Twin Peaks Coffee Company Ltd v Broadway Developments 1986 Ltd HC Auckland CIV 2010-404-3358
[2010] NZHC 1280
•26 July 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-3358
UNDER the Property Law Act 2007
IN THE MATTER OF an originating application for relief against refusal to renew a lease
BETWEEN TWIN PEAKS COFFEE COMPANY LIMITED
Applicant
AND BROADWAY DEVELOPMENTS 1986
LIMITED Respondent
Hearing: 5 July 2010
Appearances: S W B Foote and S McLaughlin for Applicant
K F Gould for Respondent
Judgment: 26 July 2010
JUDGMENT OF COOPER J
This judgment was delivered by Justice Cooper on
26 July 2010 at 11.00 a.m./p.m., pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors:
Legal People, PO Box 46032, Herne Bay, Auckland
DMG Solicitors, PO Box 99 188, Newmarket, Auckland 1149
Copy to:
S W B Foote, PO Box 1121, Shortland Street, Auckland 1140
S McLaughlin, PO Box 4338, Auckland 1140K F Gould, PO Box 1011, Shortland Street, Auckland 1140
TWIN PEAKS COFFEE COMPANY LIMITED V BROADWAY DEVELOPMENTS 1986 LIMITED HC AK CIV-2010-404-3358 26 July 2010
Table of Contents
Para No.
Introduction [1] The facts [8] The application [35] Jurisdiction issues
Can the Court grant relief when application is made after
expiry of the lease? [41]
Can the Court order physical reinstatement?
Should relief be granted?
Applicant’s argument
Respondent’s argument
Evaluation
[56]
[65] [72] [79]
Result [89]
Introduction
[1] The applicant has made an originating application in which it seeks that the respondent be compelled to grant it a new lease of premises at Unit 2, 87-93 Main Highway, Ellerslie. The application is advanced under s 261 of the Property Law Act 2007 (“the Act”).
[2] On 9 June 2010 Heath J made an order, to apply until midday on 10 June
2010, requiring the respondent and its agents to cease demolition works in respect of the premises. That order was subsequently continued in effect on terms that required the applicant to pay the sum of $10,000 into Court. The interim relief was granted on a without notice application because it was sought at a time when the respondent had commenced to demolish the premises that are the subject of the dispute. On 5
July I extended its effect, pending delivery of this judgment.
[3] The premises comprise part of the ground floor of an old commercial building known as the Southern Cross building. Unit 2 is one of seven tenancies that existed when the respondent acquired the building. It is one of two units at the front of the building at ground floor level adjacent to the road frontage.
[4] When the respondent acquired the building Unit 2 was leased to the applicant for a term of one year that commenced on 1 June 2009, with two rights of renewal
for further terms of three years each. Subject to the exercise of the rights of renewal, there was a final expiry date for the tenancy of 31 May 2016.
[5] The rights of renewal required the applicant to give written notice to the respondent as landlord to renew the lease at least three calendar months before the end of the term on 1 June 2010. The applicant did not do so. It claims that it overlooked its obligation to give the notice. The respondent then entered the premises at some time prior to 7.00 a.m. on Tuesday 1 June. When the applicant’s manager Mr Graeme White arrived just after 7.00 a.m. on that day he found that the premises had been completely boarded up. There was a notice affixed to the building which said, “Shop closed due to lease expiry”. Correspondence and discussions between the parties that ensued were not able to resolve the dispute which had arisen.
[6] The respondent opposes the present application, arguing that the Court has no jurisdiction to grant it since the applicant had not given the notice required under the lease to be given at least three calendar months before the end of the term, or indeed at any stage prior to the end of the term. Mr Gould submits that since the lease had come to an end at the close of 31 May 2010 there was then no lease that could be the subject of an order made under s 264 of the Act.
[7] Alternatively, the respondent contends that if there is jurisdiction to make an order, then an order should not be made in the exercise of the Court’s discretion.
The facts
[8] The applicant’s principal is Mr Andrew Knight. He currently resides in London, where he is the director of a United Kingdom based “total-coffee business” which he has owned and operated for some 30 years. That company is Andronicas Coffee Ltd. Mr Knight describes the activities of the company as including “all aspects of the coffee business including roasting, manufacturing, retail shops and catering”. In his affidavit of 3 June 2010 he said that he had incorporated the applicant company in about March 2007 as part of a long-term plan to establish a coffee business in Auckland. However, he personally acquired the premises at 87-93
Main Highway, Ellerslie on 27 April 2007. He then proceeded to lease Unit 2 to the applicant and in June 2009, came to New Zealand to oversee the establishment of a coffee shop which traded as “Twin Peaks World of Coffee”.
[9] The applicant does not function as what might be described as a normal café. It sells no food, except for some ice cream in summer. It operates as premises where people can buy and drink coffee, and purchase coffee beans. There are also deliveries of coffee beans and that aspect of the business has been able to continue notwithstanding the present dispute. The coffee machine in the premises is mounted on a small three-wheeled vehicle parked inside the premises and marked with the words “Andronicas Coffee” and in larger lettering “café gogo”. I infer that the general appearance of the vehicle is designed to attract interest because of its slightly unusual nature. The evidence did not disclose whether the vehicle ever left the premises. Photographs produced in evidence showed tables and chairs and substantial numbers of jars of coffee beans arranged along one wall of the unit. According to the evidence, after very modest beginnings in July 2009, fortnightly turnover had risen to just under $4,000 by 23 May 2010. There are two full-time employees.
[10] On 3 September 2009 Mr Knight entered into a formal lease of the premises to the applicant. The lease commenced on 1 June 2009 and had an initial term of one year. There were two rights of renewal for further terms of three years each.
[11] Clause 33.1 of the lease provided:
33.1 If the Tenant has given to the Landlord written notice to renew the lease at lease 3 calendar months before the end of the term and is not at the date of the giving of such notice in breach of this lease (including any maintenance obligations) then the Landlord will grant a new lease for a further term from the renewal date as follows:
(a)If the renewal date is a rent review date (the annual rent shall be agreed upon or failing agreement shall be determined in accordance with clauses 2.1 and 2.2 but such annual rent shall not be less than the rent payable as at the commencement date of the immediately preceding lease term;
(b)Subject to the provisions of paragraph (a) the new lease shall be upon and subject to the covenants and agreements herein expressed
and implied except that the term of this lease plus all further terms shall expire on or before the final expiry date;
(c)The annual rent shall be subject to review during the term of the new lease on the rent review dates or if no dates are specified then after the lapse of the equivalent periods of time as are provided herein for rent reviews;
(d)The Landlord as a condition of granting a new lease shall be entitled to have the new lease guaranteed by any guarantor who has guaranteed this lease on behalf of the Tenant who has given notice;
(e)Pending the determination of the rent, the Tenant shall pay an interim rent in accordance with clauses 2.3 and 2.4; and
(f)Notwithstanding anything contained in clause 33.1(e) the interim rent referred to in that clause shall not be less than the annual rent payable as at the commencement date of the immediately preceding lease term.
[12] In July 2009 Mr Knight offered the building for sale by tender. The sale was subject to the existing tenancies that were listed in an attached tenancy schedule. The schedule listed seven tenancies with commencement dates ranging from 1 July
2004 to 1 June 2009. The schedule also noted the terms of each lease and the rights of renewal (if any) enjoyed by the lessees.
[13] Tenders closed at 4.00 p.m. on Wednesday 30 September 2009. The respondent’s offer was for $1,910,000, and that was the successful tender. Under the conditions of sale, the possession date was 30 November 2009.
[14] The building had been marketed by Bayleys Real Estate Ltd on behalf of
Mr Knight. Mr David Hughes, a director of the respondent, swore an affidavit on
9 June 2010 in which he said that as part of the tendering process Bayleys Real Estate Ltd supplied to the respondent a Tender Memorandum which referred to redevelopment plans which Mr Knight had formulated for the building. The plans included with this material showed the ground floor of the building as being devoted entirely to a proposed café/restaurant which would replace the five existing units on the ground floor.
[15] On 9 October 2009, the solicitor acting for the respondent (Mr Graham of DMG Solicitors) wrote to the solicitors acting for Mr Knight (Legal People, whose principal was Mr Madden-Smith). The letter was in the following terms:
re: 87-93 Main Highway, Ellerslie
Further to our earlier discussion, we would like to progress the following matters:-
1.We note that the final expiry date for the shop 4 lease is the 31st of October 2009. As the purchase of the property is settling on 30th November 2009, our client company would not wish the vendor or his agents to grant a new lease to this tenant greater than for a six month period (with no rights of renewal), or alternatively allow the tenancy a hold over on a month by month basis.
2.The vendor and his nominated company are the guarantor and tenant of shop 2. Please confirm that the tenant and guarantor will not renew this lease at the expiration of the initial one year term, being on the 31st May 2010.
3.We note that the LIM report records the Resource Consent R/LUC/2009/1487 application as ‘decision pending’. As our client is interested in pursuing this Resource Consent, please provide us with all information in respect of the consent, including what is required to continue and complete the process.
4.The Purchaser would not wish any consent to a sublease in respect of the Business Association’s lease without its prior consent.
(The reference to “shop 2” is to be understood as a reference to Unit 2.)
[16] On 12 October 2009, Mr Madden-Smith replied to Mr Graham in the following terms:
AJ Knight to Broadway Developments 1986 Limited: 87-93 Main Highway, Ellerslie
I refer to your letter dated 9 October 2009, and respond to the points raised using your numbering.
1.My client will offer the tenant of shop 4 a new lease for a term of six months (with no right of renewal) as the same rent as is currently payable. I will let you know whether the tenant accepts this offer.
2.The confirmation you seek is not available. The terms of the lease of shop 2 are as summarised in the agreement for sale and purchase and the tenant is not prepared to surrender its rights of renewal under that lease.
3.The contact details for the planning consultant are as follows: [details omitted]
My client has asked the planner to put the application on hold until such time as your client has had an opportunity to assess the work done to date and decide how to move forward. I have asked Haines Planning Consultants Limited to co-operate with your client’s
enquiries on the basis that any costs incurred in doing so will be payable by your client. Information in respect of the application will be available from Haines Planning Consultants Limited.
4. Noted.
I did pass on your client’s contact details to my client. However, my client would prefer to communicate through me on all matters connected with the sale of the property.
[17] On 20 November 2009, Mr Adrian Hughes, the Development Manager of the respondent sent an e-mail to Mr Knight in London. The letter was headed “Intentions for 87 Main Highway, Ellerslie” and continued in the following terms:
Dear Andrew:
Prior to the settlement of your property at 87 Main Highway we are preparing redevelopment plans for the building. As part of this process we would like to understand what your intentions are for your business in the building.
During the marketing process it was portrayed to us that you had no long term intentions for your coffee shop to remain in the building. The coffee shop had not been incorporated into your redevelopment plans. We understood that your personal situation had changed and that a business in New Zealand was no longer required.
Your response to our solicitor’s letter came as a surprise to us and we would like to understand your intentions.
We would appreciate some guidance from you or an opportunity to discuss this with you.
[18] With reference to the second paragraph of that letter I note that in his affidavit of 9 June 2010, Mr David Hughes referred to advice that had been received from an agent employed by Bayleys Real Estate Ltd prior to submitting the tender, that the Twin Peaks Coffee Shop had been established so as to assist Mr Knight in his application to the Immigration Service for permanent residence. However, the advice was also that Mr Knight’s personal circumstances had subsequently changed and that was why he had decided to sell the building.
[19] Mr Knight replied in an e-mail dated 22 November. He wrote:
Hi Adrian, I can not see how you formed the opinion you have given the property details I have seen.
I reluctantly sold the building because I needed £300,000.00 to pay my ex wife.
The lease details of both Twin Peaks and all the other tenants were supplied factually and exactly.
I have every ambition to make New Zealand an important part of my life and
Twin Peaks will be all I have left after 30th of this month.
I will as a tenant be keen to support all you might do to make the Southern
Cross better…
[20] That e-mail drew a further response from Mr Adrian Hughes on Friday
27 November in the following terms:
Hi Andrew,
Thank you for your response.
The understanding expressed in my letter of 20 November came, as I stated, during the marketing process. The real estate agents indicated that you did not have long term intentions for the coffee shop and this was further enforced by your resource consent plans being processed by Auckland City Council. These plans do not include a coffee shop.
The information provided to us has caused a significant misunderstanding. We will settle the purchase on Monday but reserve our remedies.
It would be very helpful to understand how your business operates and how you see its future. You appear to import and distribute coffee. Is your major focus on the importing into New Zealand of coffee? Is the coffee outlet necessary for the distribution of the coffee or does it service[sic] to introduce your brand of coffee to New Zealanders? I’m trying to understand what the principal requirements are for your business premises.
We would like to redevelop the Southern Cross building along the lines that you envisaged except we do not see our development extending to additional residential premises. We will try to stay within the building envelope.
The development would be as your plans indicate with stairs to the front of the building and one tenancy occupying the downstairs area.
We would like to work with you to achieve the preferred outcome for both of us. Depending on your priorities we may be able to locate more suitable premises for your business.
The current premises does not allow for much seating. There will also be considerable disruption during the refurbishment period.
Broadway Property Group own a variety of retail premises in Auckland and employ marketing personnel who are very familiar with the retail market in Auckland. We could work with you to identify the ideal premises for your operation.
I look forward to your response and understanding more about your business.
[21] Settlement then occurred on 30 November 2009 without any further response from Mr Knight. On 9 December 2009 Mr Adrian Hughes sent a further e-mail asking whether Mr Knight had received his e-mail of 27 November. Mr Knight replied on 10 December 2009, again by e-mail. His response read:
Hi Adrian, thank you I did receive your email and I appreciate your thoughts.
I can not tell you anything different to what I have already stated but it seems to me until you have obtained planning permission your opportunity is limited.
At present I am pre occupied with opening 2 new sites here and our busiest trading period of the year, what I might do in New Zealand is not at the top of my list.
With Thanks & Kind Regards
[22] On 31 December 2009 Mr Knight sent a further e-mail to Mr Adrian Hughes. In the e-mail, he requested the right to place additional furniture in part of the common area in the building. On 28 January 2010 Mr Hughes replied to that e-mail refusing the request. The e-mail ended with the following:
Are you planning to be in New Zealand any time soon? We would still like to catch up with you and discuss your business plans.
[23] If the applicant wished to renew the lease it was obliged to give notice under clause 33.1 “at least 3 calendar months before the end of the term”. Consequently, notice should have been given by 1 March 2010, but no notice was given.
[24] The applicant continued to trade in the premises. On 26 May 2010 the respondent issued an invoice for rent for the period 1-30 June 2010. The invoice was paid on 1 June 2010. Mr David Hughes, in his affidavit of 9 June, explained that the invoice was computer-generated and as soon as he became aware that the invoice had issued and been paid, he caused a credit note to be issued and the rent was refunded by direct credit on 4 June.
[25] Mr White locked up when he left, at approximately 6.00 p.m. on Monday
31 May 2010. The following morning he arrived just after 7.00 a.m. to find that the premises had been completely boarded up. As mentioned earlier, there was a notice affixed to the boarding which said, “Shop closed due to lease expiry”. Mr White made contact with Mr Knight in the United Kingdom and explained the situation to him. He then spoke to Mr Adrian Hughes. Mr Hughes confirmed to him that the respondent had boarded up the premises. Mr Hughes told Mr White that the lease had terminated at midnight on 31 May and that the respondent had then removed the applicant’s property from the premises. The property was stored in another part of the building.
[26] Mr Madden-Smith spoke with Mr David Hughes at 1.15 p.m. on 1 June. Mr Hughes confirmed to him that the respondent was responsible for having the premises boarded up, and claimed that action was justified because the lease had expired and the respondent had not given any notice concerning renewal of the lease. Mr Madden-Smith sent a facsimile to the respondent on 1 June. He referred to ss 261-264 of the Property Law Act 2007. He stated:
Twin Peaks is not about to give up its tenancy of the Premises, and had in fact already paid the rent for June 2010. I have instructions from Twin Peaks to make an application to the Court for relief. That application will be made without delay. In relation to applications for relief in circumstances such as these, there is a presumption that relief will be granted.
There is an opportunity for this matter to be dealt with quickly and sensibly by the parties, without the need to go to Court. My client suggests that Broadway gives urgent consideration to immediately restoring the Premises to their former condition and confirming renewal of the term of the Lease for the three year period commencing 1 June 2010. I suggest you seek legal advice without delay.
[27] About two hours later, Mr Adrian Hughes sent an e-mail to Mr Knight in
London. The letter was brief and read:
As we have not heard from you since January this year and you have not renewed the lease, the lease has terminated as of midnight 31 May 2010.
[28] On Wednesday 2 June Mr White met with Mr Adrian Hughes at the premises and, together with another employee of the applicant, he gathered together as many of the stored items belonging to the applicant as he could fit in his van. On the
following day, he rented a storage unit and arranged to remove the remainder of the applicant’s property from the building using a van and trailer. On 3 June Mr Madden-Smith wrote again to the respondent, by facsimile. The letter was in the following terms:
Premises at Unit 2, 87-93 Main Highway, Ellerslie
1.I refer to my letter of 1 June 2010 which advised that my client considers Broadway Developments’ actions in re-entering the Premises is unlawful and unjustified. No response has been received to that correspondence and my instructions are that the premises remain boarded up, and Twin Peaks staff cannot access the premises.
2.Notwithstanding that written notice in the specified form was not provided, my client considers that Broadway Developments was fully advised of Twin Peaks’ intention to renew the lease, and to continue operating from the demised premises beyond the initial term.
3.Further, until the point of re-entry Broadway Developments’ actions were entirely consistent with the continuation of the Lease, including issuing an invoice for rent for the period from 1 June 2010 – 30 June
2010, and accepting payment for such. No notice of the intention to re-enter was given to the Twin Peaks.
4.I am advised that Twin Peaks has in all respects been a good tenant and has fully complied with all of its obligations under the Lease. My client considers that Broadway Developments has embarked on this course of action because its offer to relocate Twin Peaks to alternative premies was refused.
5.I am further advised that Broadway Developments has removed all chattels from the premises including chattels which belong to Twin Peaks staff, and are holding them in another part of the building. Such an interference with the property of Twin Peaks and its staff is unlawful and unjustified.
6.As a result, my client cannot operate its business. This is having a serious affect both in terms of the revenue and goodwill of the business and has likely created a serious set-back in the growth of the business.
7.I have been instructed by Twin Peaks to apply to the Court for relief against Broadway Developments’ refusal to grant a new lease, pursuant to sections 261 – 264 of the Property Law Act 2007. However, as previously advised, my client is willing to negotiate a sensible resolution to this issue.
8.In any event, pending resolution either between the parties or by Court order, my client considers that in order to minimise the damage to Twin Peaks’ business, the Premises should be fully reinstated. As there is a long weekend approaching, there is ample opportunity for Broadway Developments to do this so that the café
can open again on Tuesday, 8 June 2010. My client is willing to offer any assistance that it can in order to assist Broadway Developments to achieve this.
9.Please confirm whether the above is acceptable to you by 12pm, Friday 4 June 2010.
[29] On the morning of 4 June the respondent faxed a reply dated 3 June 2010 to
Mr Madden-Smith. It was signed by Mr David Hughes, and read:
We refer to your letter of 1 June 2010 and reply as follows:
1.During the Tender process we were advised by Bayleys Real Estate Limited – Nicholas Ching – that Twin Peaks had established its coffee shop in the Southern Cross Building so as to assist Mr Knight in his application to the Immigration Service for permanent residence. However, we were advised that Mr Knight’s personal circumstances had changed and, therefore, he had decided to sell the building.
2.Accordingly, the lease between Mr Knight and his Company, Twin Peaks, bearing a commencement date of 1 June 2009, with no rental reviews, but with a renewal date of 1 June 2010 with two further rights of renewal of three years each (commercially unusual) was viewed in the light of the information from Mr Ching. The information from Mr Ching was reinforced with the re-development plans used by your client as part of the marketing for the building, which did not include a provision for a coffee shop.
3.As your client is well-aware, we purchased the property for the purposes of re-development and have, in large part, adopted your own client’s re-development plans and are obtaining all necessary Resource Consents from the Auckland City Council.
4.In mid-November 2009 our Mr Neil Hamill telephoned Mr Knight in the UK in an endeavour to obtain from him some indication as to his intentions with respect to the future running of the coffee shop (which does not enjoy strong patronage). Mr Knight refused to engage with Mr Hamill and, accordingly, we wrote to Mr Knight on
20 November 2009. On 22 November 2009 Mr Knight replied in a non-specific manner, to which we replied on 27 November 2009.
5.On 31 December 2009 Mr Knight sought our permission to install furniture for use in the Arcade area, to which we replied on 28
January 2010, again seeking to discuss with Mr Knight his business plans specifically relating to the coffee shop. Nothing further was
heard from Mr Knight and/or your office.
6. Accordingly, the lease terminated (without a request for a renewal)
as at midnight 31 May 2010.
7.In accordance with our re-development plans demolition of the coffee shop and other parts of the building was then commenced and, as a matter of courtesy, we wrote to your client on 1 June 2010.
We have afforded every opportunity to your client to advise us as to his business intentions but, by his failure to respond to our correspondence and, indeed, to request a renewal of the lease, the lease expired.
We would be obliged if you could arrange for your client to uplift chattels which we have securely, but temporarily, stored at the premises. To that end, you may telephone the writer at any time.
[30] The applicant filed its application for relief that day, and by mid-afternoon the respondent had been served. Meanwhile, Mr Madden-Smith went to the premises and took a series of photographs that he subsequently attached to a second affidavit, sworn on 10 June 2010. He described the scene in his affidavit. It was his view that until 3.00 p.m. on Friday 4 June the work carried out on the premises was superficial in nature. Some ceiling tiles at the front of the common arcade area had been removed. At about 4.20 p.m. Mr Madden-Smith sent another facsimile to the respondent. His letter read as follows:
Premises at Unit 2, 87-93 Main Highway, Ellerslie
1.You have now been served with Twin Peaks Coffee Company Limited’s (Twin Peaks) application for relief from refusal to renew the lease in respect of the premises at Unit 2, 87-93 Main Highway, Ellerslie.
2. As you will be aware Twin Peaks seeks interim orders from the Court restraining any demolition of the premises and for reinstatement of Twin Peaks to the premises pending further order of the Court. The application for interim orders has been given an urgent hearing time at 10am, Thursday 10 June 2010.
3.I have today inspected the premises and I am aware of the state that the premises were in as at 3pm, Friday 4 June 2010.
4.We expect that no further works will be carried out on the premises pending determination of Twin Peak’s application for interim relief. To this end we request an undertaking from you to this effect.
5. Twin Peaks is willing to extend its offer to pay any damages that Broadway may incur between 4 June 2010 and 10 June 2010, as a result of Broadway Developments giving this undertaking and in the event that Twin Peaks’ application for interim relief is unsuccessful.
6. I look forward to your response.
[31] He did not receive a reply and so, on Tuesday 8 June, the day after the Queen’s Birthday holiday, he sent a further facsimile. He confirmed that the Court would hear the application for interim relief at 10.00 a.m. on Thursday 10 July (the reference should have been to 10 June). He sought an undertaking that pending further order of the Court, the respondent would take no further steps to demolish or alter the premises. Just prior to 7.00 p.m. on that day, Mr David Hughes sent back a copy of that letter on which he had written that counsel had been instructed and that Mr Madden-Smith would hear from him in due course.
[32] Mr White had returned to the building on 8 June 2010. It was his evidence that he could not see evidence of any further work on Unit 2 or the adjacent common arcade area. However, on 9 June he returned at about midday when it appeared that further work had begun. He approached the builders and informed them that the premises were the subject of a hearing in the High Court the following morning. The response was that until they saw Court orders they would continue to work on the property. Mr White contacted Mr Madden-Smith and it was at that point that urgent relief was sought from the Court. Heath J’s order was made just prior to 2.00 p.m. on that day. The respondent was immediately notified. When Mr White returned to the premises at 3.00 p.m. on 9 June 2010, works had ceased. The applicant does not allege that any work has been carried out in breach of the interim injunction.
[33] In his affidavit of 9 June 2010 Mr David Hughes raised an issue concerning non-payment by the applicant of tax invoices that the respondent had issued in respect of Auckland City Council rates and a charge due to Metrowater Ltd. In his affidavit in reply of 11 June 2010, Mr Knight said that he was surprised at the suggestion that invoices due had not been paid. He said that he had checked with the applicant’s accountant who could not find a record of the invoices having been received. Nor had there been any statements or requests for payment. However, Mr Knight said that the applicant would immediately make payment of any outstanding sums owing and Mr Foote indicated that that remained the applicant’s position.
[34] The invoices in question were for the respective amounts of $303.64 and
$3.51. Mr Gould rightly did not place much weight on this alleged non-compliance.
Assuming in favour of the respondent that Mr Hughes’ allegations are correct, I would not regard such non-payment as significant and I do not consider that it should be influential in disposal of the application.
The application
[35] The application filed on 4 June 2010 sought both interim and substantive relief. In respect of the latter, orders were sought that:
(a) The respondent grant a new lease in terms of clause 33.1 of the Deed of Lease between the parties dated 3 September 2009.
(b) The respondent pay compensation and/or damages for all losses suffered by the applicant as a result of the respondent’s actions.
[36] Mr Foote sought that the hearing on 5 July deal only with the first of those issues. Mr Gould did not oppose proceeding in that way, but for reasons that I will address later in this judgment I do not consider that it is appropriate on an application such as this for a lessee to advance a damages claim against a lessor under s 264(2)(b) of the Act.
[37] It was apparent, however, that not only did the applicant seek the grant of a new lease, but also reinstatement of the premises so that it could continue to occupy Unit 2 for the purposes of the coffee shop. Mr Foote sought to amend the application so as to seek further relief in terms of two alternative orders. They were:
(c) That the Respondent facilitate repossession of the premises by the
Applicant and immediately reinstate the premises as they were on 31 May
2010 by:
(i) completing the works listed in paragraph 24 of John
Gardiner’s affidavit dated 2 July 2010; and
(ii) Re-installing all the Applicant’s Fixtures (as defined below). Alternatively
(d) That the Respondent facilitate reinstatement of the premises (including provision of utility services and access to common areas) and compensate the Applicant for all reasonable costs incurred in reinstatement of the premises as they were on 31 May 2010 being the works listed in paragraph 24 of John Gardiner’s affidavit of 2 July and re-installation of the Applicant’s Fixtures (as defined below).
[38] The “Applicant’s Fixtures” were defined, at Mr Gould’s request. Mr Foote listed them as:
Shelving in retail shop
Hand basin and sink and cabinet
3 Phase power connection Plumbing into coffee cart Bar top
Hot water cylinder
Lighting
[39] Mr Gould did not oppose an amendment to the application to seek relief in that form. As can be seen, the amended application for relief requires a cross- reference to an affidavit sworn on 2 July 2010 by Mr John Gardiner, a registered architect, who had been asked by the applicant to provide his opinion on works necessary to reinstate the premises. In paragraph 24 of his affidavit he said that the necessary work comprised:
(a)The internal partition walls need to be replaced, along with doors and windows.
(b)Electrical supply needs to be reconnected and light and power fittings installed.
(c)The water supply needs to be reconnected, the sink and hot water heater need to be reinstalled and the waste-pipe from that sink reinstated.
(d) Internal walls need to be re-lined, stopped and repainted.
(e)The fibrous plaster lining over the timber joists in the storeroom ceiling needs to be replaced.
(f) Suspended ceiling tiles need to be replaced.
(g) The timber floor overlay needs to be replaced.
(h)All fittings that have been removed need to be re-installed including the shelving, cabinetry, the sink and cabinet, and the wall-mounted hot water heater.
[40] I did not understand Mr Gould to oppose the amendment of the application once it had been particularised in this way, although the respondent of course was
opposed to the grant of relief in that form. While content to deal with the application on the amended basis I did raise with Mr Foote a concern I had about the Court’s ability to grant relief in terms requiring physical reinstatement of the premises, and that is an issue that I address further below.
Jurisdiction issues
Can the Court grant relief when application is made after expiry of the lease?
[41] The first argument as to the Court’s jurisdiction depends upon the proper interpretation of s 261 of the Property Law Act 2007. That section provides:
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
(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.
[42] The provisions of ss 262 to 264 are also relevant. They provide:
262 How application under section 261 for relief under section 264 to be made
An application under section 261 for relief under section 264—
(a)may be made to the court in any proceeding brought by the lessor for an order for possession of the land or in a proceeding brought by the lessee, mortgagee, or receiver for the purpose of seeking relief; and
(b)must be made not later than 3 months after the date on which the lessor serves on the lessee, and on any mortgagee or receiver of the leasehold estate or interest of which the lessor has actual notice, a notice that adequately and expressly informs the lessee of the matters specified in section 263.
263 Matters lessee must be informed of by notice
The matters referred to in section 262(b) are—
(a) that the lessor refuses to extend or renew the lease, or enter into a new lease, or transfer or assign the reversion, as the case may be; and
(b) that the lessee, mortgagee, or receiver may apply to a court for relief against the refusal; and
(c) that the right to apply for such relief lapses if the application is not made to the court within 3 months of the date of service of the notice; and
(d) that it is advisable for the lessee, mortgagee, or receiver to seek legal advice on the exercise of the right to apply to a court for relief against the refusal.
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
(ii) order the lessor specifically to perform the lessor's covenant or agreement to transfer or assign the
reversion, and to execute all necessary assurances for that purpose; and
(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.
(3)The fact that the lessor may have made a disposition to a person, other than the lessee, mortgagee, or receiver, that would be prejudicially affected by the grant of relief to the lessee, mortgagee, or receiver under this section does not affect the power of the court to grant that relief, but in that case the court may do all or any of the following:
(a) cancel or postpone that estate or interest:
(b)assess the damages or compensation to be paid to any person prejudicially affected by that cancellation or postponement:
(c)order any damages or compensation to be paid by the lessor or by the lessee, mortgagee, or receiver, or partly by the lessor and partly by the lessee, mortgagee, or receiver in the proportions that the court determines.
(4)If, under this section, an order is made in respect of Maori land for the extension or renewal of a lease, or the entering into of a new lease to the lessee, mortgagee, or receiver, or the specific performance of a covenant or agreement to transfer or assign the reversion, the extension, renewal, entering into of a new lease, transfer or assignment must be confirmed as of right under Te Ture Whenua Maori Act 1993.
[43] Mr Gould submitted that in the absence of a notice from the tenant during the currency of the lease, ss 261 to 264 do not apply. In that respect, he noted that there is no equivalent under the Property Law Act 2007 to s 120(2) of the Property Law Act 1952. Section 120 of that Act provided for the relief of a lessee against the refusal of a lessor to grant renewal of a lease in terms broadly similar to s 261 of the Property Law Act 2007. However, the drafting is different and as Mr Gould submitted, there is no equivalent in the 2007 Act to what was set out at s 120(2) of the 1952 Act, namely:
This section applies to leases made either before or after the commencement of this Act, and shall have effect with respect to any lease notwithstanding any stipulation to the contrary and notwithstanding the expiry of the term of the lease. (emphasis added)
[44] Mr Gould contended that the 2007 Act represented a significant change in the law and that it had been designed to reduce the numbers of applications that had
previously been made by lessees for relief and to provide for greater commercial certainty. Just as, under the provisions of the new legislation, it is necessary for a lessor to give notice under ss 262 and 263 of a refusal to extend or renew the lease; of the lessee’s rights to apply to the Court for relief against the refusal; give advice that the right would lapse if application were not made to the Court within three months and that it would be advisable for the lessee to seek legal advice, so too it is necessary for a lessee to give appropriate and timely notice of the right to renewal.
[45] Given the different statutory context, cases decided under the previous legislation such as Walsh v Utting[1] should be distinguished and not followed. Because, in the present case, the applicant did not seek to renew the lease until
1 June 2010, when it had already expired, clause 33.1 of the lease had no application. The respondent had not in fact been called on to refuse to renew the lease; that had simply not been sought by the applicant. In short, the relationship of lessor and lessee had come to an end with the consequence that there was no scope for the grant of relief under ss 261 to 264 of the Act.
[1] Walsh v Utting [2004] 1 NZLR 402.
[46] Mr Foote submitted to the contrary. He argued that there was nothing in the legislative history or the report of the Law Commission[2] which indicated any intention to introduce the policy shift which Mr Gould submitted had occurred. Mr Foote noted that in Sibrad Company Ltd v Kanters[3] Asher J observed at [11], with reference to ss 261 to 264 of the Act:
These sections replace s 120 of the Property Law Act 1952. The Court has the same broad unfettered discretion to grant relief that existed previously.
[2] Law Commission Report No.29 “A New Property Law Act”, June 1994.
[3] Sibrad Company Ltd v Kanters (2008) 9 NZCPR 356.
[47] Further, in Brewer v Marlborough Airport Ltd[4] no issue as to jurisdiction was apparently raised although the licence which was the subject of the proceeding had expired before application was made for relief.[5]
[4] Brewer v Marlborough Airport Ltd HC Blenheim CIV-2009-406-190, 8 October 2009.
[5] s 206(3) of the Act extends, amongst other provisions, s 261 to 264 to licences as if references in those sections to a lease were references to a licence, to a lessee were references to a licensee and to a lessor were a reference to a licensor.
[48] The cases on which Mr Foote relied did not expressly deal with the present argument. Nor did Mr Gould refer to any other authority in which the issue had been discussed or determined. However, having regard to the language of s 261(1)(c), I am satisfied that it cannot have been the intention that jurisdiction would not exist in a case such as the present where the lease has apparently expired without the required notice being given by the lessee. Section 261(1)(c) provides, amongst the other criteria, that the section is to apply to a lease if the lessee has failed to give the notice within the specified time or in the specified manner. That is the situation that applies here. Paragraphs (a) and (b) of s 261(1) also apply. Further, although relevant conduct of the lessor occurred after the expiry of the term, it is plain that by its brief letter of 1 June 2010, and its conduct from the morning of 1 June down to the point where Heath J made the interim injunction, the respondent in fact refused to extend or renew the lease. Thus paragraph (d) also applies.
[49] I note here a concession that Mr Gould properly made, that paragraph (d) could be applied to a circumstance in which the lessor’s refusal to extend or renew the lease, or enter into a new lease, occurred after the expiry of the original lease. Were it otherwise, a lessor could simply ensure that a refusal was given after the expiry of a lease, and even where the lessee had given a timely notice requiring renewal, s 261 would not apply and the Court would not be able to grant relief under s 264. Clearly, that cannot have been the legislative intent as it would allow lessors to completely circumvent the legislation. The consequence is that the word “lease” used in s 261(1)(d) must be able to extend to leases which have expired. It is in accordance with that conclusion to construe the words “lease”, “lessor” and “lessee” as they appear elsewhere in the section as extending to an expired lease.
[50] I consider that the facts of this case fall comfortably within each of the paragraphs in s 261(1). It is not stretching any of the statutory language to apply its provisions in the current circumstances.
[51] The broadly similar powers conferred by the Property Law Act 1952 were always regarded as salutary. In Vince Bevan Ltd v Findgard Nominees Ltd[6] Turner P said:[7]
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. Subsection (2), for instance, provides that applications may be made notwithstanding that the lease has expired. Subsection (3) gives jurisdiction even though the action in which the relief is sought commenced before the coming into force of the Act. A failure to give notice does not exclude jurisdiction (subs(6)). All these points give a plain indication of the intention of the Legislature that the section should not be narrowly restricted in its application.
[6] Vince Bevan Ltd v Findgard Nominees Ltd [1973] 2 NZLR 290 (CA).
[7] At 297-298 with reference to s 120 of the 1952 Act.
[52] In similar vein McCarthy J said:[8]
The President in the judgment just delivered remarks on the remedial character of ss 120 and 121. I would also emphasise that. They were introduced in 1928, doubtless to relieve a lessee who had a right of renewal, or a right to new grant, under the terms of his lease, but who had failed to observe all the covenants of the lease and, accordingly, was not entitled to an order for specific performance in a suit at equity. However, though that may be the limited original reason for the Legislature’s action, the text of the sections demonstrate not only that the Court should have the fullest powers to grant relief, but also that the jurisdiction to enter upon an issue should not be viewed narrowly … the 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.
[8] At 299.
[53] Given the observations made by Turner P and McCarthy J, it would be strange if the law were to undergo the dramatic change for which Mr Gould contended without anything in the legislative history, or the Law Commission report which was the genesis of the Act, signalling and explaining the change. The Law Commission’s report attached a draft new Property Law Act which was, naturally, changed in some respects when Parliament passed the 2007 Act many years later. However, it can be observed that when enacted in 2007 the provisions at ss 261 to
264 were not for present purposes materially different from the Commission’s recommendations.[9] Paragraph 93 of the Commission’s Report stated as follows:
[9] See s 213 of the Draft Legislation in the Report.
Section 213 brings forward (with some slight amendments) the substance of ss 120 and 121 of the 1952 Act. It applies where the lessor has refused to extend or renew a lease or licence, or to grant a new one, or to sell the reversion because of a breach or a failure to give notice in due time. Application for relief has to be made to the Court within three months after the date on which the lessor serves a notice informing the lessee or licensee of refusal.
This brief reference suggests that, in the Commission’s view, the draft legislation, subsequently substantially enacted as ss 261 to 264, was not intended to result in a significant change to the law.
[54] In Walsh v Utting,[10] decided of course under the provisions of the 1952 Act, a similar argument was advanced to that which Mr Gould has made here. Hammond J held that the argument, if accepted, would “sharply curtail the jurisdiction under s 120 to situations where notice was given before the lease expired”.[11] He rejected the argument that there was no jurisdiction. While, as Mr Gould pointed out, the decision was made in a statutory context which included s 120(2), for present purposes it is relevant to note that Hammond J referred to s 120 as conferring a “broad remedial discretion”,[12] saying that the proposition that there was no jurisdiction in a case such as the present was “unattractive”, “unsound in principle”, and involved consequences which would “distinctly curtail the jurisdiction”.[13]
[10] Walsh v Utting, above n 1.
[11] At [56]. The notice referred to was a notice by the tenant to the landlord requiring renewal of the lease.
[12] At [59].
[13] At [60].
[55] What was said by the Court of Appeal in Vince Bevan Ltd v Findgard
Nominees about s 120 of the 1952 Act can apply as well to ss 261 to 264 of the 2007
Act. As I have said, the statutory language can be read without difficulty to give jurisdiction in circumstances such as the present. Given the broad remedial nature of the jurisdiction and the Law Commission’s Report heralding only “slight” change, I do not consider that the consequence of the absence of an equivalent provision to s 120(2) of the 1952 Act should have the result that there is no jurisdiction here. I am of the view that jurisdiction exists and so hold.
Can the Court order physical instatement?
[56] The second jurisdictional issue concerns the scope of s 264(2)(b). The question is whether the Court’s broad power to grant relief subject to conditions would authorise a condition imposed on the lessor to physically reinstate premises as the applicant now seeks. Mr Foote submitted that the statutory language was sufficiently broad to contemplate the orders sought in the amended application, whether paragraph (c) or (d) but suggested that if there were any doubt about that then the alternative form of relief in paragraph (d) would avoid any difficulty because it envisaged the applicant actually carrying out the physical works of reinstatement. Mr Foote was unable to refer to any authorities in which relief of this nature had been granted, whether under the 2007 or under the 1952 Acts.
[57] Although the power to impose conditions set out in s 264(2)(b) is indeed widely drawn, it is important to take due account of the fact that the power is a power to impose conditions on the grant of relief. In my view, that implies that the condition imposed will be something that relates to the grant of the extended or renewed lease (where subs (2)(a)(i) applies), or to the performance by the lessor of the obligation to transfer or assign the reversion (where subs (2)(a)(ii) applies). I do not consider that subs (2)(b) naturally extends to the imposition of conditions requiring the lessor to take any action; actions by the lessor are required by the grant of relief itself under paragraph (a). References to “expenses”, “damages”, “compensation” and to “any other relevant matters” are much more naturally applicable to obligations that are to be cast on the lessee as a result of the obtaining of relief, than on the lessor. While it may be that a wrongful refusal by the lessor to renew a lease may have caused the lessee to suffer loss, that would not be a loss consequent on the grant of relief. The lessee obtains a benefit from the grant of relief and obtaining relief does not logically give rise to the possibility that the lessor should be entitled to conditions covering the matters set out in paragraph (2)(b).
[58] Section 120(5) of the 1952 Act contained a provision not materially different from s 264(2)(b) of the 2007 Act. It provided:
The Court may grant relief on such terms, if any, as to costs, expenses, damages, compensation, penalty or otherwise as the Court as the Court in the circumstances of each case thinks fit.
[59] I do not consider that there is any effective difference between the words used in that provision (“The Court may grant relief on … terms …”) and the words used in the 2007 Act whereby (“The court may … grant relief … on any conditions
…”). Section 120(5) was considered by Asher J in Ponsonby Mall Trust Ltd v New
Zealand Food Industries Ltd.[14] At [74] he said:
In my view, s 120(5) is not intended in any way to give a lessor an opportunity to recover the benefits that would be available if relief was not granted. That would nullify the benefit of a s 120 order. The purpose of s 120(5) is much more limited. It gives the Court the ability to compensate a lessor for actual losses arising from the failure to renew, such as the costs of trying to obtain a new tenant. Another example of the sort of compensation contemplated by s 125(5) would be the lessor’s costs of drawing up plans, relying on the lack of renewal, in an effort to find a new use for the property. These would be real losses that a lessor genuinely relying on the lack of renewal would be entitled to claim. They are costs that arise directly from the lessee’s failure to renew, rather than from the relief itself.
[14] Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd (2005) 7 NZCPR 48.
[60] Asher J also referred to the decision of Tompkins J in Laboratory Supplies Ltd v Whinerary.[15] In that case, Tompkins J having set out s 120(5) of the 1952 Act said, at 294:
Thus the Court can impose terms designed either to rectify or to compensate for breaches of covenant. It can require the person seeking relief to meet costs or expenses incurred by the lessor. But I do not consider that that subsection empowers the Court to impose a term which cannot properly be described as costs, expenses, damages, compensation or penalty, which is not related to the breaches, and which is designed to change the terms of the lease to make it fairer to the lessor. The expression “or otherwise” in subs (5) should be construed ejusdem generis with what precedes it. If terms are to be imposed, then they should be directed to rectifying, in whatever manner may be appropriate, any prejudice suffered by the defendants consequent upon the breaches by the plaintiff that have lost to the plaintiff the right of renewal that it would otherwise have had.
[15] Laboratory Supplies Ltd v Whinerary (1985) 2 NZCPR 285.
[61] Both judgments envisage conditions to be imposed on the lessee to compensate the lessor, and the reasoning would not justify the imposition of a condition requiring a lessor to compensate a lessee. I consider that the same approach is appropriate in applying s 264(2)(b) of the 2007 Act. The result is that it
is not possible on the present application to make an order under s 264(2)(b) in terms that ordered the respondent to grant a new lease and required it to reinstate the premises as sought by the amended application. Nor would there be power, in terms of the alternative amended order sought, to order that the respondent facilitate reinstatement of the premises and compensate the applicant for all reasonable costs incurred if it carried out the reinstatement works.
[62] That conclusion does not mean, however, that relief should not be granted. If such relief is otherwise appropriate, and it was ordered that the respondent grant a new lease in terms of clause 33.1 of the deed of lease, the result would be a new lease for a further term from the renewal date. In those circumstances, the applicant might not be without a remedy in relation to the actions carried out by the respondent, but it would need to commence an appropriate proceeding in order to secure a result which, as I see it, cannot be achieved in this application.
[63] It follows from the preceding discussion that it is also my view that s 264(2)(b) would not contemplate a damages claim by a lessee against a lessor as also sought in the present application. As I see it, that is an issue that would also need to be advanced in a different proceeding commenced by notice of proceeding and statement of claim.
[64] The remaining issues that must be considered are those that relate to the question of whether the relief that the respondent grant a new lease in terms of clause
33.1 should be granted.
Should relief be granted?
Applicant’s argument
[65] Mr Foote referred to Ponsonby Mall Trust Ltd v New Zealand Food
Industries Ltd[16] in which Asher J in a helpful summary set out seven relevant factors
[16] Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd above n 14.
derived from cases decided under the 1952 Act to be taken into account by a Court in exercising its discretion under s 120. Those considerations were:
a) Reasons for the failure to give notice, e.g. whether the failure to renew was inadvertent.
b)Whether the cause of the default was due to any action of the landlord.
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 granted.
f) The lessor’s motivation for the refusal to renew and understanding of the lessee’s intentions.
g) The interests of third parties and how they may be affected by any order.
[66] That list of considerations was no doubt not intended to be exhaustive. In the present case, however, both counsel accepted that those considerations remained relevant under the 2007 Act.
[67] Mr Foote submitted first that the failure to give notice in the present case had simply been inadvertent. He argued that there was no evidence to suggest that the applicant had been seeking to gain any advantage or to keep its options open. He acknowledged that it could not be said that the cause of the default was due to any action of the landlord, but also submitted that the lessee’s conduct could not be criticised. It had complied with its obligations and been a good tenant.
[68] Mr Foote contended that the consequences for the applicant of not having the lease renewed would be very grave. The upward trend of turnover showed that it
was acquiring a reputation and goodwill in the area and its desire to remain in the premises was driven by genuine commercial need and the desire to maintain its existing goodwill. If not very profitable as yet it was a viable and growing business. To require it to relocate would require it to sacrifice its primary asset, namely the goodwill.
[69] As to prejudice to the respondent, Mr Foote noted that the main issues raised appeared to be an inability to expedite the redevelopment of the Southern Cross building, the consequences of delay and an inability to re-let the space within the premises as part of the modified building at significantly higher rental following redevelopment. Mr Foote submitted that in effect the only items of prejudice that the respondent was able to advance turned on its inability to take commercial advantage of the applicant’s mistake in failing to give formal notice to renew the lease. However, the respondent had purchased the building with full knowledge of the existing lessees, and it knew well before embarking on the physical works that it carried out that the applicant would wish to stay in the building. Mr Foote submitted that it was wrong, in the circumstances, for the respondent to seek to raise issues concerning the cost and inconvenience of having to reinstate the premises as matters prejudicing its position, especially when it knew on 1 June that the present application would be made. From that point, when the work carried out had not been extensive, it had proceeded at its own risk.
[70] As to the lessor’s understanding of the lessee’s intentions, Mr Foote submitted that the respondent had been fully informed of the applicant’s intention to remain in the premises beyond the expiry of the initial term or at least must have known that the applicant was likely to want to renew. In this respect, he relied on Mr Madden-Smith’s letter of 12 October 2009 and submitted that nothing in the correspondence that ensued could realistically be read as departing from the stance adopted at paragraph 2 of that letter that the applicant was not prepared to surrender its rights of renewal. In fact, Mr Knight’s e-mail of 22 November went further and should be read as stating an intention to continue business in the premises beyond the initial one year term of the lease. Insofar as the lessor’s motivation was concerned, Mr Foote noted that prior to 1 June the respondent had not told the applicant that it did not intend to renew the lease and had even invoiced the applicant
for the period from 1 to 30 June. Mr Foote argued that Broadway’s actions appeared to have been calculated to capitalise on the applicant’s mistake and to attempt to circumvent the Court’s ability to grant relief. Consistently with that submission, Mr Foote pointed out that it appeared that on 9 June the respondent had begun demolishing the premises in advance of the hearing on 10 June.
[71] Finally, in relation to the position of third parties, Mr Foote submitted that if relief were not granted there would be a risk that the two full-time employees of the applicant would face redundancy, and creditors of the business might also be affected.
Respondent’s argument
[72] For the respondent, Mr Gould emphasised what he characterised as the extremely modest business of the applicant. He noted that Mr Knight had not produced any accounts material showing the position of the respondent, and submitted it was highly unlikely the business was making a profit. He submitted that the argument that there would be a significant loss of goodwill were the applicant required to relocate was exaggerated.
[73] He pointed out that on seven occasions, once by telephone and six by e-mail, the respondent had tried to find out what Mr Knight’s intentions were with respect to renewal of the lease. That was in circumstances where he knew that the respondent had purchased the building for the purpose of redeveloping it. The last substantive communication from Mr Knight was that of 10 December 2009 in which he advised “… what I might do in New Zealand is not at the top of my list”.
[74] The respondent had paid $1.91 million for the building and proposed the complete redevelopment of it at a cost of about $1.2 million. If the respondent were compelled to renew the lease, then potentially the applicant could frustrate the respondent’s intentions down to 2015.
[75] Mr Gould noted that the applicant’s own redevelopment proposals showed that the area of Unit 2 would, on redevelopment, be occupied by a stairwell and male
and female toilets. No provision was made for the continuance of the coffee shop. As to the applicant’s reliance on the payment of rent for the period 1 to 30 June
2010, the invoice had been computer generated, and when Mr Hughes discovered that it had been sent the money was immediately refunded by direct credit.
[76] With reference to the considerations set out in Ponsonby Mall Trust Ltd,[17]
Mr Gould emphasised that the cause of the applicant’s failure to give notice was not in any way attributable to the respondent. He mentioned the issue of non-payment of rates, as alleged by Mr Hughes in his affidavit of 9 June, but accepted that not much weight could be attached to that matter. He submitted that the prejudice to the respondent if relief were granted would be much greater than that suffered by the applicant if relief were denied. He reiterated and emphasised that the respondent had made considerable efforts to ascertain what the applicant’s intentions were and that this was not a case of a lessor attempting to steal a march on the lessee.
[17] Ponsonby Mall Trust v New Zealand Food Industries Ltd, above n 14.
[77] Mr Gould also referred to evidence suggesting that reinstatement might be difficult and asserted that there might be a major issue with respect to fire rating. On the other hand, the respondent was in a position to pay damages in respect of any established losses which the Court might hold properly payable to the applicant.
[78] He argued that in the circumstances the Court should not order the renewal of the lease.
Evaluation
[79] I am satisfied on the balance of probabilities that the failure to give notice in the present case was due to inadvertence. Whatever the position may have been at an earlier time, it seems clear that by 12 October 2009 Mr Knight’s intention was that the respondent would continue to occupy and trade from the premises. In that respect, Mr Madden-Smith’s letter of 12 October 2009 stated with specific reference to Unit 2, that the respondent was not prepared to surrender its rights of renewal under that lease. Then, in response to the inquiry of Mr Adrian Hughes on
20 November, Mr Knight effectively rejected the proposition that he did not wish to continue in business in New Zealand. On the contrary, he said:
I have every ambition to make New Zealand an important part of my life and
Twin Peaks will be all I have left after 30th of this month.
[80] When pressed again for further details about his intentions in the e-mail of Mr Adrian Hughes sent on 27 November, Mr Knight replied that he could not say anything different to what he had already stated. On the evidence of those communications, and given that Mr Knight had absolutely nothing to gain by not causing notice to be given as required under the lease, I am satisfied that the failure to give the requisite notice must be characterised as inadvertence. There is no suggestion, for example, that Mr Knight was wishing to keep other options open. Equally, however, it cannot be said here that the applicant has contributed in any way to the respondent’s failure to give the notice required.
[81] Next, I note that, apart from the issue concerning non-payment of rates which I have already dealt with there is no issue but that the respondent has been a good tenant and has complied with the conditions and covenants in the lease.
[82] Plainly there will be prejudice to the respondent if the relief is not granted. Although Mr Gould sought to downplay the extent of that prejudice, the fact is that that although not greatly profitable the respondent was building its business and appears to have reached the point where the business could be said to be viable, as Mr Foote submitted. If forced to relocate, then it is likely that it would lose some of the clientele that it has built up. The extent to which that might be so is difficult to gauge however in the absence of detailed information which might demonstrate the importance of the current location.
[83] The matters raised by Mr Gould as giving rise to prejudice to the lessor focus on disruption to the respondent’s development plans for the building as a whole, possible delays that the respondent might experience in achieving its objectives and potential difficulties arising out of reinstatement. As to the last of those issues, there was a conflict in the expert evidence as to the potential difficulties which might arise from reinstatement. The possibility is that a resource consent that the respondent
obtained (as I understand it, the consent was actually granted on the day of the hearing in this Court) might need to be varied and there may be issues concerning the fire rating of Unit 2 if it were reinstated. For reasons that will emerge, I do not consider it necessary for present purposes to resolve those issues. I note also that although Mr David Hughes gave evidence that up to 4 June 2010 the demolition work undertaken by the respondent was “extensive and significant”, there was no suggestion and Mr Gould did not submit that the physical boundaries of Unit 2 could
not be accurately ascertained.[18]
[18] See Goldsworthy Mining Ltd v Federal Commissioner of Taxation (1973) 128 CLR 199 at 211-212 per Mason J. The premises were described in the First Schedule to the lease as “That part of the ground floor of the Landlord’s premises situated at 87-93 Main Highway, Ellerslie comprising the unit numbered 2 and outlined in red on the attached plan”.
[84] In Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd[19] Asher J accepted that the plaintiff trusts had a genuine commercial interest in having the lease come to an end so that they could commence a redevelopment of the property. If delayed by an extra year, which would be the consequence of granting relief, they would face holding costs of $238,000 per month. However, at [46], Asher J said:
In my view, the prejudice to the lessor of it not being freed from the disadvantage of the lease by the granting of relief, and consequentially being delayed in commencing demolition and construction, is not a relevant factor. This is because the lessor plaintiffs were already subject to that detriment and prejudice by the terms of the lease, but for the inadvertence of the lessee, NZFI, not renewing. The plaintiff trusts are no worse off than they would have been but for that inadvertence, if the lease is granted.
[19] Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd above n 14.
[85] In the following paragraph, Asher J characterised the prejudice claimed by the lessor in that case as the prejudice of not being able to take advantage of the lessee’s mistake. In the present case, had notice been given in time, the lessor would have had to await the expiry of a renewed term and that of a second renewed term as contemplated by clause 33.1 of the lease before being able to implement its development proposals. But the present facts are different, because it is not simply a question of a delay in implementing development proposals: demolition to facilitate the redevelopment has actually physically commenced, and work will be necessary to restore the premises to the state they were previously in. It cannot therefore be said here that the only prejudice that the respondent would suffer if relief were
granted is prejudice that would be suffered in any event from the exercise of the right to renew the lease.. Nevertheless, if the circumstances in which the work commenced are analysed, I consider that any additional prejudice is largely self- induced.
[86] Virtually immediately on expiry of the existing term, the respondent moved to board up the premises and then commenced work, indicating an intention to prevent the applicant from continuing in occupation. Although the applicant had not given formal notice, I am satisfied that the respondent must have been aware at that stage that the applicant wished to continue to occupy the premises. The prejudice that arises as a consequence of the respondent’s own actions ought not to be weighed against the applicant. That includes difficulties that might arise in respect of any reinstatement.
[87] Consequently I do not consider that the applicant should be denied relief on the basis of prejudice to the respondent. Nor do I consider that any of the other matters raised by Mr Gould should have that effect. The fact that the applicant’s business is modest in nature cannot properly be relied on to effect an analysis akin to a kind balance of convenience assessment in which the respondent succeeds because it stands to lose the most; the lease gave rights to the applicant that in my view ought to be upheld in the circumstances of this case notwithstanding the fact that its business is small in scale.
[88] Mr Gould did not submit that if the Court granted relief to the applicant then conditions should apply under s 260(2)(b) of the Act. On the view I have taken of the facts it would not be appropriate for conditions to be imposed in any event. For reasons already addressed any prejudice to the respondent arising out of the grant of relief flows from the swiftness with which it chose to act on the expiry of the initial term of the lease.
Result
[89] The application is granted and the respondent is directed to grant a new lease in terms of clause 33.1 of the deed of lease between the parties dated 3 September
2009.
[90] Because of the limits on the Court’s jurisdiction under s 260 of the Act discussed above, no other relief is able to be granted on the present application and consequently the other parts of the application are dismissed.
[91] The applicant is entitled to its costs calculated in accordance with category 2 and band B.
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