Tu v Zhang
[2022] NZHC 1106
•19 May 2022
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2021-425-99
[2022] NZHC 1106
UNDER the Property Law Act 2007 IN THE MATTER
of an application under section 261 for relief against refusal to renew a lease and related
claims
BETWEEN
WANLIN TU
Applicant
AND
SONGWEN ZHANG and XIYUAN WU
Respondents
Hearing: (Determined on the papers) Counsel:
C M Ruane for Applicant
Judgment:
19 May 2022
JUDGMENT OF OSBORNE J
(by way of formal proof)
This judgment was delivered by me on 19 May 2022 at 2.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
TU v ZHANG and WU [2022] NZHC 1106 [19 May 2022]
An application for relief in relation to a lease
[1] This proceeding concerns Wanlin Tu’s lease of an Invercargill property owned by the respondents, Songwen Zhang and Xiyuan Wu (the purchasers), from which Mr Tu operated his business from 2017.
An application for relief in relation to a lease
[2] Mr Tu applies on notice for relief under s 261 Property Law Act 2007 (the Act). He was granted interim relief in November 2021.
[3] He now seeks a final order that the respondents renew his lease upon the terms set out in the deed of lease dated 15 March 1994 (the deed of lease), as varied by a deed of assignment of lease dated 11 July 2017 (the deed of assignment).
[4] The deed of lease adopted the ADLS/REINZ (third edition) standard form. The deed of lease provided for three, five year terms of renewal. The deed of assignment provides the lessee with four rights of renewal for five years each. While the term of the lease current at the time of the assignment expired on 13 March 2019, the potential term of the lease (with renewals) is to 13 March 2039.
[5] The background is set out in the earlier judgment of Nation J granting Mr Tu interim relief:1
…
[2](a) The applicant has been running the subject business since purchasing it in 2017 for $405,000.
(b)The applicant had the benefit of a lease which was for five years beginning 15 March 1994, with three rights of renewal of five years each. Through a deed of assignment of lease dated 11 July 2017, the applicant and respondent agreed there were four rights of renewal of five years each, with the final expiry for the lease of 13 March 2039 and an annual rent of
$17,114.96 plus GST. The deed of assignment of lease is consistent with it having been due for renewal on 13 March 2019.
1 Tu v Zhang [2021] NZHC 3053 at [2].
(c)The applicant says he was not aware he needed to give formal notice to renew the lease on or before 13 March 2019 and presumed it would run through to 13 March 2039 by default.
(d)On 14 March 2019, the respondent sent a written notice informing the applicant the rent would be increased to
$1,689.39 per month inclusive of GST. The respondent said nothing about needing to renew the lease at that time. The applicant has paid rent accordingly.
(e)On 4 September 2021, the respondent advised the applicant that there was no lease because it had not been renewed in 2019. The respondent gave the applicant three choices:
i.to sign a new deed of lease with the rent increased to
$52,000 inclusive of GST per annum, $4,333.33 per month inclusive of GST;
ii.to terminate the lease as from 1 December 2021; or
iii.to purchase the business premises at the price of
$600,000.
(f)The applicant has obtained a valuation showing a fair current market rental to be $23,850 per annum and the market value of the premises to be $350,000. The applicant is not prepared to accept any of the options put to him by the respondent.
[6] His Honour found Mr Tu had a seriously arguable case that he was entitled to such relief.
The evidence
[7] The history summarised in the judgment of Nation J at [5] above reflects the unchallenged evidence of Mr Tu. I respectfully adopt the summary. Most significantly, the respondents advised Mr Tu via a WeChat message on 14 March 2019 (the day after the previous term of the lease expired) that the new rental starting from that month was $1,689.39. They asked Mr Tu to adjust the amount for bank transfer. Mr Tu confirmed by message two hours later that he would charge the automatic transfer limit. He did so. From 14 March 2019 (as before) Mr Tu met all rent payments at the agreed increased rate. The rate of $1,689.39 per month equates to $20,272.68 per annum.
[8] Self-evidently the rate subsequently demanded by the respondents in September 2021 ($52,000 per annum) exceeds the rate offered and accepted in March 2019 by over 150 per cent.
[9] The valuation report produced by Mr Tu is that of a registered valuer (Regan Johns of Telfer Young) as at 5 October 2021. His market rental assessment of the premises at that date was $23,850.00.
[10] Mr Tu, in addition to meeting his lease obligations (including the increased rental), has himself attended to many maintenance requirements, including some which may strictly have been lessor responsibilities.
[11] Mr Tu’s business is that of a discount store conducted from the premises. He purchased the business run from the premises in 2017 for $405,000 and fears he would lose the value of the business if the premises are sold to another operator (as the lessor could do upon cancellation of the lease).
[12] Interim relief was granted on a without notice basis because of the risk the respondents would seek to evict Mr Tu from the premises or try to sell the premises on the basis they are not subject to a lease. Nation J concluded that:2
[5]With the respondent having advised what a new rental would be on 14 March 2019, the applicant having paid rent at that rate since then, and the respondent having accepted that rent, the applicant has a seriously arguable case that the respondent accepted in March 2019 that the rent lease was being renewed for a further five years and is now estopped from contending that the lease was brought to an end through the applicant not giving formal notice that he was renewing the lease in 2019. The applicant is also able to make an application for relief against forfeiture of the lease under the Property Law Act 2007. …
The relief regime
[13]Section 261 of the Act provides:
261 Relief against lessor’s refusal to enter into renewal or sell reversion to lessee
2 Tu v Zhang, above 1.
(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
(ii)on the expiry of the term of the lease, or at some earlier time, the lessor will transfer or assign to the lessee all or part of the reversion expectant on the lease; and
(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
(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.
(2)If this section applies to a lease, any of the following persons may apply to a court in accordance with section 262 for relief under section 264:
(a)the lessee:
(b)a mortgagee of the leasehold estate or interest:
(c)a receiver appointed in respect of the leasehold estate or interest:
(d)if 2 or more persons are entitled to the leasehold estate or interest as joint tenants, 1 or more of those persons on behalf of the other joint tenants.
(3)If an application made in accordance with subsection (2)(d) is not made by all of the joint tenants, the application must be served on every joint tenant who is not already a party, unless the court orders otherwise.
[14] An application for relief under s 261 of the Act may be made after the lease has expired.3 Mr Tu made his application within three months of the respondents’ indicating a refusal to treat the lease as renewed.4
[15] The Court has a broad discretion whether to grant relief under s 264 of the Act. It requires the Court to balance the interests of the lessor and lessee.5 Such was identified by McCarthy J in Vince Bevan Ltd v Findgard Nominees Ltd, when noting that the Court:6
… 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.
[16]Seven factors are considered by the Court as part of this balancing exercise.
They are not exhaustive. The factors are:7
(a)the reason for failure to give notice, for example, whether it 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 they have complied with all conditions and covenants and have been a good tenant;
(d)the prejudice to the lessee if the 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
3 Twin Peaks Coffee Co Ltd v Broadway Developments 1986 Ltd (2010) 12 NZCPR 49 (HC) at [49].
4 Pursuant to ss 262(b) and 263(a) Property Law Act 2007.
5 Kuoch v Ganda [2022] ZHC 452 at [25]–[26]; and Wendco (NZ) Ltd v LJCTB Trustees Ltd [2017] NZHC 2668 at [17].
6 Vince Bevan Ltd v Findgard Nominees Ltd [1973] 2 NZLR 290 (CA) at 299 referring to the predecessor to s 261 of the Property Law Act, being s 120 of the Property Law Act 1952.
7 Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd (2005) 7 NZCPR 48 (HC) at [29] cited in Twin Peaks Coffee Ltd v Broadway Developments 1986 Ltd, above n 3 at [65]–[66].
(g)whether the interests of third parties are affected.
Formal proof hearing
[17] The respondents have been served with the application but have taken no steps. Mr Tu seeks final orders by way of formal proof.
Discussion
[18] The benefit of the lease of the premises was assigned to Mr Tu by the deed of assignment.
[19] I am satisfied the present situation falls within the scope of s 261 of the Act. The lessors covenanted that, on the expiry of the lease, they would grant a renewal. The rights of Mr Tu as lessee were conditional upon his meeting his obligations under the lease. The evidence is that he has done so. What he failed to do was to give a formal notice of his intention to renew. The respondents’ reaction may be viewed in two ways — either they have refused to grant Mr Tu an extension or they have made demands of him that are inconsistent with an implicit agreement to grant an extension.
[20]My findings in relation to the factors that call for consideration (as set out at
[16] above) are:
(a)Reason for failure to give notice
The failure was due to Mr Tu’s inadvertence, he not appreciating the need for written notice.
(b)Lessors’ contribution to default?
This factor is neutral — Mr Tu does not attribute his misunderstanding to anything done by the respondents.
(c)Lessee’s conduct
Mr Tu has complied with all his lease obligations.
(d)Prejudice to lessee if relief refused
Mr Tu would be seriously prejudiced if relief were not granted, given the likely loss of the entire value of his business.
(e)Prejudice to lessors if relief granted
On the evidence there is no apparent prejudice to the lessors if relief is granted. It may be inferred that the lessors’ stipulated (and accepted) rental increase in March 2019 (18 per cent) was based on some information the respondents had obtained as to valuation. The sum subsequently demanded in September 2021 bears no relationship to the Telfer Young valuation, that valuation being much closer to what the parties had moved forwards with from 14 March 2019. The respondents have received that increased rent ever since.
(f)Lessors’ motivation for refusal
The irresistible inference from the evidence is that the respondents have sought to take commercial advantage of Mr Tu’s overlooking of the requirement for notice, while having for the time being accepted Mr Tu’s continuing occupation on the basis he was paying the increased rent at the level stipulated by the respondents. This factor strongly favours relief.
(g)Third party interests
No considerations arise in relation to other parties.
[21]The balancing of these factors clearly favours Mr Tu.
[22] I then stand back and assess the overall justice of the application. It is overwhelmingly in favour of relief. While the respondents’ failure to oppose the application (or otherwise appear) is not determinative in any evidential sense, it
supports the weight that can be applied to Mr Tu’s evidence and the conclusion that the just outcome is in favour of relief.
Conclusion
[23] It is appropriate there be an order as sought that the respondents, as lessor, renew the lease dated 15 March 1994, as varied by the deed of assignment of lease dated 11 July 2017, for a five year term from 14 March 2019.
[24] Leave will be reserved to the applicant to seek a further order authorising the Registrar of the Court to execute, on behalf of the respondents, any documents necessary to give effect to the order of renewal, in the event the respondents fail to execute a renewal in accordance with this judgment.
[25] Mr Tu is entitled to an order for the costs and disbursements of the proceeding. I will fix costs on a 2B basis, together with disbursements.
Further orders sought by Mr Tu
[26] Mr Tu, by counsel’s memorandum, sought further orders out of an abundance of caution:
(a)restraining the respondents from selling Mr Tu’s business; and
(b)restraining the respondents from evicting Mr Tu or re-entering or taking possession of the premises.
[27]I do not consider the making of such orders is appropriate for three reasons:
(a)The interim orders were sought and made to preserve Mr Tu’s position pending consideration of his application for relief under the Act. Now that final relief is being granted, Mr Tu’s occupation of the premises will remain his right pursuant to the renewed lease.
(b)There is no application for the additional relief suggested before the Court — the respondents therefore have no notice of the additional application.
(c)Mr Tu’s continued occupation of the premises, and the lessors’ rights, are subject to the terms of the lease. The further orders in the terms suggested by counsel would have the potential effect of curtailing rights the respondents have under the lease.
Order
[28]I order:
(a)The respondents shall (by document executed and provided to the applicant’s solicitor no later than 10 working days after service on these orders upon them) renew to 13 March 2024 the lease with the application upon the terms set out in the deed of lease dated 15 March 1994 as varied by the deed of assignment dated 11 July 2017, with a rental of $1,689.39 per month (inclusive of GST) for the term expiring on 13 March 2024.
(b)The applicant has leave to seek (by counsel’s memorandum supported by affidavit evidence) a further order authorising the Registrar, on behalf of the respondents, to execute such renewal document in the event the respondents themselves do not execute such documents within the said 10 working days.
(c)Service of these orders upon the respondents may be effected upon the same terms as the directions for service made on 29 November 2021 utilising the email address [REDACTED].
(d)The respondents are to pay to the applicant the costs of the proceeding fixed on a 2B basis together with disbursements to be fixed by the Registrar.
Osborne J
Solicitors:
Leslie Hills Law, Christchurch (for Applicant) Copy to counsel:
C M Ruane, Barrister, Christchurch (for Applicant)
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