairs”.
[25] Mr Parmenter also relied on Mr Ooi’s evidence that he had obtained a resource consent for a restaurant following his purchase of the property, but that because installing a restaurant was beyond his resources, he decided that “I would have someone put in a restaurant in return for a period of no rent or other inducements”. Mr Ooi’s evidence as to why it was (and is) important to him that a restaurant be installed is that:
The benefit for Stylo was that the capital value of the property would increase by virtue of the restaurant’s installation and the rental would increase as the capital value increased.
[26] Ms Eastwick-Field, on the other hand, submitted that the Lease does not impose an obligation on Hum to install a café, bar and restaurant by 31 December 2011, or at all. Hum’s position is that although a café, bar and restaurant is a permitted business use of the premises, it is not a mandatory use. Ms Eastwick-Field further submitted that while the Lease does impose, at cl 48, certain obligations on Hum in advance of it commencing its business, they do not include the installation of a café, bar and restaurant.
[27]Ms Armitage’s evidence on the issue is that:
Speaking to the “Business Use” field in the first schedule, I put the words “Restaurant, Café and Bar” in the “Business Use” terms of the lease. However, I was able to place any necessary definition of our “use” I saw fit and there was certainly no discussion at the time that it was imperative to have a restaurant installed onsite. During lease negotiations we went into detail over our expected use of the site. Prior to signing the lease, we had permission from Mr Ooi to use the property in various different forms (including for market days, art galas, music events, and workshops) under the umbrella of its native residential capacity. None of these were to be commercially driven activities. Instead, they were to be activities that we would provide as a community service within the framework of its “residential capacity” (within the District Plan they are known as Ancillary activities). It did not seem relevant or appropriate to list all of these and other activities under the words “Business Use” in the lease.
[28] Ms Eastwick-Field submitted that even if there was an obligation on Hum to install a restaurant (which is denied), the Lease does not contain a timeframe within which it must be installed. She noted Ms Armitage’s evidence that it remains a feature of Hum’s plans for the Property to install a restaurant/café serving organic, local, wholesome food, while people enjoy poetry evenings, workshops or other activities. Hum’s position, however, is that work on establishing a restaurant has been affected by Stylo’s pre-contractual misrepresentation that repiling and releveling of the foundations had been undertaken. (This issue is apparently the subject of separate litigation). Ms Armitage further says that progressing plans for a restaurant has also been delayed due to the volume of litigation that Stylo has commenced against Hum, which has required extensive time and management resources.
[29] The issue of whether the Lease requires the installation of a restaurant is not clear cut. The fact that the specified “Business Use” is “Café, Bar and Restaurant” and that cl 16.1 of the Second Schedule provides that “The Tenant shall not without the prior written consent of the Landlord use or permit the whole or any part of the premises to be used for any use other than the business use”, tends to support Stylo’s interpretation. However, if installation of a restaurant is required, the time by which this was to occur is unclear. Indeed, this is one of the reasons that Mr Parmenter sought rectification of the Lease.
[30] On the other hand, as set out at [21] above, Stylo cannot unreasonably or arbitrarily withhold or delay its consent to any proposed use of the Property that is reasonably suitable for the premises, and which complies with the Resource
Management Act 1991. This degree of flexibility in the Lease tends to support Ms Armitage’s evidence that the use of the property as a restaurant/café was not critical to Mr Ooi at the time the Lease was negotiated and that while installation of a restaurant was permitted, it was not mandatory. There is also force in Ms Eastwick- Field’s submission that it would be harsh to penalise a tenant for failing to comply with a lease provision that is so unclear that the landlord feels compelled to seek rectification in respect of it.
[31] I also have reservations regarding Mr Ooi’s evidence that having a restaurant operate from the Property was of critical importance to him at the time the Lease was negotiated. The reasons given for that position are far from compelling. In particular, there is no evidence to support Mr Ooi’s contention that having a restaurant installed in the premises would result in a higher market rent being able to be charged at the next rent review. It could well be that other potential uses of the premises, such as medical uses (given the proximity to Auckland City Hospital) could command a higher rental.
[32] Ms Armitage was not cross-examined on her evidence that she had discussed Hum’s intended use of the site with Mr Ooi and that, during lease negotiations, she went into detail regarding Hum’s expected use of the site and had permission from Mr Ooi to use the property for various non-commercially-driven activities, including market days, art galas, music events and workshops. If her evidence is correct, then the submission that Hum has been a “bad tenant” (for not installing a restaurant) loses much of its force. Rather, Hum has used the Property in exactly the way that it informed Mr Ooi that it would at the outset of the Lease.
[33] There are separate proceedings on foot to determine the issue of whether the Lease requires Hum to install a “Café, bar and restaurant”. Any substantive determination of that issue will have to await the outcome of those proceedings, given that the issue appears to turn, at least in part, on disputed facts. It is not appropriate to attempt to determine the issue in the context of the present proceedings, which are limited in scope. There has been no cross-examination of either Ms Armitage or Mr Ooi. Although Stylo gave notice in advance of the hearing that it intended to cross- examine Ms Armitage, it ultimately elected not to do so. I am therefore not in a
position to determine issues of credibility or to resolve any seriously disputed facts. This case therefore differs from a number of other s 261 cases where witnesses were cross-examined and the Court was accordingly in a position to resolve disputed factual issues.8
[34] Ultimately, I have not been persuaded that Hum is a bad tenant due to its failure to install a restaurant on the Property. It is not clear whether the Lease imposes such an obligation on Hum at all. If it does, it is not clear what the timeframe is for performance of that obligation. Further, there may (or may not) be merit in Hum’s argument that it has been unable to perform any such obligation as a result of misrepresentations or other misconduct on the part of Stylo. Finally, and perhaps most significantly for present purposes, there is no evidence that the failure to install a restaurant has caused any material prejudice to Stylo.
[35] If Stylo is able to prove, in its separate proceedings, that Hum has materially breached the Lease by failing to install a restaurant on the premises, then it will be able to seek appropriate relief for the breach at that time. It would be premature, however, to effectively determine the issue in Stylo’s favour in the context of these much more limited proceedings, and on the basis of disputed affidavit evidence.
8 See for example Sibrad Co Ltd v Kanters, above n 1; and Transform Minerals Ltd v Gordon Wright & Sons Ltd, above n 4.
Solvency and payment of rent and outgoings
[36]A further reason why Stylo says that Hum is a bad tenant relates to Hum’s
solvency. In particular, Stylo submitted that:
(a)Ms Armitage had misrepresented her financial wherewithal from the beginning of the Lease negotiations; and
(b)Hum’s current financial status is poor and there is therefore a real risk that Hum will default in its rent and opex payments if the Lease is renewed.
[37] Hum acknowledged that there have been times in the past when its rent and opex payments have been late, but it has provided evidence that its rent and outgoings are currently paid up. Ms Eastwick-Field further submitted that the lateness of some previous payments must be seen in the following context:
(a)Hum is principally reliant on fundraising, donations, and volunteers to meet its rental payments (with some rental income).
(b)Due to the approach that Stylo has adopted, including repeated litigation and other attempts to remove Hum as a tenant (including in one instance seeking cancellation of the Lease when a rent payment was one day late),9 Ms Armitage has been distracted from engaging in the necessary fundraising activities.
[38] It is simply not possible, in the absence of oral evidence or cross-examination, to determine what misrepresentations may have been made (by either party) during the Lease negotiations. Nor does focussing on what was or was not said a number of years ago particularly assist me in determining whether Hum is a bad tenant now. Rather, the focus must be on the second issue raised by Mr Parmenter, namely the assertion that Hum’s current financial status is poor and there is therefore a real risk that it will default in its rent and opex payments if the Lease is renewed.
9 Stylo Medical Services Ltd v Hum Hospitality Ltd [2014] NZHC 2723 at [4].
[39] It is well-recognised that it would be inequitable to place a landlord in the position where immediate defaults by the tenant in paying rent would follow the granting of relief.10 On the evidence before the Court, however, I have not been persuaded that such an outcome is likely here. Hum has provided evidence to the effect that it is not insolvent and is in a position to meet its financial obligations. The deponents of the relevant affidavits (Ms Armitage and Mr James Kidd (an accountant and an advisor to Hum)) were not cross-examined on their evidence. Given Hum’s history, the prospect of future defaults obviously cannot be entirely excluded. If they arise, Stylo will be able to pursue its legal remedies at that time. On the evidence currently before the Court, however, there does not appear to be an imminent risk of default in the event that relief is granted.
Misuse of premises/insurance issues
[40] Stylo further submitted that Hum is a bad tenant because it has misused the premises in the past, by operating a boarding house or visitor accommodation in breach of the Lease. This is said to have resulted in an abatement notice from the Council and the grant of an injunction by the High Court. In addition, Stylo’s insurance cover was jeopardised.
[41] In response, Ms Armitage deposed that Hum is not operating, and has never operated, a boarding house. Further, Hum is compliant with a notice to fix issued by Auckland Council under the Building Act 2004. Hum further submitted (and I accept) that there is no evidence before the Court that Stylo’s insurance cover is currently at any risk.
[42] Sibrad Co Ltd v Kanters11 is one of the few cases in which the Court has not granted a tenant relief, on the basis of “bad behaviour”. In that case, the lessor lived in immediate proximity to the land leased by lessee. Contact with the lessee’s employees was inevitable. The lessee was found to have committed four significant breaches of the lease, which were, in part, unremedied. In addition, the lessee’s
10 QT Hospitality Ltd v Oxford Holdings Ltd HC Invercargill CIV-2007-425-178, 11 May 2007 at [16].
11 Sibrad Co Ltd v Kanters, above n 1.
attitude showed a lack of willingness to rectify some breaches, and there was an element of nuisance, disturbance and damage caused to the lessor’s adjacent land.
[43] In Transform Minerals Ltd v Gordon Wright & Sons Ltd, while the lessee had been dilatory in performance of its payment obligations under the lease, the Court did not consider this problem would persist.12 The Court was not persuaded that certain ongoing problems in relation to reinstatement of land supported a finding that the lessee was a bad tenant and that it should be denied a renewal of the lease on that account.
[44] I accept Hum’s submission that this case is far removed from the facts of Sibrad. Hum’s past breaches appear to have been relatively minor and they have now been rectified. Hum’s position is closer to that of the lessee in Transform Minerals than the lessee in Sibrad.
Relative prejudice to Hum and Stylo
[45] The next relevant factor is the relative prejudice to the parties. This requires me to consider both the prejudice to Hum if the Lease is not renewed, and the prejudice to Stylo if it is.
[46] Hum submitted that it will face significant prejudice if the Lease is not renewed. In particular, it would lose the benefit of its significant investment in the Property. The long-term nature of the Lease, the rent-free period, and the obligation on Hum to make the Property habitable were key features of the arrangement reached between the parties. Hum submitted that it was only during the renewed terms that Hum expected to generate sufficient income from its business on site and to receive a return on its investment in repairs and refurbishment. Further, if the Lease was not to be renewed, Hum would also lose any benefit it has under the right of first refusal under cl 49.1 of the Lease.
12 Transform Minerals Ltd v Gordon Wright & Sons Ltd, above n 4, at [59].
[47] Stylo submitted that, by this stage in the life of the Lease, it expected to have a fully renovated building and surrounds, with a functioning restaurant on site. Dr Ooi deposed that:
Stylo has about NZD3.6 million of bank debt, supported by my guarantee. My retirement depends on having a security at Grafton Road, which will support such a level of debt…[C]urrently, there is nothing more than an old house which is being used as a doss house. It is worth land value only, really, but it is a heritage building and Stylo cannot realise its value until such time as there is a vibrant refurbished property with a viable restaurant in it, and where the restaurant pays rental according to the vision I had for the place.
[48] Mr Parmenter submitted that the prejudice to the lessor from the granting of relief, then, is that Stylo’s reversion — on 31 January 2033 or sooner (if Hum fails)
— will be of the same relative value as the day Stylo entered into the Lease. Stylo will have lost the value of the rent concession, the costs of the resource consent it obtained for the installation of a restaurant, and the time lost in achieving Mr Ooi’s vision of the Property being able to support the level of debt he has secured over it.
[49] These arguments are predicated to a significant degree on Stylo being correct that Hum was obliged to install a restaurant in the premises. For the reasons I have outlined above, however, I have concluded that determination of that issue is beyond the scope of these proceedings.
[50] In any event, there is no evidence before me as to how (or if) having a restaurant installed in the premises would affect the market rent for the Property between now and 2033. Nor is there any evidence to the effect that if a restaurant had been installed by, say, 2014, the Property would be more valuable 20 years later, in 2033, than it would otherwise be. Even if a restaurant was the best use of the Property now (and there is no evidence before me that that is the case), it cannot necessarily be assumed that that would still be the case in 20 years.
[51] Ultimately, if Stylo succeeds in proving that Hum is or was obliged to install a restaurant on the premises, and has breached that obligation, then Stylo will be entitled to either specific performance or damages. In that event, when the Property reverts to Stylo in 2033 (if the Lease runs for the full term), it will either have a restaurant in it,
or it will have been appropriately compensated for Hum’s failure to install such a restaurant.
[52] Reading between the lines of Mr Ooi’s affidavit, it appears that his real concern may be that if the Lease is renewed he will lose out on the commercial opportunity to lease the Property now to a third party, or possibly sell it (without Hum having a right of first refusal). Those “lost” opportunities, however, are essentially part of the bargain that Mr Ooi entered into when he agreed to a long-term lease of the Property to Hum. The very nature of a lease is that for the period in which it is in effect, the lessor is denied the right to take possession of the land it has leased.13 It does not appear that renewal of the Lease will cause any undue or improper prejudice to Stylo. Rather, Stylo (and Hum) will simply be required to adhere to and perform the terms of the bargain that they freely entered into at the outset of the Lease.
[53] Turning now to the prejudice to Hum, Ms Eastwick-Field submitted that this case is analagous to some extent to Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd. In that case relief was granted because a failure to grant relief would have caused the lessee’s business to be “damaged and possibly lost”.14 Similarly, in Transform Minerals Ltd v Gordon Wright & Sons Ltd, the Court held that a failure to grant relief would “limit the scope and flexibility” of the lessee’s mining operation, and would mean that the significant sums it had spent to enable it to exploit the mineral reserves on the leased land would go to waste.15
[54] Hum submitted that its position is similar to the lessee’s in Transform Minerals Ltd. On its expert’s evidence, Hum’s total investment in the Property is valued at
$694,000. Mr Bruce Nixon, Stylo’s expert, estimated the value of Hum’s investment much lower, at $94,253 (plus GST). Given the wide disparity in the parties’ expert evidence, the Court appointed a quantity surveyor, Mr Patrick Hanlon, (at the request of Stylo) to provide an expert opinion on the issue. Mr Hanlon estimates the overall value of works undertaken by Hum to be $298,000, excluding GST. Given that none of the experts have been cross-examined, the appropriate course in my view is to rely
13 Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd, above n 6, at [47].
14 Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd, above n 6, at [41] and [69]–[70].
15 Transform Minerals Ltd v Gordon Wright & Sons Ltd, above n 4.
on Mr Hanlon’s evidence for present purposes, given his independence from both parties.
[55] Hum has likely already received at least some value for its investment in making the Property habitable, by way of an initial rent holiday. I note, however, that Hum would have had limited use of the building during a significant portion of the rent holiday period, as the remedial works were being undertaken. I therefore accept Hum’s submission that it has not yet reached a position where it has received full value for its significant investment in the Property, and that it will only be during the renewed term that Hum will generate sufficient income from its business on site to receive a return on its investment in repairs and refurbishment.
[56] Overall, I am satisfied that significant prejudice would be caused to Hum if the Lease is not renewed, and that this outweighs any prejudice to Stylo that would arise from renewal of the Lease. Hum has committed significant resources to the Property on the basis that it was entering into a long-term lease with rights of renewal through to 2033. It would be materially prejudiced if the Lease was not renewed at this early stage, due to its oversight in giving notice of renewal.
Stylo’s motivations and Hum’s intentions
[57]The next relevant factor is Stylo’s motivation for refusing to renew the Lease
and Hum’s intentions.
[58] The lessor’s motivations are not entirely clear. There can be no doubt that it wants to rid itself of Hum as a tenant (as evidenced by the multiplicity of proceedings Stylo has filed). That may be (as Stylo claims) due to Hum’s conduct, including its previous rental defaults and its failure to install a restaurant. On the other hand, Stylo’s determined attempts to force Hum off the Property may be motivated by other factors. For example, Stylo may now regret the terms of the bargain it previously entered into with Hum, and may believe that it can now secure a more advantageous commercial bargain elsewhere. Stylo’s motives are not sufficiently clear that they can factor into the present analysis.
[59] As for Hum’s intentions, it appears to be determined to stay in the Property, at least for now, and pursue the vision of a vibrant community space that it says has been its aim from the outset of the Lease.
[60] Overall, a consideration of Stylo’s motivations and Hum’s intentions do little to assist me in determining whether or not Hum should be granted the relief it seeks.
Interests of third parties
[61] The effect of relief not being granted on third parties can be a factor in deciding whether to award relief.16
[62] Hum submitted that it has third party interests it seeks to protect as a convenor of a social enterprise. A number of third party entities operate out of the Property. Hum submitted that the refusal to renew will not only extinguish Hum’s interest in the premises but also those in the community that Hum seeks to benefit.
[63] I give this factor relatively little weight. While there may be some short-term inconvenience to third parties, there is nothing to prevent Hum continuing its activities from a new venue, if that became necessary.
Summary and conclusion
[64] It is not in dispute that Hum’s failure to provide formal notice renewing the Lease was entirely inadvertent. The need to renew the Lease simply slipped Ms Armitage’s mind. Hum’s general conduct, however, was clearly consistent with an intention to renew the Lease and Stylo must have realised that.
[65] There are separate proceedings on foot to determine the issue of whether the Lease requires Hum to install a “Café, bar and restaurant” in the Property. Any substantive determination of that issue will have to await the outcome of those proceedings, given that the issue appears to turn, at least in part, on disputed facts. I have not been persuaded, however, that Hum is a bad tenant due to its failure to install a restaurant in the premises. It is not clear whether the Lease does impose such an
16 Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd, above n 6, at [63].
obligation on Hum. If it does, it is not clear what the timeframe is for performance of that obligation. Further, there may (or may not) be merit in Hum’s argument that it has been unable to perform any such obligation as a result of misrepresentations or other misconduct on the part of Stylo. Finally, and perhaps most significantly for present purposes, there is no evidence that the failure to install a restaurant has caused any material prejudice to Stylo.
[66] As with any tenant, there can be no guarantee that Hum will never default on its rent obligations during the renewed term. However, there is no evidence that Hum is insolvent and there does not appear to be an imminent risk of default in the event that relief is granted. As for other historical breaches of the Lease, some of them are in dispute. The ones that are admitted are relatively minor and have now been rectified. Hum’s position is therefore closer to that of the lessee in Transform Minerals than the lessee in Sibrad.
[67] Finally, and significantly, I am satisfied that significant prejudice would be caused to Hum if the Lease is not renewed. This significantly outweighs any legitimate prejudice to Stylo that would result from renewal of the Lease. Hum has committed significant resources to the renovation of the Property, on the basis that it was entering into a long-term lease with rights of renewal through to 2033. It would be materially prejudiced if the Lease was not renewed at this stage due to a simple oversight on its part in not giving notice of renewal.
[68] Taking all of these matters into account, I am satisfied that it is in the interests of justice to grant Hum’s application for relief. It necessarily follows that Stylo’s summary judgment application for recovery of the Property must be declined.
Result
[69] I order that Stylo is required to enter into a new lease with Hum for a further term of eight years from 1 February 2017 (plus one further right of renewal for eight years) and otherwise upon, and subject to, the covenants and agreements in the Lease.
[70]Stylo’s application for recovery of the Property is dismissed.
[71] Given Hum’s success, costs would normally follow the event. However, as I have not heard full submissions on costs, leave is reserved to file memoranda if costs cannot be agreed between counsel. Any memorandum on behalf of Hum is to be filed by 27 April 2018. Any response from Stylo is to be filed by 4 May 2018. A decision on costs will then be made on the papers.
Katz J
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