IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2013-404-008
[2014] NZHC 2465
BETWEEN
THE CORNWALL PARK TRUST
BOARD INC
Applicant
AND
YOUNG XIN CHEN
Respondent
Hearing:
19 - 23 May 2014
Appearances:
M Casey QC, JGH Hannan and L May for the Applicant
J A Wickes for the Respondent
Judgment:
8 October 2014
RESERVED JUDGMENT OF ELLIS J
This judgment was delivered by me on Wednesday 8 October 2014 at 9.30 am
pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Counsel/Solicitors:
M E Casey QC, Barrister, Auckland
JGH Hannan, DLA Phillips Fox, Auckland
L May, DLA Phillips Fox, Auckland
J A Wickes, Loo & Koo, Auckland
THE CORNWALL PARK TRUST BOARD INC v CHEN [2014] NZHC 2465 [8 October 2014]
[1]
This judgment concerns the consequences of the termination of a “Glasgow”
lease relating to land owned by the Cornwall Park Trust Board and situated at 21
Maungakiekie Avenue, Epsom, Auckland. The Board owns a number of other
properties in that area, all of which are subject to similar leases.
[2]
In broad terms, Glasgow leases are perpetually renewable, long-term, ground
leases. The particular lease for 21 Maungakiekie Avenue had a term of 21 years
which commenced on 30 March 1988 and expired on 29 March 2009. There is a
single dwelling on the property.1
[3]
The leasehold interest in the Maungakiekie Avenue property, together with
the house that was situated there, was purchased by the defendant, Mrs Chen, in
December 2005 for $450,000. At that point the term had less than four years to run.
The annual rent (which had been set in 1988) was $8,300.
[4]
Notwithstanding the expiry of the lease on 29 March 2009, Mrs Chen
remained in possession of the property until November 2011. In the intervening
period, a rent review occurred which resulted in a 900 per cent increase in the annual
ground rent.
[5]
Presently in dispute is Mrs Chen’s liability to pay:
(a)
the new “upset” rent of $73,750 per annum, for the period during
which she occupied the Maungakiekie Avenue property following the
expiration date; and
(b)
the cost of repairs to the house on the property that have been
undertaken by the Board since her departure.
1
As permitted by cl 4 of the memorandum of lease.
The lease
[6]
Glasgow leases such as the lease presently at issue have historically proved
fertile grounds for litigation. Their history and operation have been the subject of a
number of inquiries.2
[7]
In Mandic v The Cornwall Park Trust Board (Inc) the Supreme Court noted
that:3
[25]
Long-term ground leases (usually of 14 or 21 years) renewable in
perpetuity with rent calculated either by an assessment of fair or market rent
(or some similar concept) or, as in this case, as a percentage of a sum
established pursuant to stipulated valuation exercises, are referred to as
Glasgow leases. They were mainly put in place in the 19th and early 20th
centuries. A Glasgow lease is, in economic substance, a bond which is
revalorised every 14 or 21 years and secured against the demised land. The
income generated, while usually a modest return on the value of the land, is
very secure and can be expected to increase over time, at each renewal date,
as land increases in value. For these reasons, Glasgow leases were seen as
providing secure endowment income for charities (such as schools) and
public bodies (such as harbour boards). They also facilitated development,
enabling those who wished to develop land (and were willing to take the
associated risks) to do so without incurring the capital costs of land
acquisition.
[8]
For convenience, the Maungakiekie Avenue lease in its entirety is reproduced
in the Schedule to this judgment. But there are a number of clauses that require
particular mention at the outset.
[9]
The annual ground rental is payable in equal half-yearly payments in advance
on the 30th of March and September. The lease provides that the lessee must:
(a)
obtain the lessor's prior consent regarding plans to build on the land;
(b)
keep and maintain the land, all buildings, hedges, fences, gates, drains
and sewers in good, clean and substantial order, condition and repair
(cl 5);
2
3
These are noted in the Supreme Court’s decision in Mandic v The Cornwall Park Trust Board
(Inc) [2011] NZSC 135, [2012] 2 NZLR 194 at [27], n 42.
Ibid.
(c)
at the end or upon the determination of the lease, yield and deliver up
the land, all buildings, hedges, fences, gates, drains and sewers in
good, clean and substantial order, condition and repair (cl 5); and
(d)
paint the exterior and paint, paper, varnish and colour the interior
every five years (cl 7).
[10]
Clause 13 deals with what occurs upon the expiry of the lease term. Sub-
clause (a) confers on the lessee the right of renewal which is central to leases of this
kind. It provides:
On the expiration by effluxion of time of the term hereby granted and
thereafter at the expiration of each succeeding term to be granted to the
Lessee or to the purchaser at any auction under the provisions hereinafter
contained the outgoing Lessee shall have the right to obtain in accordance
with the provisions hereinafter contained a new lease of the land hereby
leased at a rent to be determined upon the basis of the valuation to be made
in accordance with the said provisions for the term of twenty-one years
computed from the expiration of the expiring term and subject to the same
covenants and provisions as this lease as may be applicable to such new
lease.
[11]
The valuation process contemplated by sub-cl (a) is dealt with in sub-cls (b) –
(d). Sub-clause (b) stipulates that, in the 12 months before the expiry of the term,
two separate valuations are to be made, namely:
(a)
a valuation of the gross value of the fee simple of the land included in
the lease; and
(b)
a valuation of all substantial improvements of a permanent character
made or acquired by the lessee existing on the land.
[12]
Clause 13(c) provides that these valuations are to be undertaken by two
valuers/arbitrators, one of whom is to be appointed by the lessor and the other by the
lessee. Before making the valuations the two arbitrators are, together, to appoint an
umpire. Sub-clause (d) says that the arbitrators’ decision (if they agree) or the
umpire’s decision (if they do not) is binding on all parties.
[13]
Clause 13(h) states that within two calendar months of the lessee being
notified of the decision of the arbitrators or umpire (regardless of whether the
valuation exercise is completed before the expiry of the term or not) the lessee is to
give notice in writing to the lessor stating whether he desires to have a renewed lease
at an annual rental equal to five per cent of the gross value of the land, less the value
of the improvements. The values concerned are, of course, the values that have been
fixed by the arbitrators or umpire.4
[14]
The lessee may give notice accepting a new lease even though the old term
has expired, provided that the lessee has remained in possession of the land: cl 13(i).
[15]
Clause 13(j) stipulates that any notice by the lessee that he desires to have a
new lease is deemed to constitute a contract between the lessor and the lessee:
(a)
for the granting and acceptance of a new lease at the rent fixed and
determined as a result of the valuation exercise;
(b)
for the term specified in, and subject to the covenants and provisions
of, the existing lease, including the right of renewal.
[16]
If the lessee either fails to give notice within the specified time or gives
notice that he does not wish to renew the lease then, sub-cl (k) provides that within a
further two month period (or within such other period as may be agreed) the lessor is
to offer the right to a further 21 year lease on the same terms, but at the upset rental,
for sale by public auction. The sub-clause goes on to provide that:
(a)
a purchaser at auction (other than the outgoing lessee) is required to
pay the value of the buildings and improvements as determined by the
arbitrators/umpire; and
(b)
the costs and expenses of such auction shall be borne and paid by the
lessee.
4
Limited exceptions to the right thus conferred on the lessee are contained in sub-cl (i). Those
exceptions are not relevant to the issues at hand.
[17]
Sub-clauses (l) and (m) require that, in the ordinary course, the lessor is to
ensure that the lessee receives the payment received from a purchaser at auction for
the value of the buildings and improvements, while sub-cl (n) makes it clear that the
lessor is not otherwise liable to pay to the lessee any part of the value of any
buildings or improvements.
[18]
Clause 13(q) says that if the right to a new lease is not auctioned before the
expiration of the term, or if the purchaser at auction (other than the outgoing lessee)
refuses or neglects to complete the purchase according to the relevant terms and
conditions, the right to a new lease shall be auctioned (at the lessee's expense) as
soon as possible, notwithstanding that the term has expired.
[19]
Clause 13(s) provides that when a new lease is sold at auction the new term
shall run from the date of the expiration of the then expiring term, but the rent
payable by the purchaser (other than the outgoing lessee) shall not begin to run until
the purchaser obtains possession.
[20]
Sub-clause (t) is critical and so I set it out in full. It provides:
The Lessee shall whilst and so long after the expiration of the term hereby
granted as they retain possession of the said land pending the granting of a
new lease as aforesaid pay to the Lessors for the period during which retain
[sic] such possession a rental calculated upon the basis of the upset rent as
valued and fixed in manner [sic] aforesaid.
[21]
Sub-clause (v) says that the lessor is required to accept the highest bid made
at auction for the new lease, provided it is not less than the upset annual ground rent
that is the result of the valuation process.
[22]
And sub-cl (w) stipulates that if, at auction, no-one purchases the new lease at
a rental equal to or greater than the upset rent, then the land, together with all
buildings and improvements on it, revert to the lessor at, or as from, the expiry date
of the former term, free from any payment or compensation whatever and from any
obligation to grant a new lease.
[23]
Clause 13(y) provides that in the event of the term of the lease being
determined otherwise than by effluxion of time, the lessee is not entitled to any
compensation for buildings or improvements.
[24]
Lastly, cl 17 records that any covenants and provisions which otherwise
might be implied by virtue of the Land Transfer Act 1952, the Property Law Act
1952 or otherwise are not to be implied if they are contrary to the covenants and
provisions in the lease.
The facts
[25]
Mrs Chen and her husband are property developers. It was, however, Mrs
Chen alone who purchased Maungakiekie Avenue in 2005. Mrs Chen said, and I
largely accept, that the house on the property was not then in a particularly good
state of repair. As I have said, the ground rent at that time was $8,300 per annum,
with four years to run on the term.
[26]
The terms of the lease required the Board to consent to the sale of the
leasehold to Mrs Chen. Before doing so, the Board required her to sign a statement
confirming that she had a copy of the ground lease and that she understood its terms
and contents. Mrs Chen signed that statement and it was returned by her solicitors to
the Board’s solicitors.
[27]
Mrs Chen’s evidence suggested that she had never read the lease (which
would have had to be translated for her) but she clearly understood that, at the expiry
of the lease term in 2009, the ground rent was likely to go up considerably (she
thought to around $40,000). She said it was always her hope and expectation that
the Board would agree to sell her the freehold. She says that she was advised by the
real estate agent that this was likely and she had been shown an offer to freehold that
had been made in July 1992 by the Board to previous lessees. A copy of that letter
was in evidence before me.
[28]
As the expiry of the lease term approached, the Board wrote to Mrs Chen.
By letter dated 5 December 2008 the Board advised:
Under the terms of your lease, the rent for the property for the next 21 year
term of the lease will be subject to review or renewal.
[29]
The Board then referred to the increase in value of the Cornwall Park
properties and advised that this would necessarily affect the new rent. It referred to
the valuation and rent fixing procedures contained in the lease, nominated its valuer,
and said:
Please note that the Board takes the view that undue delay in the lease
renewal process could amount to a breach of an implied term of the lease
which could cause losses to the Board for which you as a lessee could be
held liable. Interest on the unpaid amount of the increase in ground rent
payable for any period of undue delay would be a reasonable measure of the
Board’s losses in such a case.
[30]
The Board wrote a further letter dated 25 March 2009 repeating the same
advice.
[31]
Mrs Chen said that she did not receive these letters. She certainly did not
respond to them. They were, however, addressed to her Maungakiekie Avenue
address where it seems clear she received (and actioned) the rent invoices in relation
to the property. In my assessment, Mrs Chen did receive the letters but chose to
ignore them.
[32]
The lease period therefore expired on 29 March 2009 without the valuation
process having been completed (or, indeed, even begun). But Mrs Chen remained in
occupation, and (necessarily) continued to be invoiced for ground rent at the old rate.
[33]
As it happened, in September 2008, High Court proceedings had been filed
by other Cornwall Park leaseholders in relation to the valuation process under the
Glasgow leases. Mrs Chen was aware, in general terms, of the litigation.
[34]
Although the Board’s administration manager, Mr Simons, said that he
attempted to make personal contact with Mrs Chen several times during 2009, he
was not successful. It appeared she was not living at the property. Although I
accept Mr Simons’ evidence about this, my impression was that the Board’s
attention at around that time may have been more focused on the court case rather
than on the vigorous pursuit of any outstanding rent reviews. It would make sense
for the Board to wish to receive confirmation from at least a first instance court as to
the validity of their valuation methodology before chasing up such matters. In any
event, and for whatever reasons, the valuation exercise required by the lease was not
advanced for the remainder of 2009.
[35]
The leaseholders’ claim was heard in the High Court in April 2009 and
judgment was issued on 20 November 2009 endorsing the Board’s valuation
practice.
[36]
On 11 January 2010 the Board wrote again to Mrs Chen advising of its
litigation success and saying that although it understood that the Leaseholders’
Association proposed to appeal the High Court decision, any such appeal did not
operate as a stay, and the Board wished to proceed with the outstanding lease
renewals. The letter repeated the request that she appoint a valuer. She was advised
that if she did not do so the Board would, if necessary, apply to the High Court for an
order making that appointment.
[37]
On 29 January 2010 Mrs Chen’s daughter emailed the Board advising that Mr
M L Graham was her nominated valuer. On 16 February Mr Graham wrote to the
Board’s nominated umpire, Mr A G Hilton, suggesting that there were legal issues
that needed to be resolved before embarking on the valuation process. Mr Graham
expressed the view that it was unreasonable to expect a lessee to go through the
process pending resolution of the leaseholders’ appeal. He also advised that his
“instructing party” was particularly keen to receive some indication of the level of
rental which was likely to apply to the next review, “in order to prepare for the
possibility that the lease may not be able to be renewed, as provided for within the
two month time period specified under cl 13(h)”.
[38]
The Board responded on 25 February 2010 and nominated two alternative
candidates for umpires. That letter was followed up on 10 March when the Board
asked for a response as a matter of urgency. Mr Graham’s reply on 25 March
continued to raise legal issues and advised that he would submit the umpires’ names
for consideration after he had received the Board’s response to those. Mr Graham
eventually (at the end of August) agreed to one of the two umpires nominated by the
Board. The appointment was formally made on 9 September 2010.
[39]
In November 2010 Mrs Chen’s valuer wrote again to the Board in an attempt
to make a case for granting her the freehold in Maungakiekie Avenue. That was
rejected on 14 December 2010, the day before Mrs Chen was advised that the
arbitrators had issued a decision on an agreed basis. They gave the gross value of
the fee simple at $1,850,000. The improvements were valued at $375,000. An
application of the rent formula under the lease (five per cent of the gross value less
substantial improvements) yielded a new annual ground rent of $73,750. As I have
said, this represented a rental increase of nearly 900 per cent. On 15 December the
Board wrote to Mrs Chen advising of the new rent. The Board said:
The new ground rent is effective from 30 March 2009 and fixed for 21 years.
In accordance with clause 13(d) of the lease agreement this annual ground
rent is binding on both the lessee and lessor.
[40]
The Board then asked Mrs Chen to advise whether she wished to accept a
new lease at the advised new ground rent, effective from 30 March 2009 and fixed
for 21 years.
[41]
On 18 January 2011 the Board wrote again to Mrs Chen noting that she had
not responded to the 15 December letter. The letter also advised her of the auction
process that would follow under the lease if she chose not to renew the lease or
failed to advise the Board of her decision by 15 February 2011. The letter did not,
however, refer to any liability placed upon Mrs Chen to pay backdated rent at the
upset amount, in the event either that the lease was sold to someone else, or did not
sell, at auction.
[42]
On 27 January 2011 Mrs Chen’s solicitors emailed the Board making a
further request to purchase the freehold and saying:
We are advised that our client is not able to pay for the substantial ground
rental increase and believes that no one could possibly sustain that level of
rental for 21 years.
[43]
The freehold request was declined by the Board the following day.
[44]
On 7 February 2011, the Board wrote to Mrs Chen enclosing an invoice
which stated:
Six months ground rent from 30 March 2011 to 29 September 2011 $4,150
Payment due 30 March 2011
[45]
$4,150
In the accompanying letter the Board said:
Please note that this invoice is not in conflict with recent correspondence
concerning the Trust Board's offer of a new lease at a ground rent of $73,750
per annum. Your lease expired on 29 March 2009, and the lease agreement
requires the lessee to continue to pay the old ground rent until the new
ground rent has been determined and accepted by the lessee.
(emphasis added)
[46]
This letter, and the accompanying invoice, formed the cornerstone of Mrs
Chen’s affirmative defences to the claim for the backdated upset rent.
[47]
On 1 April 2011, the Board’s solicitors advised Mrs Chen that as she had not
exercised the right to renew the lease the Board would proceed to sell the right to a
new lease by way of a public auction in accordance with cl 13 of the lease. The
letter sought Mrs Chen’s co-operation in the auction process. The Board said that it
was prepared to defer taking action until 11 April 2011 should Mrs Chen wish to
reconsider and decide to accept a renewal of the lease. She was also told:
If the property is sold at the auction, you will be required to vacate and
deliver up vacant possession of the property before settlement of the sale.
Our client may require you to vacate earlier and reserves the right to require
that.
If you continue to remain in possession until the date by which you are
required by our client to vacate you must pay the ground [rent] of $73,750
per annum as provided for in the lease.
[48]
The letter went on to explain that if the lease was sold at auction to someone
else, she would (all other things being equal) receive compensation for the value of
the improvements. Then it advised:
If the property is passed in and not sold at auction, the lease provides that all
improvements will revert to our client free of compensation.
[49]
The letter concluded by repeating the Board’s invitation to Mrs Chen to
renew the lease.
[50]
In May 2011 the Board engaged an agent to market the property for auction.
By email the Board told Mrs Chen that the grounds needed to be tidied up. The
email also sought to make arrangements for access to the property by a real estate
agent and for open homes.
[51]
On 28 June 2011 Mrs Chen’s solicitors wrote to DLA Phillips Fox, the
Board’s solicitors, stating:
We refer to your email of 20 May 2011.
Our client has, as demanded by the Trust (Trust letter to our client dated 7
February 2011), paid the ground rent up to 30 September 2011.
Accordingly, our client is entitled to undisturbed possession of the property
up until that date.
[52]
During August 2011 there were complaints received by the Board about the
state of the swimming pool at the Maungakiekie Avenue property and in particular
the mosquitoes that were breeding there. A notice of statutory nuisance was issued
in September.
[53]
Also in August, there was a meeting between Mrs Chen and the Board’s
administration manager, Mr Simons.
Mrs Chen says that three things were
discussed:
(a)
the possible freeholding of the property;
(b)
whether the Board would reduce the ground rent it was seeking for a
new lease; and
(c)
[54]
the practicalities of the auction process if she did not renew the lease.
Mrs Chen was again told that there would be no freeholding and, a short time
later, was also advised that there would be no compromise on the ground rent level.
Mrs Chen then confirmed that she would not renew the lease.
[55]
The lease was auctioned on 28 September 2011 but there were no bidders.
On 6 October DLA Phillips Fox wrote to Mrs Chen again offering her the option of
accepting a new lease on the same terms as before or authorising a further auction.
The letter advised that it was a condition precedent to either option that she pay all
outstanding rent and auction costs to date. The letter said:
Your client has been paying the old rent from the lease expiry date on 29
March 2009. The lease requires your client to pay the increased rent from
the expiry of the lease to the date on which your client vacates the property.
As at 30 September 2011 the back rent owed by your client is $200,500
having regard to rent usually being paid six monthly in advance and a credit
adjustment will be required depending on when vacant possession is given.
Our client now requires the sum to be paid together with any additional rent
that is payable until your client provides vacant possession of the property to
our client.
[56]
The response from Mrs Chen’s solicitors was that Mrs Chen had been
consistently billed by the Board for ground rent at a rate of $4,150 every six months
“since 2009”. The letter said that she had paid those invoices and had remained in
possession of the property on the basis that that was the appropriate rental for the
occupation. The letter advised that Mrs Chen did not agree that she was liable to pay
$200,500 in back rent. The letter also referred to advice allegedly given by Mr
Simons of the Trust Board to Mrs Chen that:
If the auction was unsuccessful your client would come back to ours with a
settlement proposal for a new lease at a lesser rental than the $73,750 per
annum currently being demanded. Our client then received an invoice for
rental for the next six months (which we are enclosing).
That allegation was denied by the Board on 20 October.
[57]
On or about 15 November 2011 Mrs Chen formally vacated the premises by
returning the keys to the Board’s solicitors.
[58]
The property was inspected by Mr Simons and the Board’s property manager
in February 2012. They noted that it was generally in a poor state of repair both
externally and internally and that alterations had been made to the house apparently
without the Board’s consent. The Board then commissioned a report from Cove
Kinloch Auckland Ltd (Cove Kinloch) the purpose of which was said to be to assess
the work required to reinstate the property to “good clean and substantial order
condition and repair”. These words, which are taken from cl 5 of the memorandum
of lease, were expressly used in the instructions to Cove Kinloch.
[59]
A report was provided in June 2012 which estimated the cost of the necessary
repairs to be $165,120 (including GST).
[60]
In October 2012 Omega Construction (Akl) Ltd submitted a tender to
undertake the repair work. The tender price, which was accepted by the Board, was
$204,274.50 (including GST). This increased price was in part because the Board
asked Omega to do additional work on the property to bring it up to “executive”
standard. The Board does not seek to recover these additional costs from Mrs Chen.
[61]
The reinstatement work was completed by April 2013. The final cost was
somewhat less than the tender price. There had been savings as a result of cheaper
options being pursued in relation to some of the reinstatement work. By way of
example only, the garage roof was repainted rather than replaced, as had been
recommended by Cove Kinloch.
The total amount of repairs now claimed is
$117,042.60. The cost of obtaining the Cove Kinloch report ($2,284.59) is also
claimed.
[62]
[63]
Mrs Chen has refused to pay these costs. In broad terms, her position is:
(a)
the property was in a state of disrepair when she purchased the lease;
(b)
she did not perform any unauthorised work on the property;
(c)
she in fact made improvements to the property; and
(d)
some of the reinstatement work was not necessary.
Since the repairs were effected, the lease has remained unsold. The Board is
instead simply renting out the (significantly improved) property at about two thirds
of the upset rental amount.
The claim for backdated upset rent
[64]
The Board seeks judgment for rent at the upset amount for the period
between the expiry of the old lease and Mrs Chen’s vacation of the premises. The
Board says $173,323.64 in back rent is owed pursuant to cl 13(t) of the
memorandum of lease.
[65]
In resisting the Board’s application for summary judgment against her in
relation to the unpaid rent, Mrs Chen relied on affirmative defences of estoppel and
breach of the Fair Trading Act 1986.5 She did not at that hearing contend that
cl 13(t) did not require her to pay backdated upset rent at all. Ms Wickes did,
however, seek to advance that submission before me.
[66]
Mr Casey submitted that any such contention should have been, but was not,
affirmatively pleaded.
Ms Wickes submitted that the wording of Mrs Chen’s
statement of defence meant that this argument was open to her.
[67]
Although I tend to agree with Mr Casey that the proposed argument (that
cl 13(t) does not apply in Mrs Chen’s circumstances) could have been more clearly
signalled, it is an argument that is wholly based on the proper interpretation of the
lease. There were no factual or evidential matters relied upon by Ms Wickes which
were not already in issue. Mr Casey could not, therefore, be said to have been taken
by surprise in any relevant sense. Indeed, the only factual matter upon which Ms
Wickes’ relied in this respect was that a new lease had not been granted, and this was
expressly pleaded in the relevant part of her defence. Moreover, that fact is not in
dispute.
[68]
In my judgment, therefore, the Board was not prejudiced by Ms Wickes’
arguments and it is appropriate that I, too, address them in this judgment. The issue
raised is not only fundamental but possibly of some wider significance. For the
avoidance of doubt, however, I record that if (contrary to the view just expressed)
Ms Wickes had required leave to amend her defence in order to pursue the argument,
I would have granted it.
5
Self-evidently, summary judgment was declined: Cornwall Park Trust Board v Chen [2013]
NZHC 1067, (2013) 14 NZCPR 563.
[69]
For convenience, I begin by setting out cl 13(t) again. It provides that:
The Lessee shall whilst and so long after the expiration of the term hereby
granted as they retain possession of the said land pending the granting of a
new lease as aforesaid pay to the Lessors for the period during which retain
[sic] such possession a rental calculated upon the basis of the upset rent as
valued and fixed in manner [sic] aforesaid.
[70]
Ms Wickes’ essential submission was that the words “pending the granting of
a new lease” meant that the liability to pay the upset rent depended upon (was
triggered by) the granting of a new lease. Thus (she said) from the date of the expiry
of the lease no upset rent can be charged to a lessee unless and until a new lease is
granted. In Mrs Chen’s case, of course, no new lease had been granted at the time
she gave up possession, or subsequently.
[71]
Ms Wickes also submitted that because the lease does not contain a provision
for interim or estimated rent payments, after the expiration date Mrs Chen was
holding over, either:
(a)
as a monthly tenancy implied by s 105 of the Property Law Act; or
(b)
as a six monthly tenancy implied on the basis of the rent she had
previously been charged and which she was paying in advance.
[72]
Mr Casey submitted that a straightforward reading of cl 13(t) suggests that an
existing lessee who remains in possession following the expiry of the relevant term
will be liable to pay the upset rent for the period during which her possession
continues. Thus, he said, the words “pending the granting of a new lease” are
temporal in nature and describe the period during which the lessee’s obligation
continues; they do not make that obligation contingent on the granting of a new
lease. Rather, cl 13(t) makes that obligation contingent only on the existing lessee
remaining in possession.
[73]
Mr Casey also submitted that the lease was effectively a code, and Ms
Wickes’ position about implied tenancies ran contrary to cl 17, which provides that
there can be no implied term or covenant that runs contrary to the covenants and
provisions in the lease.
The correct interpretive approach
[74]
There is no dispute as to the principles that are to be applied when
interpreting cl 13(t). They are as set out by the Supreme Court in Vector Gas Ltd v
Bay of Plenty Energy Ltd, where the Court said:6
… interpretation of a commercial agreement is the ascertainment of the
meaning it would convey to a reasonable person who has all the background
knowledge which would reasonably have been available to the parties in the
situation in which they were at the time of contract. The language the parties
use is generally given its natural and ordinary meaning, reflecting the
proposition that the common law does not easily accept that linguistic
mistakes have been made in formal documents. The background, however,
may lead to the conclusion that something has gone wrong with the language
of an agreement. In that case the law does not require the courts to attribute
to the parties an intention which they clearly could not have had. The natural
and ordinary meaning should not lead to a conclusion that flouts business
common sense.
[75]
I shall return to the issue of natural and ordinary meaning shortly. Before
doing that, however, there are a number of general points about the wider context of
the present lease (and leases of that type) that appear to me to be potentially relevant
to a Vector-type of analysis.
Context
[76]
First, on 25 September 1923 the Board was declared a “leasing authority”
under the Public Bodies’ Leases Act 1908 (the PBLA08) and continues to be one
under the Public Bodies’ Leases Act 1969 (the PBLA69). The powers contained in
those Acts are additional to, and must be exercised consistently with any powers
vested in the Board by the relevant trust instrument. Section 5 of the PBLA087 listed
eight forms of tenancy which such a leasing authority is empowered to grant
including, at s 5(g):
A tenancy for any term not exceeding twenty-one years, with a provision in
accordance with the First and Second Schedules hereto that on the expiration
of the term the lessee shall have an option either to accept a renewed lease in
accordance with the First Schedule hereto, or to have a new lease offered for
sale by auction in accordance with the second Schedule hereto, and so on
from time to time in perpetuity:
6
7
Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [61].
Now s 7 of the PBLA69.
[77]
As s 5(g) suggests, the First Schedule contains standard clauses relating to the
renewal option, while the Second Schedule contains standard clauses relating to the
public auction option.
[78]
The Maungakiekie Avenue lease is, very plainly, a s 5(g) lease and its terms
are therefore a combination of the First and Second Schedules.8 Many of the clauses
in the lease are materially identical to the standard form clause in the two Schedules.
For present purposes, however, there are several notable differences.
[79]
The first is the omission from the Maungakiekie Avenue lease of any
replication of cl 13 of the First Schedule9 which provided:
The term of any renewal lease shall run from the date of the expiration of the
prior lease, and the rent as so valued shall accrue as from the said date in lieu
of the rent reserved in the prior lease, notwithstanding the fact that the
renewal lease may not be executed until after that date.
[80]
The Second Schedule of the PBLA08 contained no equivalent to cl 13 of the
First Schedule where the lease was sold by auction. Rather, cl 15 of that Schedule
simply stated:
In every case in which the right to a new lease is sold by auction the new
term shall run from the date of the expiration of the term hereby granted, but
the rent of a purchaser shall not begin to run until the purchaser obtains
possession.
[81]
Clause 15 did not, therefore, expressly deal with the issue of when the new
rent begins to run when it is the existing lessee who purchases the lease at auction.
That possibility is clearly flagged by cl 16 of Schedule 2, which provides that the
lessee has a right to bid for, and to purchase, the lease at auction.
[82]
The drafters of the Maungakiekie Avenue lease appear to have dealt with
these matters by way of cl 13(s) and (t). Accordingly, cl 13(s) repeats cl 15 of the
Second Schedule but adds in the words “other than the outgoing Lessee” as follows:
In every case in which the right to a new lease is sold by auction the new
term shall run from the date of the expiration of the then expiring term but
8
9
The standard terms contained in those schedules do not include repair covenants, but such
clauses were contemplated by s 6 of the PBLA08.
Clause 16 in the First Schedule to the PBLA69.
the rent of a purchaser other than the outgoing Lessee shall not begin to run
until the purchaser obtains possession.
[83]
And cl 13(t), while similar to cl 13 of the First Schedule, appears to be
designed to deal with the rent obligations of a lessee who has remained in possession
in either First Schedule (renewal) or Second (auction) Schedule circumstances.10
[84]
I shall return to the significance of these drafting matters later in this
judgment.
[85]
Another, related, contextual point is that, although the lease provides for an
auction process if the existing lessee does not wish to renew, the Supreme Court
majority in Mandic noted that this does not signify that the upset rent is intended to,
or will be, marketable.11 Thus, the majority said:12
The lease … also contemplates the possibility that there may be no purchaser
at the upset rental – a recognition that the upset rental may not meet the
market. More importantly, it is clear – indeed acknowledged on all sides –
that the rent fixing process was not intended to provide a fair rental formula
allowing for the existence and terms of the lease.
[86]
Although not expressly mentioned in Mandic, it seems that the principal
historical reason for sale by auction under such leases is that many of the original
“leasing authorities” under the PBLA08 (and its predecessors) were public bodies.
Ensuring that any sale process was transparent was therefore regarded as particularly
important.
[87]
Notwithstanding the above, it seems to me that it can reasonably be assumed
that the level of ground rent set pursuant to the lease was intended to reflect, at least
in a broad way, the significant benefit it confers on the lessee over and above that
10
For ease of reference I footnote the text of cl 13(t) again, here. It provides:
The Lessee shall whilst and so long after the expiration of the term hereby granted
as they retain possession of the said land pending the granting of a new lease as
aforesaid pay to the Lessors for the period during which retain [sic] such possession
a rental calculated upon the basis of the upset rent as valued and fixed in manner
[sic] aforesaid.
11
12
The Chief Justice did not agree.
Mandic v The Cornwall Park Trust Board (Inc), above n 2, at [79](a).
conferred by a year to year or short term lease. As Mr Casey was at pains to
emphasise and as the Court of Appeal has said:13
The leasehold interest which is conferred on the lessee is in practical effect
the maximum interest or tenure which, short of a transfer of the fee simple,
could be conferred in respect of the land.
The rent payable under a lease must logically bear some relationship to the nature
and extent of the interest granted.
[88]
Furthermore, the parties to the lease could reasonably be expected to be
aware that Glasgow leases have historically been contentious, especially with
regards to the rent review process. It is well-known, for example, that ground rental
increases have, on occasion, been perceived as crippling by lessees. 14 As not only
Mandic, but other cases and the various inquiries all show, lessees have often, and
regularly, sought to contest the valuation/rent review processes and methodologies
under these leases.
[89]
But what is also, I think, significant is that none of this litigation and none of
these inquiries have ever considered issues of the kind that have arisen here. For
example the 1993 report of Mr Anthony Lusk QC noted that in the case of leases
involving the Dilworth Trust Board (whose leases appear to have been very similar
to the one at issue here):15
The auction procedure can in certain circumstances lead to the lessee being
dispossessed. Not surprisingly the Board has no knowledge of any case in
which a lessee has exercised the auction option for at least the past 55 years.
[90]
That the present issue is novel is, in my view, specifically borne out by the
Board’s own communications and conduct in this case. On my view of the evidence
the position now taken by the Board in this litigation, namely that Mrs Chen was
liable to pay backdated rent at the upset rate even if the Board did not successfully
conclude a new lease with anyone, was not made completely clear to Mrs Chen until
October 2011.
13
14
15
While she was told that the rent under a new lease would be
S & M Property Holdings Ltd v Waterloo Investments Ltd [1999] 3 NZLR 189 (CA) at [74].
Anthony Lusk QC Ministerial Inquiry into Certain Perpetually Renewable Leases in Auckland
Department of Justice, 1993.
At 12.12.
backdated, even the letter from the Board’s solicitors in April 2011 arguably
separates out its advice about that from its advice as to the consequences of an
unsuccessful auction.
[91]
Lastly, it may also be relevant to note by way of wider context that it is a
matter of public record that some Glasgow lessors in the Auckland region have
historically had a policy of offering a freeholding option to lessees.16 And Mrs Chen
was certainly aware that the Cornwall Park Trust Board had previously been
prepared to contemplate freeholding.
[92]
Turning now to the more specific context of the terms of the Maungakiekie
Avenue lease itself, the starting point is that the lease unquestionably contemplates
that the expiration of the term may occur prior to the completion of the rent review
process. That is clear, for example, in cl 13(h) and (i) and (k). Moreover cl 13(b)
and (c) seem to make the lessor and the lessee equally responsible for the timely
(within twelve months prior to the expiration of the lease term) appointment of a
valuer. It is certainly not possible to read cl 13(b) and (c) as making time of the
essence. Similarly, although cl 13(k) provides that any auction process is generally
to occur within two months of the existing lessee declining a new lease, the same
clause also provides that some further period of time may be agreed.17
[93]
Importantly, the way in which the lease operates also means that if the lease
term does expire prior to the completion of the valuation and rent review process, the
lessee needs to remain in possession in order to be able either:
(a)
to exercise the right of renewal; or
(b)
to receive the value of the improvements in the event that he chooses
not to renew and the lease is (successfully) auctioned.
[94]
In my view the only objectively reasonable assumption that the parties to
such a lease could make is that, where the lease term expires before a new lease is
16
17
These policies are discussed in Chapter 15 of the report.
It may be noted in passing that other Glasgow leases are more prescriptive in these respects.
granted, the lessee will remain in possession beyond that date, and, if he declines to
accept a new lease at the upset rental, until after the auction has occurred.
[95]
Next, it may be observed that rent under the lease is payable six months in
advance. Hence if the rent review process has not been completed at the expiry of
the existing term then the existing lessee will necessarily be invoiced, or required to
pay, at the old rate for the following six months.
Some kind of retrospective
adjustment is contemplated, at least in the event that the existing lessee later chooses
to enter a new lease.
[96]
Lastly, it seems noteworthy that the only clause which deals expressly with
the consequences of the new lease failing to sell at auction is cl 13(w), which
provides that, in that event, then:
… at or (as the case may be) as from the expiration of the then expiring term
the land hereby leased with all buildings and improvements thereon shall
absolutely revert to the Lessors free from any payment or compensation
whatever and from any obligation to grant a new lease
(emphasis added)
[97]
The words “at or (as the case may be) as from” (the expiration date) indicate
that cl 13(w) is intended to have both a prospective and retrospective effect.
Accordingly if the failed auction takes place after the expiration of the term, cl 13(w)
deems that not just the improvements but also the (leasehold interest in the) land
reverts to the lessor from the expiration date.
How, then, is cl 13(t) to be interpreted?
[98]
It is within the various contexts just discussed that the proper interpretation of
cl 13(t) falls to be considered. I begin by noting that there are three potential
scenarios in which cl 13(t) applies:
(a)
where an existing lessee has remained in possession following the
expiration date but then either renews the lease or purchases it at
auction;
(b)
where the existing lessee has remained in possession beyond the
expiration date, declines a new lease and the lease is then sold at
auction to someone else;
(c)
where the existing lessee has remained in possession beyond the
expiration date, declines a new lease and the lease is then not sold at
auction.
[99]
Mr Casey necessarily submitted that cl 13(t) applied in all of these
circumstances. Ms Wickes submitted that it applied only in the first and (possibly)
the second.
[100] In terms of the literal meaning of the relevant words, my view is that the
word “pending” (in “pending the grant of a new lease”) would ordinarily be regarded
as synonymous with “while awaiting” or “until”. Devoid of wider context, there is
therefore some force in Mr Casey’s submission that the phrase naturally seems to
form part of the description of the circumstances in which the cl 13(t) obligation is
activated, namely for so long as a lessee remains in possession, awaiting the grant of
a new lease. On that interpretation, whether or not a new lease is actually ever
granted is arguably immaterial; the only relevant state of affairs is that the lessee has
remained in possession.
[101] But it seems to me that the clause nonetheless contemplates, and is arguably
predicated upon, the grant of a new lease. As Ms Wickes said, the words in dispute
are in fact otiose if a completely literal interpretation is adopted. The meaning for
which Mr Casey contends could equally be conveyed if the clause simply read
(punctuation inserted):
The Lessee shall, whilst and so long after the expiration of the term hereby
granted as they retain possession of the said land, pay to the Lessors for the
period during which they retain such possession, a rental calculated upon the
basis of the upset rent, as valued and fixed in manner aforesaid.
[102] Further support for Ms Wickes’ position can be seen when consideration is
given to the origins of the lease and, in particular, the standard form leases contained
in the PBLA08. More particularly, I consider that cl 13(t) becomes more explicable
(and more readily interpreted) when it is appreciated that the standard First Schedule
and Second Schedule clauses find combined form in this lease, and that it
incorporates the three specific amendments I have noted between [78] and [83]
above. When that background, and those amendments, are taken into account, it
seems to me to be tolerably plain that cl 13(t) was intended both:
(a)
to incorporate cl 13 of the First Schedule of the PBLA08, which made
it clear that, where an existing lessee exercises the option to renew
after the expiration date (and has remained in possession), he was
obliged to pay the upset rent from the expiration of the old term; and
(b)
to make it similarly clear (in combination with the additional words
inserted in cl 13(s)) that, where an existing lessee purchases the lease
at auction after the expiration date (and has remained in possession),
he was obliged to pay the upset rent from the expiration of the old
term.
[103] It seems to me that the ambiguity around the ambit of cl 13(t) arises because
it is a single clause that seeks to address the position of a lessee who remains in
possession under both the First Schedule (renewal) option and the Second Schedule
(auction) option. Had it been a matter of simply addressing the latter (auction)
option it would have been much clearer simply to combine cl 13(t) with cl 13(s) as
follows:
(s)
In every case in which the right to a new lease is sold by auction:
(i)
the new term shall run from the date of the expiration of the
then expiring term but the rent of a purchaser other than the
outgoing Lessee shall not begin to run until the purchaser
obtains possession; and
(ii)
the Lessee shall whilst and so long after the expiration of the
term hereby granted as they retain possession of the said
land pending the granting of a new lease as aforesaid pay to
the Lessors for the period during which retain such
possession a rental calculated upon the basis of the upset
rent as valued and fixed in manner aforesaid.
[104] If, in the case of an auction, the clauses are read together in this way (and I
observe that the above rephrasing involves no change to the actual words used nor to
the ordering of the words in either clause), it seems to me that it is Ms Wickes’
interpretation that is plainly to be preferred.
[105] Even as the clauses are presently constructed, cl 13(t) is, in my view, to be
seen as operating retrospectively only. By that I mean it only applies (and only
makes sense) once the triggering event has occurred, namely an existing lessee who
has remained in possession after the expiration date either exercises his right to
renew or purchases the lease at auction.
[106] The view that cl 13(t) is limited in its application to the first scenario
articulated at [98] above is, in my view, confirmed when one considers the
ramifications of its application to either scenario two or three.
[107] Applying cl 13(t) where a lessee has remained in possession after the
expiration date and the lease has then been sold to someone else would undoubtedly
be harsh from an outgoing lessee’s perspective. In particular, given that the amount
of the upset rent must logically reflect, at least in a general way, the (considerable)
value of both the length of the new lease term and the right to renew at the end of it,
any obligation imposed on an outgoing lessee to pay rent at that level, when he does
not in fact receive those benefits, seems unfair.18
[108] In addition, and because the lessee is effectively required to remain in
possession following the expiration date (for the reasons given at [93] above), any
delay in completing either the rent review or auction process would potentially be
highly prejudicial to the existing lessee under scenario two. The longer the period
between the expiration date of the lease and the eventual sale at auction, the greater
the lessee’s cl 13(t) liability would be. And while, of course, if it is the lessee who
delays then it might be said that such prejudice is of his own making, it is equally
possible that the delay is occasioned by the Board or its agents, or, indeed by events
out of either party’s control.
18
I acknowledge that, all other things being equal, the outgoing lessee in scenario two would, at
least, receive the value of his improvements following the successful auction.
[109] But the present case, of course, involves the third scenario, whereby the
lessee has remained in possession beyond the expiration date, has declined to enter
into a new lease and the lease has not sold at auction. And it is not disputed that in a
case such as this, by virtue of the operation of the lease, the outgoing lessee forfeits
her improvements (here valued at some $375,000) to the Board, pursuant to
cl 13(w).
[110] But there is another point about cl 13(w). As I have said, that is the only
provision in the lease which deals directly with the consequences of a new lease not
selling at auction. And that clause deems that not only the improvements but also
the (leasehold interest in) the land reverts to the lessor from the expiration date, it
seems difficult to reconcile with an interpretation of cl 13(t) that suggests the
opposite. Put simply, how can the outgoing lessee logically be required to pay the
equivalent of the upset rental for the land in circumstances where the lease has
deemed that the land has reverted to the lessor?
[111] Accordingly, an application of cl 13(t) in third scenario circumstances carries
with it not only the prejudice to a lessee inherent in its application to the second
scenario, but also the punitive consequences of the automatic reversion and this
inconsistency with cl 13(w). Even if it remains arguable that the clause applies in
the second scenario, therefore, I would not have held that it applies in the present
case.
[112] In terms of the wider context, I appreciate that Glasgow leases have
historically been regarded as pro-lessor (particularly at rent review time) and that
parties entering into such leases could, perhaps, be reasonably expected to
understand that. But I do not consider that it necessarily follows that reasonable and
properly informed persons, with all the background knowledge reasonably available
to them at the time this lease was entered, would have considered that the lessee
would be required to bear all the burden of what has happened here.
[113] In particular (and at the risk of some reiteration):
(a)
the central relevant expectation to which this lease reasonably gives
rise is that, even if the term has expired, a lessee who does not wish to
renew will remain in possession unless and until the auction process
has run its course;
(b)
the lease does not suggest that time is of the essence in relation to the
completion of either the rent review or auction processes;19
(c)
the lease clearly provides that, in the event of an unsuccessful auction,
the outgoing lessee forfeits the improvements to the Board;
(d)
the fact of an unsuccessful auction indicates that the upset rental is too
high for the market.
[114] I do not consider that this last point cuts across what the Supreme Court said
in Mandic, namely that the rent review process is not necessarily designed to yield a
rent that necessarily meets the market. As I have said, I accept that. Rather, the
question is whether an outgoing lessee should bear the burden of that mismatch,
when it occurs.
[115] Nor can it really be said that the Board suffers a significant loss if the
“scenario three” lessee is not required to pay the upset rent for the period of postexpiration occupation. That is because:
(a)
the failure of the lease to sell at auction suggests that it could not have
rented the land out to anyone else at that higher rate during the period
of the existing lessee’s post-expiration possession;
(b)
the Board has received the improvements for nothing;
(c)
it remains able to rent out the property at a market rate, which indeed
it has done in the present case.
19
See [92] above.
[116] Moreover, although the Board has lost its very secure income stream (noted
by the Supreme Court in Mandic at [25]) the quid pro quo of that is that its position
has changed from being merely an owner “who has reserved, in perpetuity, no more
than a return in the nature of interest on a capital asset - the land20” to a land-owner
properly so-called; there is surely a potential benefit in receiving back its land to do
with in future as it might.21
[117] In summary, I do not consider that a reasonable and well informed party
would think that a former lessee (who has already lost his improvements and given
up his perpetually renewable lease) should also have to pay backdated rent that has
been calculated at a level which is higher than anyone else is willing to pay. A
contrary conclusion would mean that, in circumstances where there is simply no
market for a new lease at the upset rent, the Board is entitled to a double windfall
merely due to delays in the rent review and auction processes for which it may or
may not be responsible.22 Indeed, I think that a reasonable and well informed party
would consider that outcome punitive. I can see nothing in the wording of the lease
or its wider context and purpose that requires such an interpretation.
[118] In light of the conclusion I have reached, the question then becomes what
rent for the period of her post-expiration possession Mrs Chen was obliged to pay.
Because Mr Casey submitted that cl 13(t) required her to pay an amount equivalent
to the upset rent and cl 17 meant that there could be no holding over he did not really
address that issue.23 Accordingly, although my present view is that the position is
probably as Ms Wickes submitted, I consider the Board should be given the
opportunity to make further submissions on that issue and I make directions to that
end at the conclusion of this judgment.
20
21
22
23
S & M Property Holdings Ltd v Waterloo Investments Ltd, n 13 at [74]
It would be open to the Board to consider subdivision, for example.
I of course acknowledge that in the present case, much of the delay was occasioned by Mrs Chen
and so, some might say, she is simply the author of her own misfortune. But I do not accept that
responsibility for the delay lies entirely at her door; I have found that the Board did not really
press the matter for nearly a year, while the Mandic litigation was at its first instance stage. But
in any event, it seems to me that the issue of who is to blame for the delay can necessarily have
no bearing on the proper interpretation of the lease.
I necessarily reject that argument. The very existence of cl 17 suggests that it is not; covenants
and provisions may be implied provided they are not inconsistent with the other lease terms.
Thus the submission therefore begs the critical question in this case, which is how the relevant
clauses in the lease are to be interpreted.
The affirmative defences
[119] In light of my view that the lease does not require Mrs Chen to pay the
backdated rent claimed by the Board it follows that the foundation for her
affirmative defences (estoppel and breach of the Fair Trading Act) has fallen away.
The necessary starting point for those defences was that the lease did require her to
pay the backdated rent claimed but that the Board represented otherwise. There is
therefore a logical conundrum inherent in the Court being required in the alternative
to determine whether a specific representation was misleading or reasonably relied
upon by Mrs Chen when it has formed the view that that representation is accurate
(or, at least, more accurate than not).
[120] Bearing in mind the prospect of an appeal by the Board from the conclusion I
have reached above, however, I do record that, in my view, Mrs Chen’s reliance on
the two defences would have faced some difficulty. That is principally because, even
assuming that unequivocal and misleading representations were made, I would not
have been inclined to accept that Mrs Chen had changed her position to her
detriment in reliance on those representations or that they caused her to suffer any
loss.
[121] The detriment and loss pleaded was necessarily Mrs Chen’s liability to pay
the backdated upset rent. And in terms of change of position, Mrs Chen’s key
contention was that if the Board had not misled her, she would have moved out of
the property sooner.
[122] It is indisputable that, had I found that the lease is to be interpreted as the
Board submitted, Mrs Chen would not have been liable to pay the back rent if she
had moved out on the expiration date. Thus it might be said that her (hypothetical)
liability in that respect is detrimental to her. But the difficulty Mrs Chen would face
is that I would not have accepted that she would, in fact, have moved out earlier if
she had been aware that she would be liable for back rent for the time she remained
in possession after the expiration date. That is because, as I have explained above, if
she gave up possession prior to the auction process, the operation of the other clauses
in the lease would have been hugely to her disadvantage. Although, had she moved
out, she would not (hypothetically) have been liable to pay the backdated upset rent,
all the improvements (valued at more than the amount of the upset rent) would have
reverted to the Board.
I do not for one moment think that she would have
countenanced taking a $375,000 hit by vacating prior to the auction.
[123] In my view the actuating cause of her (hypothetical) loss would be the delays
in the rent review and auction processes which, in my view, were largely occasioned
by her. As well, those delays began prior to the making of any of the pleaded
representations, when (in my opinion) she chose not to respond to the letters sent by
the Board in December 2008 and March 2009.
[124] That is, however, as far as I can take the matter.
The second cause of action: costs of remedial work
[125] The Board also sought judgment for the costs incurred in relation to the
remedial work done on the property, in reliance on cls 5 and 7 of the lease. The final
cost of that work was $117,042.60, together with costs of $2,284.59 in relation to the
preparation of the Cove Kinloch report. As noted earlier, the Board does not claim
the costs of improvements it has made to the property after she moved out.
[126] Mrs Chen’s defence to the claim has a number of aspects.
Ms Wickes
submitted:
(a)
clause 5 does not require a lessee to “put” the improvements in repair,
namely to bring them to a higher standard than at the date of purchase,
or to remedy deterioration that has occurred as a result of the “natural
operation of the elements and the effluxion of time”;
(b)
Mrs Chen is not responsible for many of the matters that were
remediated, including (for example) the allegedly unconsented
modifications to the sunroom or basement, which were removed;
(c)
any damages payable should be calculated on an ordinary (Hadley v
Baxendale) basis, namely where recoverable losses are limited to
those that would have been in the reasonable contemplation of the
parties at the time they entered the lease, in the event of a breach.24
[127] Mrs Chen also denies that she took various fixtures (oven, vanity units and
doors) from the house when she gave up possession.
[128] These contentions appear to me to raise three principal issues:
(a)
What did the lease require Mrs Chen to do?
(b)
Did she comply with her obligations?
(c)
If not, how are damages to be measured?
[129] I address each in turn.
Repair Standard: What does the lease require?
[130] There are two repair covenants in the lease: cls 5 and 7.
Clause 7 is
unequivocal in its terms. In essence, it provides that every five years the lessee is to
paint the outside of the buildings and also to “paint, paper varnish and colour” the
relevant interior parts of the buildings.
[131] Clause 5 requires the lessee to “keep and maintain” and at the end of the lease
to “yield and deliver up” the buildings, fences, hedges, gates, drains and sewers “in
good clean and substantial order condition and repair”.
[132] As I have said, Ms Wickes contended that cl 5 does not impose a positive
obligation on a lessee to put the buildings “in” repair. But I reject that submission at
the outset. It is inconsistent with the wording of the clause and with established
authority. For example, in Masterton Licensing Trust v Finco the Court said:25
What is the meaning of the words “keep and maintain in good and tenantable
weatherproof wear and condition?” The words “keep and maintain”
admittedly oblige the covenantor, if the premises are not already in the
24
25
Hadley v Baxendale (1854) 156 ER 145, 9 Ex 341 (Exch).
Masterton Licensing Trust v Finco [1957] NZLR 1137 (CA) at 1142.
condition covenanted for, to put them in that condition: Proudfoot v Hart
(1890) 25 QBD 42; and there appears to be no difference in this regard
between the covenant of a lessee and that of a lessor: Torrens v Walker
[1906] 2 Ch 166. The appellant is therefore obliged by the covenant to keep
and maintain (and if necessary to put) the premises in a certain condition.26
[133] There was, however, also disagreement between Mr Casey and Ms Wickes
about the relevant “condition” into which the Maungakiekie Avenue property was
required to be put and left. That question is, perhaps, particularly acute in a case of a
(perpetually renewable) long term lease, where the building in question was
constructed in the 1920s.
[134] Mr Casey submitted that guidance could be found in the recent judgment of
this court in Auckland Waterfront Development Agency Limited v Mobil Oil
Limited.27 There, after referring to the so-called “Anstruther” line of authorities,28
Katz J held that the “clean and tidy” clause in that case required the lessee to keep
the land in a condition that would be regarded as suitable for a lessee of the class
who would have been likely to occupy the land as at 1985 (when the relevant
tenancy began) and to deliver the land up in that condition. On that analysis, Mr
Casey said that the relevant benchmark in this case was set at 1988, when Mrs
Chen’s lease term began.
[135] I have found that the Mobil decision is, with respect, not particularly helpful.
The issue in that case was whether the benchmark date was the beginning of the
lessee’s tenancy or 60 years before that, when a leasehold interest in the land had
first been created. Moreover the reason the date mattered in the Mobil case was
26
Mr Casey also referred me to a passage from Laws of New Zealand Lessor and Lessee, which is
to similar effect. Para 210 states (in part):
In the case, however, of a covenant by the lessee for general repair (such as a
covenant to repair the demised premises and to yield them up in good and
substantial repair and condition, or to keep and leave them in good and tenantable
order and repair, or as often as occasion requires well and substantially to repair,
uphold, and keep them, and the same so well and substantially repaired, upheld, and
kept to yield up at the end of the term), the particular form of words used is
immaterial so long as it plainly expresses the intention that the premises are to be
repaired, kept in repair, and yielded up in repair. In each case the obligation upon
the lessee is to keep and deliver up the premises in a state of repair proper for such
premises. The lessee may, therefore, be liable to put the premises into a better
condition than they were in at the time of the letting. (emphasis added)
27
28
Auckland Waterfront Development Agency Limited v Mobil Oil Limited [2014] NZHC 84 at [77].
Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716 (CA).
because the land had become increasingly contaminated over the years between the
date of the earliest lease and the commencement of Mobil’s tenancy in 1985.29 On
the evidence there was thus a clear-cut “before and after” scenario. Moreover it was
relatively easy for the court to make assumptions about the qualities that a
hypothetical 1985 lessee would have possessed, simply because the land was, at that
date, designated as industrial land.
[136] Here, no-one is suggesting that the state of the house at 21 Maungakiekie
Avenue in the 1920s is the relevant benchmark.
And as far as the proposed
benchmark of 1988 is concerned, the difficulty is that the Board called no evidence
about the state of properties in the Cornwall Park area at that time. Instead, Mr
Casey effectively submitted that some form of judicial notice could be taken of the
fact that “park side” properties of this kind are likely to have always attracted tenants
at the upper end of market. While I accept that that may not be an unreasonable
assumption to make I am reluctant to set an important benchmark in an evidentiary
vacuum.
[137] On Mrs Chen’s behalf, Ms Wickes submitted that regard must be had to age
and character at the beginning of lease and there was no obligation to keep the house
“up to date”. She referred me in particular to Card v Bilderbeck where Hay J said:30
… provided that the premises are kept in a habitable condition the lessee is
not responsible for such deterioration as the premises may suffer as a result
of the natural operation of the elements and the passage of time.
[138] But the decision in Card makes clear that the fact that the premises were old
at the time of the demise does not mean that a lessee is relieved of the burden of the
covenant to repair. I also accept Mr Casey’s submission that it was a monthly
tenancy that was there at issue. And as Hay J noted, there will often be real
difficulty in determining the dividing line between “worn out parts” and “parts
which have suffered deterioration form the natural operation of the elements and the
passage of time”.
29
30
In fact it seems that the land was already somewhat contaminated prior to the first lease of it.
Card v Bilderbeck [1951] NZLR 296 (SC) at 299.
[139] Ms Wickes also submitted that cl 5 of the lease did not survive the expiry of
the term and that on that basis a “fair wear and tear” clause could be implied instead.
The suggestion that the repair covenants have been extinguished because the lease
term has expired is, with respect, facile. An obligation to do something (“yield and
deliver up”) at the end of the lease would be meaningless if, in fact, that obligation
ceased at the end of the lease. That is particularly so when, as here, the lease
contemplates that a lessee may well remain in possession beyond the expiry of the
term, and in circumstances such as the present, it is overwhelmingly in the lessee’s
interest to do so.
[140] Ultimately, therefore, I think it is unhelpful to consider the issues here in
hypothetical terms or by reference to other cases. It seems to me that the real and
relatively straightforward question is whether the relevant work done by the Board in
relation to 21 Maungakiekie Avenue and for which it now claims, falls within the
wording of the two repair covenants in the lease. The question simply is whether, as
at November 2011, it can be said that the property:
(a)
had been painted inside and outside within the previous five years;
and
(b)
was in “good” order and repair, “clean” order and repair and
“substantial” order and repair.
[141] I consider that these quite uncomplicated words mean that the lease required
Mrs Chen as lessee to “yield and deliver up” a house (including fences, gates etc):
(a)
in which anything that was broken or not working (such as doors and
windows) had been fixed;
(b)
which did not leak;
(c)
in which water damage had been remediated and mould removed;
(d)
that were not dirty (inside and out);
(e)
that had no rot;
(f)
in which any fixtures that were at the end of their life expectancy
(carpets, roof, hot water cylinder) had been replaced;
(g)
in which any electrical and plumbing work done met the applicable
regulatory standards;
(h)
from which there were no missing fixtures (such as doors, the stove,
and bathroom vanities);
(i)
which had been painted inside and out within the last five years; and
(j)
which did not contain additions or alterations made in breach of the
lease (ie to which the Board had not consented);
Did Mrs Chen comply with these obligations?
[142] I reject Mrs Chen’s evidence that there was significant further deterioration in
the property between November 2011 when she vacated the property and when it
was inspected three months later or when the work was done. Her evidence is belied
by the photos that were taken of the house at around the time of the auction (which
was before she left) and by the Board’s uncontradicted expert evidence.
[143] The auction photos and the photos taken a little later on do not show a
property that met the requirements of the list I have just articulated. The evidence of
all those who saw the property in the first half of 2012 confirms that view.
[144] Nor do I accept Mrs Chen’s contention that certain of the fixtures found to be
missing from the house must have been stolen. There was no evidence of a break in
and I do not consider that burglars would go to the trouble of removing doors, stoves
and vanity units. The only plausible explanation is that she arranged herself for
these to be taken, prior to her departure.
[145] I also reject as irrelevant Mrs Chen’s evidence about what the property was
like when she moved into it. While I am prepared to accept that it may already have
been in some disrepair and that some unauthorised alterations may well have been
done to it, such matters do not detract from her liability to “keep and maintain” and
to “yield and deliver up” the property in the condition just mentioned. That is the
responsibility she took on when she chose to purchase the lease.
[146] Although issue was also taken by Ms Wickes with a number of specific repair
items in the schedule prepared by Mr Williams, I do not consider that it is
appropriate for the court to engage with such a finicky approach. In my judgment
the Board has taken care to be fair, and even conservative (favourable to Mrs Chen)
in its assessment of what work does and does not fall within the covenants. In that
respect I specifically record that:
(a)
when instructing Cove Kinloch to prepare a report on the remediation
work required, the Board was careful to express those instructions by
reference to the exact wording of the repair covenant in the lease;
(b)
Cove Kinloch’s estimates were reviewed, and the work required to
effect the repairs revaluated, by Mr Williams. In my assessment Mr
Williams was assiduous in ensuring that the most cost-effective
remediation options were pursued. This resulted in a considerable
reduction in the overall cost incurred; and
(c)
as I have said, although the Board instructed Mr Williams to effect
certain improvements to the property, no claim against Mrs Chen has
been made for those.
[147] Accordingly, and based on the evidence before me, it is my clear view that
the repair items for which claims are now made by the Board fairly reflect the nature
and extent of Mrs Chen’s breaches of the repair covenants.
What is the appropriate measure of damages?
[148] In his decision declining the Board’s summary judgment application against
Mrs Chen, Associate Judge Faire (as he then was) said:
[70]
Both counsel were in agreement that the law that must be applied is
that which was approved by the Court of Appeal in Maori Trustee v Rogross
Farms Ltd which applied the rule in Joyner v Weeks, namely that where there
is a covenant to leave the premises in repair at the end of the term and such
covenant is broken, the lessee must pay what the lessor proves to be a
reasonable and proper amount for putting the premises into the state of
repairs in which they ought to have been left. The rule is not an absolute rule
but is a prima facie rule which would be applied.
[149] Before me, however, Ms Wickes contended that the decisions in Joyner v
Weeks31 and Maori Trustee v Rogross Farms Ltd32 do not apply because they
concerned breaches of a covenant to repair “demised premises”, whereas here, the
house at Maungakiekie Avenue was not “demised”, but in fact owned by Mrs Chen.
She submitted that, instead, a “first principles” (Hadley v Baxendale)33 approach
should instead be adopted and that damages should be measured by reference to the
loss that naturally arises from the relevant breach and which can thus be said to have
been reasonably supposed to be in the contemplation of the parties at the time the
contract was entered into. As I understood it, she then contended that any such loss
must, in the present case, be minimal because neither party contemplated at the
beginning of the lease that the improvements would revert to the Board.
[150] Again, however, I cannot accept this submission.
I consider that the
“demise” point raises a distinction without a difference and is thus a red herring.
And the lease clearly does contemplate that, in certain circumstances, the
improvements will revert to the Board.
[151] As far as the rule in Joyner v Weeks is concerned, however, I accept that it has
been the subject of long-standing criticism and, indeed, has now been ameliorated by
statute in the United Kingdom.
31
32
33
In 1991 the New Zealand Law Commission
Joyner v Weeks [1891] 2 QB 31 (CA).
Maori Trustee v Rogross Farms Ltd [1994] 3 NZLR 410 (CA).
Hadley v Baxendale, above n 22.
recommended similar legislative modification.34 That is principally because, when
applied indiscriminately and without exception, the rule may not yield a damages
award that reflects the actual loss suffered by a lessor. The example most often
given is that of a lessor who intends to demolish, rather than repair, the demised
premises once they have reverted to him. Thus there are a number of cases in which
the rule has not been applied, and the ordinary measure of damages adopted.
[152] But the Court of Appeal in Rogross expressly confronted these criticisms.
The Court said there was a “strong case” for retaining the rule on a prima facie basis,
“if only because people who have agreed to do something should, prima facie at
least, be required to do it”.35 It concluded:36
We would therefore state the law as follows. The rule in Joyner v Weeks is
not an absolute rule. It is, however, the prima facie rule which will be
applied unless the lessee can show by sufficiently cogent evidence that in
both the short and the long term the lessor will definitely suffer no loss or
will suffer a loss which can definitely be assessed at less than the prima facie
measure.
[153] That, then, is the question that must be asked in the present case. Can Mrs
Chen demonstrate that the Board has either suffered no loss or has suffered a loss
that is less than the prima facie measure?
[154] Had the Board sought to enforce the repair covenants during the term of the
lease, I accept that there are arguments that the rule in Joyner should not apply.
Indeed there has always been an exception to the rule in those circumstances. The
loss recoverable by the Board in that event might then take into account the fact that
it did not, and might never, own the improvements. It could be argued that any
damages payable to the Board should be based on an assessment of such things as:
(a)
the Board’s contingent future loss (based on the possibility that the
improvements might later revert);
34
35
36
Law Commission Aspects of Damages: The Rules in Bain v Fothergill and Joyner v Weeks
(NZLC R19, 1991).
Maori Trustee v Rogross Farms Limited, above n 30, at 420.
At 420.
(b)
loss of the kind of wider amenity value noted by the Supreme Court at
[72] of Mandic;
(c)
any adverse effect the disrepair had on the value of the land.
[155] But the applicability of even this standard exception to the rule in Joyner
might be doubted in the case of the present lease. That is because cl 15 of the lease
provides:
15.
IN CASE the Lessee shall make default in the observance or
performance of any of their obligations hereunder the Lessors shall be at
liberty at any time or from time to time to enter upon the said land and to do
execute and perform or procure to be done executed or performed all such
acts deeds matters and things as may in their opinion be necessary or
expedient for the complete (or at their option) partial observance and
performance of the said obligations or any of them and all moneys paid and
costs and expenses incurred in or about so doing shall be recoverable by the
Lessors from the Lessee by action at law or otherwise and in the same
manner as rent in arrear.
[156]
This appears to me to be an express contractual recognition that the rule in
Joyner is to apply, regardless of whether the term of the lease had expired.
[157] Even if I am wrong in that, however, the term has expired and the
improvements have reverted to the Board.
The presumption in favour of the
application of the rule in Joyner has thus been activated.37 The possibility of such
reversion is expressly contemplated by the lease where either:
(a)
the lease is terminated prior to the expiry of the term; or
(b)
the lessee does not renew at the end of the term and the lease then
does not sell at auction.
37
If Mrs Chen’s lease had, following its expiry, sold at auction at the new upset rent, without the
repairs having been undertaken, then there would at least be an argument that the Board had
suffered no loss. But that is not, of course, the case.
[158] The Board’s position necessarily is that, in either of those events, the lease
makes it clear that the Board is entitled to expect that the improvements had been
maintained to the required standard. The cost of bringing them up to that standard is
therefore the relevant loss to the Board.
[159] Mrs Chen’s position presumably is that the Board could sell the lease with the
improvements unrepaired and that the price it received for the improvements would
simply then have reflected their condition. Conversely, if the Board succeeds in
selling the lease now, it will presumably receive a higher price for the improvements,
reflecting the repair work that has been done. On that analysis, any loss suffered by
the Board could not be equated to the cost of repairs.
[160] But any such submission does not in my view reflect the orthodox approach
to damages for breach of contract. As the Court of Appeal said in Rogross:38
It should be said at the outset that the rule [in Joyner] is not as inconsistent
with general principles in relation to the assessment of damages for breach
of contract as has on occasions been suggested. Damages in tort are designed
to reflect what the plaintiff has lost by reason of the wrong. Damages in
contract are designed to represent the monetary equivalent of the promised
benefit which has not been provided. In other words, they are designed to put
the injured party, as nearly as possible, and so far as money can do it, into
the position he would have been in if the contract had been performed.
Thus, if a lessee fails to perform a covenant and the term has expired a sum
of money must replace the performance of the covenant. That sum of money
will ordinarily equate the cost to the lessor of having the covenant
performed. It is when the lessor is unable or does not wish, for whatever
reason, to have the covenant performed that the difficulties said to be
inherent in the rule arise. It follows that there is justification for holding that
the rule is not absolute. But on a prima facie basis the rule fits comfortably
with the purpose of damages for breach of contract.
[161] Put simply, then, the Board has suffered loss because it did not receive the
bargain for which it contracted. And in this case there can be no debate that the
Board did wish to have the repair covenant performed; that is evidenced by the fact
that it has now undertaken the repair works itself. Its decision to do so appears to me
to not only be sensible in and of itself but consistent with what the Supreme Court
said in Mandic at [72]:39
38
39
Maori Trustee v Rogross Farms Limited, above n 30, at 418 – 419.
Mandic v The Cornwall Park Trust Board (Inc), above n 2.
… the restrictions in question are akin to…covenants which are intended to
enhance ultimate values. While the relevant restrictions might conceivably
be to the detriment of a particular lessee, they are generally for the collective
benefit of all the lessees as they provide a mechanism by which the Trust
Board can maintain the general amenities of the area.
[162] And because the repairs have been undertaken, the quantum of damages can
now, quite easily, be quantified. The Board’s claim for its repair costs (and for the
costs of the Cove Kinloch report) must succeed accordingly.
Conclusions
[163] By way of summary of this rather long judgment:
(a)
The Board’s claim for backdated rent at the upset level is dismissed.
In my view the claim is not supported by the terms of the lease,
properly interpreted.
(b)
Because of my conclusion in (a) it is neither necessary nor possible to
make factual findings in relation to Mrs Chen’s affirmative defences
of estoppel and breach of the Fair Trading Act. Had it been necessary
to consider those defences, however, I would have rejected them on
the grounds that the necessary causal connection between the relevant
detriment or loss suffered by Mrs Chen (namely liability to pay the
backdated upset rent) and the pleaded conduct of the Board is absent.
(c)
The Board’s claim for breach by Mrs Chen of the repair covenants in
the lease succeeds, and she is liable to pay damages to the Board in
the sum of $119,327.19, together with interest on that amount.
[164] It seems to me that both sides have had a broadly equivalent measure of
success (and failure). This may well be a case where costs should lie where they fall.
If either party disagrees memoranda may be filed.
[165] If the Board wishes to make further submissions as to some other basis upon
which the rent payable by Mrs Chen for the period between the expiration of the
lease and her vacation of the premises should be calculated I grant it leave to do so.
Ms Wickes would then, of course, be entitled to respond.
____________________
Rebecca Ellis J
Memorandum of Lease
CORNWALL PARK TRUST BOARD duly incorporated under the
Charitable Trusts Act 1957 (hereinafter called “the Lessor”) being registered
as proprietor of an estate in fee simple
subject, however, to such encumbrances, liens and interests as are notified by
memoranda underwritten or endorsed hereon, in that piece of land situated in
the land District of North Auckland containing 1297m more or less being
Lot 188 Deposited Plan 18124 and being part Allotment 10 Section 12
Suburbs of Auckland and being all the land comprised and described in
Certificate of Title 9B/359
SUBJECT TO:
A262567
Fencing covenants in Lease Nos 20231 and
DO hereby LEASE to GLYN REGINALD JUDSON, of Auckland,
Company Executive and MADELEINE MAY JUDSON his wife
(hereinafter called “the Lessee”) all the said lands to be held by the Lessee as
tenant for the term of twenty-one years commencing from the 30th day of
March One thousand nine hundred and eighty eight YIELDING AND
PAYING therefor unto the Lessors the annual rental of $8,300.00 payable by
equal half-yearly payments in advance on the 30th day of March and
September in each year during the said term Subject to the following
covenants conditions and restrictions: –
1.
THE Lessee will duly and punctually pay the rent hereby reserved at
the times and in manner hereinbefore provided.
2.
THE Lessee will during the said term duly and punctually pay all
rates taxes impositions charges assessments and outgoings which are now or
which may become payable whether by Landlord or tenant in respect of the
demised premises (Landlords Land and Income Tax alone excepted).
THE Lessee will at all times during the term hereof keep the said land
enclosed with a good and substantial legal fence without making claim to
any contribution therefor from the Lessors
4.
THE Lessee will in the event of desiring to build upon the demised
premises, lodge with the Lessors for their approval two copies of the plans
and specifications of the building proposed to be erected by them (one copy
whereof to be retained by and become the property of the Lessors) and will
not erect any such building until such plans and specifications have been
approved in writing by the Lessors first had and obtained erect more than
one dwelling on the said land nor any building other than a dwelling house
and the usual outbuildings and offices appertaining thereto.
5.
THE Lessee will during the said term keep and maintain and at the
end or sooner determination thereof yield and deliver up the said land and all
buildings fences hedges gates drains and sewers now or hereafter erected
constructed or being upon bounding or under the same in good clean and
substantial order condition and repair.
6.
THE Lessee will insure and at all times during the said term keep
insured all buildings for the time being erected upon the said land in the joint
names of the Lessors and the Lessee in some responsible insurance office in
Auckland to be approved of by the Lessors and will deposit with the Lessors
the policy for such insurance and will three days at least before each
successive premium for the renewal of such insurance shall become due
hand to the Lessors the receipt for the payment thereof and in the even t of
the said buildings or any of them being destroyed or damaged by fire all
moneys received under or by virtue of such insurance shall be forthwith
expended by the Lessee in reinstating or repairing the building or buildings
destroyed or damaged.
7.
THE Lessee will only once in every fifth year of the said term in a
proper and workmanlike manner paint all the outside wood and iron work of
such buildings as aforesaid with two coats of good and suitable oil and lead
colours and will also once in every fifth year of the said term in like manner
paint paper varnish and colour all such parts of the inside of the said
buildings as are usually painted papered varnished or coloured respectively.
8.
THE Lessee will not assign sublet or part with the demised land or
any part thereof without the previous written consent of the Lessors for that
purpose first had and obtained provided that such consent shall not be
unreasonably or arbitrarily withheld.
8A
This Lease is in renewal of Lease A262567
9.
THE Lessee will not without first obtaining the Lessors consent in
writing to do so use the demised premises other-wise than for residential
purposes nor carry on or permit to be carried on upon the demised premises
or any part thereof any trade or business whatsoever nor use or permit to be
used any portion of the demised premises or anything connected therewith as
an advertising board or station or for the display of boards posters or notices
nor do or suffer to be done thereon any act which may become or prove a
nuisance or annoyance to the neighbourhood.
10.
THE Lessors shall not be liable to erect or maintain or contribute
towards the cost of the erection or maintenance of any dividing or boundary
fence or portion thereof between the land hereby demised and any adjoining
land the property of the Lessors but this provision shall not enure to the
benefit of any purchaser or lessee of such adjoining land.
11.
THE Lessors by their servants or agents shall be at liberty at all
reasonable times during the said term to enter upon the demised premises
and view the condition and state of repair thereof and serve upon the Lessee
notice of any repairs required by the Lessors and within two calendar months
from the date of service of such notice all repairs specified therein shall be
carried out by the Lessee to the satisfaction of the Lessors.
12.
THE Lessee will forthwith clear the said land of all gorse briar b
rambles thistles and other noxious vegetation and will comply with and
indemnify the Lessors against all liability under the provisions of The
Noxious Weeds Act, 1950 and every statutory amendment or modification
thereof for the time being subsisting and will during the said term use all
reasonable means to keep the said land free and clear of such noxious
growths and vegetation.
13
(a)
On the expiration by effluxion of time of the term hereby
granted and thereafter at the expiration of each succeeding term to be
granted to the Lessee or to the purchaser at any auction under the
provisions hereinafter contained the outgoing Lessee shall have the
right to obtain in accordance with the provisions hereinafter
contained a new lease of the land hereby leased at a rent to be
determined upon the basis of the valuation to be made in accordance
with the said provisions for the term of twenty-one years computed
from the expiration of the expiring term and subject to the same
convenants and provisions as this lease as may be applicable to such
new lease.
(b)
Within tewelve calendar months previous to the expiration
by effluxion of time of the term hereby granted or such succeeding
term as aforesaid two separate valuations shall be made namely a
valuation of the then gross value of the fee simple of the land then
included in the lease and also a valuation of all substantial
improvements of a permanent character made or acquired by the
Lessee and then in existence on the land.
(c)
The said valuation shall be made by two indifferent persons
as arbitrators one of them shall be appointed by the Lessors and the
other by the Lessee and such arbitrators shall before commencing to
make the valuations together appoint a third person who shall be an
umpire as between them.
(d)
The decision of the two arbitrators if they agree or of the
umpire if the arbitrators do not agree or in such respects as they do
not agree shall be binding on all parties.
(e)
The duty of the umpire on reference to him of any question
shall be to consider the respective valuations of the two arbitrators in
the matter in which their valuations do not agree and then to make an
independent and substantive valuation and the last mentioned
valuation shall be the decision of the umpire but in giving his
decision on any question so referred to him the umpire shall in every
case be bound to make a valuation not exceeding the higher and not
less than the lower of the valuations made by the arbitrators
respectively.
(f)
The provisions herein contained for the making of valuations
shall be deemed to be a submission to arbitration under and within
the meaning of The Arbitration Act 1908 or any enactment for the
time being in force in substitution therefor or amendment thereof
and all the provisions of any such enactment shall so far as
applicable apply accordingly.
(g)
On every such arbitration each party shall pay his costs of
such reference including the fees of the arbitrator appointed by him
and all costs incidental to the appointment of the umpire and the fees
of the umpire shall be paid equally by the parties to the arbitration.
(h)
Before the expiration by effluxion of time of such term as
aforesaid or if the valuation be not completed at an earlier period
than two months before such expiration of the said term then within
two calendar months of the decision of the arbitrators or umpire as
the case may be and the giving of notice thereof to the Lessee the
Lessee shall give notice in writing signed by them or their agent duly
authorised in that behalf and delivered to the Lessors stating whether
they desires to have a renewed lease of the said land at an annual
rental equal to five pounds per centum on the gross value of the land
after deducting therefrom the value of the substantial improvements
of a permanent character as fixed by the respective valuations as
foresaid.
(i)
Any such notice may be given by the Lessee within the time
aforesaid although the term hereby granted has already expired
through effluxion of time and although the said valuation has not
been made or notice thereof has not been given to the Lessee until
after the expiration of the said term by the effluxion of time unless
before the giving of such notice by the Lessee they have given up the
possession of the land hereby leased or they have been duly ejected
therefrom in pursuance of the judgment or order of any Court of
competent jurisdiction or the land has been re-entered upon by the
Lessors as hereinafter provided.
(j)
Any such notice by the Lessee of their desire to have a new
lease shall be deemed to constitute a contract between the Lessors
and the Lessee for the granting and acceptance of a new lease at the
rent fixed and determined upon the basis aforesaid and for the term
and subject to such of the covenants and provisions as are herein
contained including the provisions herein contained for valuations
and for the right to a new lease at such valuation of rent made and
determined as aforesaid or the offer of a new lease for sale by
auction and all clauses auxiliary or in relation there to.
(k)
If the Lessee fail within the time aforesaid to give any notice
whether they desire a renewed lease or not or if they give notice in
writing signed by them or their agent duly authorised in that behalf
that they do not desire a renewed lease then within two months of
the expiry of the time within which such notice may be given or
within such further or other time as may be agreed on between the
Lessors and the Lessee the right to a lease for a further period of
twenty-one years containing such covenants and provisions
contained in this lease as are applicable to such new lease including
the provisions herein contained for valuations and for the right to a
new lease at a rental determined upon the basis aforesaid or the offer
of a new lease for sale by auction and all clauses auxiliary or in
relation thereto shall be offered by the Lessors by public auction at
the upset rental of the said land as ascertained and determined upon
the basis of the valuations of the arbitrators or the umpire as
aforesaid subject to the payment by the purchaser other than the
outgoing Lessee of the value of the said buildings and improvements
as so determined by the said arbitrators or their umpire provided
always that in case any of the said improvements shall be destroyed
or appreciably damaged by fire at any time between the date when
the valuation thereof shall be made and the date when the new lease
aforesaid shall be offered for sale at auction then such an abatement
and deduction shall be made from the sum payable by the incoming
tenant on account of the improvements as may be agreed upon
between the Lessors and Lessee or failing such agreement as may be
settled by arbitration in manner hereinbefore expressed. The costs
and expenses of such auction shall be borne and paid by the Lessee.
(l)
If any person other than the outgoing Lessee become the
purchaser at the said auction of the said right to a lease that person
shall within two calendar months from the date of the auction pay in
case to the Lessors in trust for the Lessee the amount of the value of
the buildings and improvements so determined as aforesaid and
accept and execute a new lease of the said land for the said further
term at the annual ground rent at which the right to the said lease has
been so purchased by him provide always that the purchaser at such
auction shall not be let into possession of the said premises until he
shall have so paid in cash the sum aforesaid but the Lessors shall not
be further or otherwise bound to see to the payment of the said sum.
(m)
The Lessors shall on demand (all rent and outgoings payable
by the Lessee having previously been paid) pay over to the outgoing
Lessee the amount of the value of the said buildings and
improvements paid to them by the said purchaser without any
deduction whatever except rent or other payments provided for in
the lease in arrear (if any) and the costs and expenses of the auction
as aforesaid.
(n)
Nothing in these presents contained shall be deemed to
render the Lessors liable to pay to the Lessee any part of the value of
any buildings or improvements save after the Lessors have received
the amount thereof as aforesaid.
(o)
Upon any sale by auction as aforesaid of a right to a lease
the Lessors may make usual and any other fair and reasonable
conditions of sale to carry out the intentions of these presents and in
particular shall provide for the payment by the purchaser at the
auction (if a person other than the Lessee) of a deposit of one-fourth
of the amount of the valuation of the buildings and improvements or
of such smaller deposit as is agreed upon between the Lessors and
Lessee and that in the event of the purchaser refusing or neglecting
to complete his purchase according to the conditions of sale he shall
forfeit such deposit to the Lessors for the benefit of the Lessee.
(p)
In any such conditions of sale the Lessors may in addition
provide that if the purchaser refuses or neglects to complete the
purchase according to the conditions of sale he shall pay to and for
the benefit of the Lessors as liquidated damages a sum not exceeding
one half the total deficiency (if any) during the term of years of the
rent agreed to be paid by the new purchaser at the subsequent sale by
auction held in consequence of the default of the original purchaser
as compared with the rent that would have been reserved had such
original purchaser not made default together with all expenses
attending the first sale.
(q)
If owing to delay on the part of the arbitrators or the umpire
or otherwise the right to a new lease is not offered by auction before
the expiration of the term hereby granted or if owing to the
purchaser other than the outgoing Lessee at any auction refusing or
neglecting to complete his purchase according to the terms and
conditions thereof the purchase is not completed then and in any
such case the right to a new lease shall be offered at auction to the
Lessee’s expense soon as conveniently can be after the expiration of
the term hereby granted or (as the case may be) after such refusal or
neglect as aforesaid notwithstanding that the term hereby granted has
expired.
(r)
If the purchaser at the last-mentioned auction being any
person other than the Lessee makes default as aforesaid the right to
the new lease shall again be offered at auction at the Lessee’s
expense as soon as conveniently can be after such default and so on
from time to time.
(s)
In every case in which the right to a new lease is sold by
auction the new term shall run from the date of the expiration of the
then expiring term but the rent of a purchaser other than the outgoing
Lessee shall not begin to run until the purchaser obtains possession.
(t)
The Lessee shall whilst and so long after the expiration of
the term hereby granted as they retain possession of the said land
pending the granting of a new lease as aforesaid pay to the Lessors
for the period during which retain such possession a rental calculated
upon the basis of the upset rent as valued and fixed in manner
aforesaid.
(u)
If the Lessee make default in payment of rent hereby
reserved or any part thereof or make breach in the observance or
performance of any covenant or agreement herein contained or
implied on their part to be observed or performed and such default
be not waived by the Lessors the Lessee shall not be entitled to bid
at any such auction or become the purchaser of such lease but save
as aforesaid the Lessee shall have the right to bid for and become the
purchaser of the right to a new lease at any such auction.
(v)
The Lessors shall be bound in all cases to accept at any such
auction the highest bid made thereat for the new lease if that bid is
not less than the upset annual ground rent as valued in manner
aforesaid.
(w)
If at any auction no person shall become the purchaser at a
rental equal to or greater than the upset rent as ascertained and
determined in manner aforesaid then at or (as the case may be) as
from the expiration of the then expiring term the land hereby leased
with all buildings and improvements thereon shall absolutely revert
to the Lessors free from any payment or compensation whatever and
from any obligation to grant a new lease.
(x)
At every auction held under the foregoing provisions the
conditions of sale shall be the same (so nearly as may be) as those in
respect of the first auction hereinbefore provided for.
(y)
In the event of the term hereby created being determined by
forfeiture or otherwise than by effluxion of time the Lessee shall not
be entitled to any compensation for buildings or improvements.
14.
IN CASE the rent hereby reserved or any part thereof shall be in
arrear and unpaid for the space of fourteen days after any of the days hereby
appointed for payment thereof respectively the Lessors may thereupon or
any time thereafter levy the same or the unpaid portion thereof by distress.
15.
IN CASE the Lessee shall make default in the observance or
performance of any of their obligations hereunder the Lessors shall be at
liberty at any time or from time to time to enter upon the said land and to do
execute and perform or procure to be done executed or performed all such
acts deeds matters and things as may in their opinion be necessary or
expedient for the complete (or at their option) partial observance and
performance of the said obligations or any of them and all moneys paid and
costs and expenses incurred in or about so doing shall be recoverable by the
Lessors from the Lessee by action at law or otherwise and in the same
manner as rent in arrear.
16.
IN CASE the rent hereby reserved or any part thereof shall be in
arrear and unpaid for the space of twenty-eight days after any of the days
hereby appointed for payment thereof respectively whether the same shall
have been legally demanded or not or in case of default by the Lessee in the
observance or performance of any of their obligations (whether affirmative
or negative) hereunder then and in any such case it shall be lawful for the
Lessors by their servants or agents thereupon or at any time thereafter
without suit to re-enter upon the demised land or any part thereof in the
name of the whole and the Lessee and all other occupiers thereof thereout to
expel and remove and the same to have again repossess and enjoy as in their
former estate anything herein contained or implied to the contrary not
withstanding but without prejudice to the rights and remedies of either of the
parties hereto against the other of them in respect of any prior breach of any
of their obligations herein contained or implied.
17
PROVIDED LASTLY AND IT IS HEREBY EXPRESSLY
AGREED AND DECLARED that all covenants and provisions contrary to
or repugnant with the covenants and the provisions hereinbefore contained
and which but for this declaration would or might be implied herein by
virtue of the Land Transfer Act 1952 or the Property Law Act 1952 or
otherwise are hereby negative and shall not be implied herein.
GLYN REGINALD JUDSON and MADELEINE MAY JUDSON the abovenamed Lessee do hereby accept this lease of the above-described land to be
held by as tenant and subject to the covenants, conditions and restrictions
above set forth.