Xu v Plant Zero 2006 Limited
[2023] NZHC 716
•3 April 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-001505
[2023] NZHC 716
BETWEEN BEN XU
Applicant
AND
PLANT ZERO 2006 LIMITED
Respondent
CIV-2022-404-000940 BETWEEN
PLANT ZERO 2006 LIMITED
ApplicantAND
BEN XU
Respondent
Hearing: 10 March 2023 Appearances:
J A Wickes for Applicant / Respondent (Mr Xu)
V J Corbett for Respondent / Applicant (Plant Zero)
Judgment:
3 April 2023
JUDGMENT OF ANDREW J
This judgment was delivered by Justice Andrew on 3 April 2023 at 3.00 pm
pursuant to r 11.5 of the High Court Rules 2016 Registrar / Deputy Registrar
Date ………………………………….
XU v PLANT ZERO 2006 LTD [2023] NZHC 716 [3 April 2023]
Introduction
[1] Mr Ben Xu is the landlord of the property at 108 Station Road, Huapai. The tenant, Plant Zero 2006 Ltd,1 has been operating its plant nursery business from the property since 2014.
[2] The current lease expires in January 2024. Clause 1.1 of that lease provides that the tenant is to pay all rent without any deductions or set-off.
[3] Mr Xu says that Plant Zero has arrears of rent of approximately $95,000 and has not paid any rent since September 2022. He seeks an order for possession of the property under s 251 of the Property Law Act 2007.2 He also seeks an order cancelling the lease, dismissing the cross-application by Plant Zero for relief against cancellation, and an order for payment of rent together with interest.
[4] Plant Zero opposes the order for possession on the grounds that Mr Xu is in breach of his essential obligations under the governance and implied terms of the lease. In particular, it contends that, as the landlord, Mr Xu has failed to maintain and repair the property and ensure that it is weatherproof.
Factual background
[5] The property is a large section of land comprising a large barn-style building and industrial-sized greenhouse tunnels. It is approximately 3,500 square metres.
[6] In December 2014, the former owner of the property, Mr Liu, entered into a lease with Plant Zero. Mr Xu purchased the property in 2018; it was subject to the lease with Plant Zero.
[7] Pursuant to a deed of renewal of lease (and review of rent), the lease was renewed in May 2018. Under the deed of renewal, it was agreed that the lease would run until 30 January 2021, with a further right of renewal for a final expiry date of 31 January 2024.
1 Plant Zero.
2 PLA.
[8] Mr Carlos Chai became the property manager for Mr Xu in around September 2018. At that time, Plant Zero was in arrears with its rent. Mr Chai made arrangements for repairs to the roof of the building on the property after Plant Zero advised they were experiencing a leak. In response to concerns by Plant Zero that there were surface flooding issues, Mr Chai says that he made some enquiries. He subsequently advised Plant Zero, on instructions from Mr Xu, that he would not meet the costs (estimated to be $100,000) of installing a new drainage pipeline.
[9] In 2021, Plant Zero carried out earthworks at its own expense to reduce any issues with surface flooding.
[10] Some payments of rent were made in 2019, but Plant Zero continued to fall further into arrears. Mr Xu took no action at that time.
[11] In December 2020, the lease was renewed for a third and final term, through to 31 January 2024.
[12] On 25 February 2022, Mr Xu’s solicitors wrote to Plant Zero in an attempt to address the issue of rent arrears. Attached to the letter was a notice of intention to cancel the lease in accordance with the PLA.3 The letter made demand for the then outstanding arrears of $66,753.80 (including GST). Mr Xu also:
(a)offered a discount of 50 per cent of the rental for the periods during which access to the premises was affected by the COVID-19 lockdown periods; and
(b)offered a further $10,000 credit in relation to Plant Zero’s flooding issue claims.
[13]There was some attempt to resolve these issues.
[14] In June 2022, Mr Xu’s solicitors issued a notice of termination of lease. On 17 June 2022, Mr Chai attended the property to re-enter and cancel the lease. He was
3 The PLA notice.
accompanied by a locksmith who was to change the locks and secure the premises. Mr Chai was unable to secure the premises.
[15] Later in June 2022, Plant Zero made a without notice application to this Court seeking to prevent Mr Xu from re-entering the premises and setting aside the cancellation. The parties subsequently agreed that Mr Xu would not take any further steps to re-enter the premises pending resolution of the issue of the cancellation of the lease.4
[16] In August 2022, Mr Xu filed his application for possession and ancillary orders under s 251 of the PLA.
[17] Mr Xu says that as at 1 January 2023, Plant Zero has rent arrears of $94,965.41. That calculation includes an abatement for COVID-19 (total sum of $11,909.59).
Relevant legal principles
[18] Section 243 of the PLA provides that a lease may be cancelled only in accordance with sections 244 – 252.
[19]Section 244 of the Property Law Act 2007 reads:
Cancellation of lease for breach of covenant or condition: general
(1) A lessor who wishes to exercise a right to cancel a lease because of a breach by the lessee of a covenant or condition of the lease may –
(a)apply to a court for an order for possession of the land; or
(b)re-enter the land peaceably (and without committing forcible entry under section 91 of the Crimes Act 1961).
(2)However, subsection (1) is subject to sections 245 and 246.
(3) If the lessor applies to a court for an order for possession of land for the purpose of cancelling a lease, the cancellation takes effect –
(a)on the making of the order; or
(b)on any later date that is specified in the order.
4 Minute of Peters J dated 29 June 2022 in response to joint memorandum of counsel dated 28 June 2022.
[20]Section 245(1) of the PLA reads:
Cancellation of lease for breach of covenant to pay rent
(1) A lessor may exercise a right to cancel a lease because of a breach of the covenant to pay rent under the lease only if –
(a)the rent has been in arrears for not less than 10 working days; and
(b)the lessor has served on the lessee a notice of intention to cancel the lease; and
(c)at the expiry of the period specified in the notice, the breach has not been remedied.
[21] Under s 251 of the PLA the court, in making an order for possession, may also order the lessee to pay the rent up to the date of cancellation.
[22]Section 256 reads:
Powers of court on application for relief
(1) In determining an application for relief against the cancellation, or proposed cancellation, of a lease, under section 253, a court may grant –
(a)the relief sought on any conditions (if any) as to expenses, damages, compensation, or any other relevant matters that it thinks fit; and
(b)an injunction restraining any similar breach in the future.
(2) The court may grant relief against the cancellation, or proposed cancellation, of a lease even though –
(a)the cancellation is for a breach of an essential term of the lease; or
(b)the breach is not capable of being remedied.
Analysis and decision
(a) – Order for possession
[23] The starting point is that Plant Zero is clearly in default of its obligation under cl 1.1 of the lease to pay rent, without deductions or set-off. It has been in arrears with its rent for some considerable time and Mr Xu appears to have given Plant Zero, as tenant, many opportunities to remedy the default.
[24] The effect of the rent obligation clause in cl 1.1 of the lease is clear and unambiguous:
… All rent shall be paid without any deductions or set-off by direct payment to the Landlord or as the Landlord may direct.
[25] As Gilbert J held in Zhang v Wilson Garden Ltd,5 the effect of a clause such as cl 1.1 is that the tenant, here Plant Zero, has contracted out of any right of set-off. A tenant in such a case should not achieve the benefit of a set-off through the grant of relief (against cancellation) when it expressly agreed that no set-off should be available in relation to the payment of rent.
[26] Plant Zero’s claim for an abatement of rent because of COVID-19 appears no longer to be an issue. Its principal complaint is that Mr Xu as the landlord has failed to maintain and repair the property and, in particular, to address the issue of flooding. It relies in part upon cl 27.3 of the lease (partial destruction) which provides:
Until the completion of the repairs or reinstatement a fair proportion of the rent and outgoings shall cease to be payable as from the date of damage.
[27] Plant Zero also alleges, as noted above, a breach of the landlord’s repair and maintenance obligations at cl 11.1 of the lease.
[28] However, the fundamental problem for Plant Zero is that the lease makes specific provision for how issues of repair are to be dealt with and abatement is not one of them.6 The rent and repair/maintenance covenants are separate. As McMullin J held in Chatfield v Elmstone Resthouse Ltd:7
The law on this point is that, if a lessor is in breach of his covenant to repair, the lessee must still pay the rent. The lessee’s duty is a strict one. … remedy for the lessor's fault being by way of cross action.
[29] I also agree with the submission of Ms Wickes that the tenant’s allegations here do not entitle it to abatement. In Kkeshav International Ltd v Heaton Holdings Ltd, Associate Judge Lester held:8
5 Zhang v Wilson Garden Ltd [2014] NZHC 840 at [23].
6 See Grant v Hannay (2010) 11 NZCPR 283 at [23].
7 Chatfield v Elmstone Resthouse Ltd [1975] 2 NZLR 269 (SC) at 275.
8 Kkeshav International Ltd v Heaton Holdings Ltd [2020] NZHC 1513 at [39].
I am not satisfied that the fact a tenant claims an abatement against the current rent reduces the rent payable by the tenant in the face of clauses 1.1, 29.1 and
44.3. The scheme of the leases is that the payment of rent is an essential requirement. Rent is to be paid without any deduction. The tenant seeks a deduction by raising a disputed abatement. The landlord is not to be deprived of the benefit of the no deduction – no set-off clause, by the assertion of a right to an abatement, even if such is referred to arbitration. If Mrs Graham’s submissions were correct, the tenant’s claimed abatement would prevail until arbitration. I consider that proposition inconsistent with the scheme of the lease as a whole. I do not see any basis to treat a disputed abatement claim any different from any other disputed tenant claim.
[30] In any event, cl 27.3 is contingent upon repairs or reinstatement being carried out and the pre-conditions in cl 27.1 having been met.
[31] I further note that this is a commercial lease where there was an alleged failure to repair in 2018 before Mr Xu became the landlord. The evidence is that he repaired the roof. There was no warranty given that the premises would be suitable for Plant Zero’s particular usage and in 2021 it elected to carry out its own earthworks to reduce any issues with surface flooding. Against that background it renewed the lease until 31 January 2024.
[32] I find that the grounds for an order for possession and an order cancelling the lease have been made out.
(b) – Relief against cancellation
[33] As Churchman J held in Pacific Imports & Trading Ltd v Crave Entertainment Ltd,9 the Court has a broad discretion when considering an application to provide relief against cancellation.
[34] In that case, the Court referred to the historical distinction between breaches of the covenant to pay rent and other breaches10 and held:11
The ability of a lessee in breach of a covenant to pay rent to bring the rent up to date and to pay the costs of the Court proceedings is therefore a matter upon which the court would expect evidence. There is no point in the Court granting
9 Pacific Imports & Trading Ltd v Crave Entertainment Ltd [2022] NZHC 446 at [31].
10 Pike River Coal Ltd (in rec) v O’Malley Farming Ltd HC Wellington, CIV-2011-418-66, 14 October 2010, at [41].
11 Pacific Imports & Trading Ltd v Crave Entertainment Ltd, above n 9, at [33].
relief against cancellation where the lessee does not have the means to pay the arrears of rent and costs.
[35] Plant Zero submitted that it is entitled to relief against cancellation because the rent “can with certainty be brought up to date, but not before the substantial matters in dispute are resolved on quantum and other material breaches of the lease by the landlord”.
[36] However, the fundamental problem for Plant Zero here is that there is no real certainty that the arrears of rent will be paid and no probative evidence of the financial ability of Plant Zero to pay the outstanding sum. Ms Lambermon, of Plant Zero, states that the company is now “turning over a good profit margin” having come out of COVID with difficulty, but no details or financial data are provided in support of that claim. I note also that arrears of rent has been an ongoing issue now for many years. The reconciliation statement attached to the letter of Beca & Co of 16 September 2022 documents failure to pay rent since 1 June 2018. The outstanding arrears has increased since then from $4,025 to $94,965.41 as at 1 January 2023.
[37]The application for an order for relief against cancellation is dismissed.
Result
[38]I make the following orders:
(a)Order granting the applicant, Mr Xu, possession of the property at 108 Station Road, Huapai. The respondent, Plant Zero 2006 Ltd, is required to vacate the property in a proper and orderly manner and deliver up to Mr Xu vacant possession of the property no later than 15 May 2023;
(b)Plant Zero is to pay Mr Xu outstanding rent in the sum of $94,965.41 (outstanding rent as at 1 January 2023) plus ongoing rent up until the date the premises are vacated by Plant Zero;
(c)Plant Zero is to pay interest at the rate of 10 per cent on the outstanding rent (which at 1 January 2023 was $22,634.03) up until the date that the premises are vacated by Plant Zero. However, the order to pay interest
is suspended pending determination of any arbitration between the parties. This order is conditional on the tenant, Plant Zero, taking all reasonable steps to advance the arbitration. Leave is reserved to apply for further directions or orders;
(d)The application for an order for relief against cancellation is dismissed. The lease is cancelled.
[39] I note that Mr Xu, as the landlord, seeks costs under cl 6.1 of the lease. If the parties cannot agree on costs, then memoranda (no more than three pages) are to be filed and served within 14 days. If Mr Xu wishes to pursue costs under cl 6.1 he will need to provide details of the solicitor/client costs claimed, including hourly rates and narrations.
Andrew J
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