Westpac New Zealand Limited v Heslip
[2024] NZHC 2452
•29 August 2024
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
I TE KŌTI MATUA O AOTEAROA TE TIHI-O-MARU ROHE
CIV-2024-476-026
[2024] NZHC 2452
UNDER the High Court Rules 2016 IN THE MATTER
of an application to remove caveat under section 142 of the Land Transfer Act 2017
BETWEEN
WESTPAC NEW ZEALAND LIMITED
Applicant
AND
DANIEL ALLEN HESLIP
Respondent
Hearing: 27 August 2024 Appearances:
C T Jolliffe and S M Judson for Applicant Respondent in person
Judgment:
29 August 2024
REASONS JUDGMENT OF ASSOCIATE JUDGE LESTER
WESTPAC NEW ZEALAND LIMITED v HESLIP [2024] NZHC 2452 [29 August 2024]
[1] Daniel Heslip (Daniel) registered caveats over two properties owned by Glen Heslip (Glen). The properties are in Fairlie, South Canterbury.
[2] Westpac New Zealand Limited (Westpac), as mortgagee, has sold the properties at mortgagee sale. The mortgagee auctions took place on 11 July 2024. Settlement of the sales was scheduled to take place on 8 August 2024. Daniel’s caveats were registered on 24 July 2024.
[3] The caveats are in similar terms. The caveat refers to a “Memorandum of agreement between Glen Allan Heslip and Daniel Allen Heslip in relation to lease agreement” and under the heading “Description of the nature of the estate or interest claimed …” says:
My Father Glen Allan Heslip and I set up a lease agreement back in 2021 this Agreement stands and is still current till January 1st 2025 this lease agreement , and a memorandum of agreement between my father and i formed this gives me rite [sic] to use of all property’s [sic] for the benefit of my business ventures and ongoing interest within Pure pasture NZ Ltd.
[4]Daniel relies on the lease agreement in support of the two caveats.
[5] The lease agreements are produced by Daniel. The first is called a Residential Lease Agreement said to be entered on 1 January 2021 in relation to a property on the Fairlie/Tekapo Road. The second, dated 1 August 2020, appears to be an agreement in respect of a property at Talbot Road, Fairlie.
[6] Accordingly, there are two properties over which Daniel claims to be entitled to maintain his caveat. The first is Talbot Rd which is apparently a residential property. The second is on the Fairlie/Tekapo Highway which also appears to be a rural property.1
1 Westpac had a mortgage over three properties — the third being another property on Talbot Rd said by Daniel in an email to Westpac on 29 June 2024 to be an eight acre block where Daniel and his family reside “the residential property”. The mortgagee sale of this property has settled — no caveat having been registered.
[7] I do not set out the lease terms in detail as Westpac’s basic argument is that because it did not consent to any leases, Daniel is not entitled to maintain his caveat as against the mortgagee. Westpac’s mortgages were registered well before the claimed leases were signed.
[8] It is not in dispute that Westpac’s mortgages gave it the power of sale in the event of default, that there has been an event of default, that Westpac issued the appropriate notices under the Property Law Act 2007, that those notices expired without remedy, and that the properties have been sold.
Is an unregistered lease binding on a mortgagee?
[9] I adopt Ms Jolliffe’s (counsel for Westpac), statement of the law from her submissions.
[10] Where a lease is not registered on the title, for it to be binding on a mortgagee (and therefore effect the interest of any purchaser from a mortgagee), case law confirms that a mortgagee must have expressly consented to the unregistered lease.
[11] In New Zealand Fisheries Ltd v Napier City Council,2 the issue was whether the mortgagee had consented to a lease by the mortgagor to the appellant before selling the premises in exercise of its power of sale. The mortgagee held an unregistered mortgage dated 9 July 1982. The relevant lease was executed in August 1984. The mortgagee’s representative was shown the original lease in 1985. The mortgagee subsequently registered its mortgage and exercised its power of sale through the Registrar of the Court. The respondent council was the purchaser. The tenant unsuccessfully attempted to block the sale and issued proceedings against the council. The court found that the mortgagee knew the appellant had a lease but that the mortgagee was never formally approached for its consent to that lease, so had not consented, and the council was accordingly not bound by the lease after the sale.
2 New Zealand Fisheries Ltd v Napier City Council CA173/88, 24 November 1989.
[12] The Court of Appeal found the mere acquiescence to a state of affairs is not enough to constitute consent. In distinguishing between acquiescence and consent the court stated:3
that acquiescence involves no more than the passive standing by without objection, whereas consent requires a positive affirmative act such as written or oral acceptance or even an implied acceptance by conduct.
[13]New Zealand Fisheries Ltd case followed an earlier decision of Somers J,
Registered Securities Ltd v Christensen Potato Co Limited that:4
The onus lies on the tenant to show that the mortgagee must recognise his right of occupation … Mere knowledge by the mortgagee of the existence of the lease is not enough.
[14] In the Supreme Court of New Zealand in Cashmere Capital Ltd v Carroll, McGrath J supported a narrow interpretation of “consent”. McGrath J stated:5
These decisions indicate that a consent which, under ss 105 [the 1952 equivalent provision of s 103] and 119, binds a mortgagee to the competing estate or interest in another instrument, requires conduct which affirms the lease. A mortgagee who is aware of a third party’s interest, and passively stands by, making no objection, has not consented. For there to be a valid consent the mortgagee must either have been aware of the essential terms of the lease or be shown to have consented to the lease whatever its terms may be. Only then does the mortgagee consent to the terms of the other instrument, in the sense of agreeing to be bound by it.
(emphasis added)
[15] McGrath J’s decision in Cashmere was followed by Gendall J in GP96 Ltd v F M Custodians Ltd, where he said that that decision:6
Essentially, it confirms that a mortgagee’s “consent” under the Land Transfer Act requires both an awareness of the terms of the lease and an affirmative acknowledgment that it will be bound by those terms.
[16] In the current case, there is no evidence that Westpac consented to any lease by Daniel. Daniel has not claimed that Westpac did consent nor has he provided any evidence to this effect. Indeed, the evidence is that:
3 New Zealand Fisheries Ltd v Napier City Council, above n 2 at [8].
4 Registered Securities Ltd v Christensen Potato Co Limited CA121/88, 1 September 1989 at 4.
5 Cashmere Capital v Carroll [2009] NZSC 123 at [79].
6 GP96 Ltd v F M Custodians Ltd [2019] NZHC 1183 at [57].
(a)the first Westpac knew of any kind of lease was Daniel’s email to Mr Withell of Westpac on 17 November 2023 where Daniel referred to a lease agreement;
(b)neither Daniel nor Glen provided a copy of any lease to Westpac for its consent (Daniel’s affidavit in this matter being the first time these documents were provided to Westpac);
(c)there is no evidence of conduct by Westpac which could be argued to be conduct affirming the lease; and
(d)when the lease was raised with the solicitors for Westpac during the mortgagee sale process, the solicitor made it clear to Daniel that Westpac was not bound by any lease, and any leasing arrangements were a matter between Daniel and Glen.
Evidence in respect of consent to the leases
[17] I accept Ms Jolliffe’s submission that there is no evidence Westpac consented to the leases. Daniel does not suggest otherwise.
Section 58 of the Residential Tenancies Act 1986
[18] In Herbert & Ors as trustees of the Herbert Family Trust v Scott, Associate Judge Bell said:7
The effect of s 58 is to preserve residential tenancies, even when a mortgagee or some other person becomes entitled, as against the landlord, to possession of the premises. Section 58(2) makes it clear that the provisions of the Property Law Act 2007 and the Land Transfer Act 1952 cannot stand in the way of that residential tenancy. The underlying purpose is that if a landlord mortgagor has granted a residential tenancy over premises and the mortgagor falls into default, the tenant under the residential tenancy will not face eviction by the mortgagee except if the termination provisions of the Residential Tenancies Act are followed. That would normally require the mortgagee to give a 42-day notice to the tenant. If that were opposed, proceedings would need to be brought in the Tenancy Tribunal. Mr Andrews accepted that the court could not deal with this proceeding if there were
7 Herbert & Ors as trustees of the Herbert Family Trust v Scott [2014] NZHC 1137 at [35].
a tenancy under the Residential Tenancies Act because of the exclusive jurisdiction of the Tenancy Tribunal under s 82 of the Act.
[19] Given Daniel’s tenancy in respect of one of the Talbot Rd properties was a residential tenancy, I sought submissions from Ms Jolliffe as to the effect of s 58 of the Residential Tenancies Act 1986 (the Act). Ms Jolliffe has clarified that the property subject to what is understood to be Daniel’s residential lease referred to in footnote one has been sold. No orders are sought in respect of that property but Ms Jolliffe advised it is not entirely clear to Westpac whether there are residential aspects of the other leases because the mortgagee was unable to inspect those properties. Given the possibility there is a residential tenancy involved, I comment briefly on s 58 of the Act.
[20] I accept Mr Jolliffe’s submission that s 58 of the Act has no application to the present situation. Firstly, the agreements for sale and purchase in respect of all properties provided that the properties were not being sold with vacant possession. The Conditions of Sale recording:
The property is sold subject to existing tenancies or occupations (if any) including holding over by the mortgagor of the property or any party claiming through or under the said mortgagor.
[21] Secondly, Westpac did not go into possession — so s 58 is not acceptable. I am satisfied s 58 is not a barrier to Westpac’s application.
Grounds raised by Daniel
[22] Daniel submits that the caveats should remain in place to protect his interests in the properties until the expiration of the lease in January 2025. Daniel submits he lodged the caveats to protect his interest in the properties.
[23] While Daniel is critical of aspects of Westpac’s conduct, I need not repeat that here as it is not relevant to Westpac’s application.
[24] Daniel argues that the lease documents are valid and create legally recognised rights. He says the removal of the caveats creates a risk of prejudice with the “… sale of our family homes is finalized prematurely”.
Decision
[25] Westpac is entitled to have the caveats removed and I granted its application when it was called on 27 August 2024 when I issued a Results Judgment that same day.
[26] To the extent that Daniel may have the benefit of a residential tenancy, his rights against the new registered proprietor are protected by s 58 of the Act, as summarised at [18] above. Essentially, all that changes from Daniel’s point of view is the identity of his landlord.
[27] Westpac having exercised the power of sale under its mortgages, s 103 of the Land Transfer Act 2017 applies. Section 103 states that:
(1)The estate or interest of a mortgagor in land vests in the purchaser of the land on registration of a transfer instrument executed by a mortgagee for the purpose of exercising a power of sale under a mortgage.
(2)The estate or interest transferred vests in the purchaser freed of and discharged from—
(a)liability under the mortgage; and
(b)any other mortgage or interest that does not have priority over the mortgage or that is not binding on the mortgagee.
(3) …
[28] Westpac is not bound by the leases because it did not agree to them or affirm them. That means Daniel’s caveat does not have priority over Westpac’s mortgages which is why orders were made that his caveats be removed. Daniel’s caveat cannot prevent the mortgagee sale of the properties settling.
[29] In respect of the non-residential leases, it is up to Daniel to take up with the new registered proprietor, whether the new owner is bound by those leases given the sale was expressly subject to existing tenancies. But that is a matter between Daniel and the new registered proprietor.
Costs
[30]Costs were awarded on a 2B basis in the Results Judgment of 27 August 2024.
Associate Judge Lester
Solicitors:
Anthony Harper, Christchurch
Copy to: Mr Heslip
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