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Written by David McDonald (Partner, McDonald Brummer) for the Conveyancing Bulletin
Landlord and tenant
The Property Law Act 2007 distinguishes between the cancellation of a lease for non-payment of rent and for the breach of other covenants — both as to the process and the availability of relief. The orthodox understanding is that where the breach is solely a failure to pay rent, payment of the rental arrears and costs leads to a presumptive right to relief. But this is just a presumption. Beattie v Mason [2023] NZHC 3613 provides a recent illustration of both the importance of paying the landlord’s costs, not just the rental arrears, and other considerations — there the relationship between landlord and tenant — that may weigh against the grant of relief. The judgment is considered by David McDonald.
Beattie v Mason
[2023] NZHC 3613
Relief against cancellation of lease — failure to pay rent — relief not granted — not feasible to expect landlord to continue the landlord/tenant relationship — factors usually taken into account in deciding whether to grant relief — relevance of tenant’s conduct — whether application would be able to be dealt with by arbitration — effect of “no set-off” clause — whether defaulting tenant should pay landlord’s costs — Property Law Act 2007, ss 246 and 256
Background
The Respondent (Mason) was the owner of a farm property and, as part of a plan to distribute assets to her family, in 2009 Mason entered into an arrangement with her daughter and son-in-law (the Beatties) whereby:
The Court accepted the Beatties’ evidence that, at the time these arrangements were put in place, it was intended that the $230,000 debt would ultimately be forgiven, either during Mason’s lifetime or in her Will.
In 2019, the parties entered into a further agreement whereby the Beatties purchased a second parcel of land which required a boundary adjustment, and it was intended that the extra land would be leased back to Mason on the same basis as for the original 23 ha. The purchase price was paid before the boundary adjustment was completed on the basis that Mason would finalise it within 12 months, which she did not do.
In 2021, difficulties had arisen in the relationship between Mason and the Beatties. Mason had not met her obligations as tenant, in that she had not properly maintained the property and had fallen into arrears with rent and outgoings, and she also employed her son (K) on the farm, knowing that K was facing criminal charges with regard to his conduct toward Mrs Beattie and had been convicted on a charge of willful damage to the Trust’s property. The Trust’s lawyers raised these concerns with Mason but, when no resolution was forthcoming, a notice of intention to cancel the lease under s 246 of the Property LawAct 2007 (PLA) for non-payment of rent and rates was served. Mason still took no steps to remedy the breaches and the Trust issued these proceeding asking for orders cancelling the lease, awarding possession of the land, and giving judgment for arrears, interest and costs. In response, Mason opposed the applications, applied for relief against cancellation, and made demand for repayment of the $230,000.
Issues
The Court identified two issues to be decided, namely:
First issue — is the Trust entitled to cancel the lease?
In opposing the application, Mason argued that:
The Court concluded that The Trust had established a right to cancel the lease.
Issue 2 — should relief against cancellation be granted?
In opposing the application, Mason argued that:
The Court (at [44]–[45]) noted the very wide discretion conferred on it by s 256(1) of the PLA. It also noted with approval the following comments in the judgment in McIvorv Donald [1984] 2 NZLR 487 (CA) at 1–2:
and the following oft-quoted list of relevant factors list in the judgment in Studio X Ltd v Mobil Oil New Zealand Ltd [1996] 2 NZLR 697 (HC):
Looking at the factual background in this case, the Court noted (at [53]–[61]) that:
Taking these factors into account, the Court concluded (at [62]) that it was not appropriate to grant relief and the lease should be cancelled.
Judgment
Comment
This judgment is a good example of a situation where relief against cancellation is likely to be denied. Where a lease is cancelled for non-payment of rent or outgoings the Court will usually treat an application for relief with sympathy upon suitable assurance that the shortfall has been, or will be, paid. It would not be safe, however, to assume that relief will always be granted. As the comment in McIvor v Donald and the factors listed in Studio X Ltd v Mobil Oil New Zealand Ltd illustrate, there are a number of other factors that may persuade the Court against relief. A land- lord has a contractual right to cancel a lease when the tenant is in breach and an order for relief infringes that right. If granting relief would constitute an injustice to the landlord, the Court will be less sympathetic to a defaulting tenant. In this case the obvious prospect of future strife between the parties caused by the family scenario, along with the tenant’s intransigent conduct with regard to paying rent and costs, and with regard to the loan, convinced the Court that it would be unreasonable to expect the landlord to continue with the lease.
As the Court observed, a “no set-off” provision in a lease means exactly what it says and in this case the clause was drafted widely enough to cover both rent and “other monies”, such as rates. A tenant who wishes to claim damages or rent reduction from a landlord in these circumstances, in the absence of any other entitling provision in the lease, can only do so by way of a separate claim and is not entitled to hold back rent or other money.
The Court commented (at [53]) that a defaulting tenant should pay the landlord’s costs as well as all arrears if the tenant expects relief from the Court, so that the landlord is not left out of pocket by the tenant’s default. While that is fair comment, it should also be noted that, in a case where the tenant is obviously likely to be granted relief, the Court has in more recent times shown an inclination to award costs against a landlord who opposes the application.
The Court’s comment, relying on Highgate on Broad- way Ltd v Devine, that an application to cancel a lease cannot be dealt with by arbitration, and the reliance on the PLA’s differing references to court proceedings in ss 253–264 and to arbitration in sch 3, raises an interesting point. Section 10(1) of the Arbitration Act 1996 provides that, where the parties have agreed to submit to arbitration, any dispute may be determined by arbitration unless contrary to public policy or legally not capable of such determination and s 12(1)(a) of that Act provides that an arbitral tribunal may award any remedy or relief that could have been ordered by the High Court. Section 10(2) of the Arbitration Act then further provides that:
On the face of it, the Arbitration Act could be interpreted as conferring jurisdiction to grant relief against cancellation on an arbitral tribunal and the reasoning in Highgate on Broadway Ltd v Devine, to the contrary, does not seem overly convincing. Perhaps, in view of the fact that a grant of relief involves a discretion to abrogate contractual rights, it should be kept within the jurisdiction of the Court, but it would be desirable that the law be better clarified. In this particular case, the question became academic because Mason applied to the Court for relief and thus waived any right she might have had to arbitration.
HMS, Land Law in New Zealand [11.243]
David McDonald
Partner, McDonald Brummer
The judgment is considered by David McDonald (Partner, McDonald Brummer) for the Conveyancing Bulletin. To enquire about Conveyancing Bulletin subscription, submit the form below: