Leases

Mulholland v Waimarie Industries Ltd.

Waimarie Industries sought relief from court to stop cancellation of lease.  Hadn’t paid rent nor the backlog of rent.  Issue: Can relief be sought for failure to pay rent?

Court declined relief.  If breach solely failure to pay rent - presumptive right to relief on payment 'restored … all that the landlord is entitled to' But generally no relief is clear T is hopelessly insolvent. Not to be 'foisted' on L. General rule failure to pay rent does not mean it can be cancelled if you pay it back.

Strong v Hurunui Hotel

Landlord seeking to cancel lease, because the Tenant had breached a number of covenants.  Failures to redecorate the Hotel (cleaning and painting) Had been an arbitration (had breached them, given a deadline and had blown that deadline) Bad relationship between Tenant and Landlord. Conditional offer, from T’s employee to buy the business + lease

Considers what the court should take into account when exercising discretion on relief.  Strong at [38] citing Studio X ltd v Mobil Oil NZ Ltd;  Was breach advertent or deliberately committed Was breach entirely beyond the tenants control  Can breach be remedied by the tenant Is the tenant willing and able to fulfil their obligations in the future? Conduct of the landlord (did it contribute to the breach) - does the Landlord have clean hands? Financial position of the tenant (sometimes 3rd parties - contracting purchasers of interest) Whether a breach has occasioned lasting damage to the landlord Is cancellation really a proportionate outcome to the breach (major vs minor) This breach was;  Deliberate;  Important;  Persistent.  Bad faith was treated neutrally as it was a general breakdown of the relationship because the covenant had been breached BUT;  There’d be a big loss to the tenant (no business and can’t sell) AND; No evidence of lasting harm (*yet) It could be remedied quickly.  Granted conditional relief - do so in 50 days (landlord could take security money and cancel the lease)

Sibrad Company v Kanters and Edwards

Sibrad , tenant operate land nearby Rootorangi farm Leased rural land from Kanters  (landlord) for 1 year with RoR. Sibrad forgets to give timely notice of renewal. Kanters wants out and refuses to renew. Sibrad seeks forced renewal ( ss 261-264 PLA). Kanters oppose alleging breaches. 4 essential breaches argued against granting relief; Breach of covenant stating what the farm could be used for - farming bulls not cows as allowed; Bulls are more destructive to land (and land had deteriorated) Breach of covenant requiring fertilizer tests; Also made it impossible to test deterioration in soil quality. It has more permanent effect than Hurunui Use of land areas that weren't leased to Sibrad (leased 49 acres used vs 45 leased); Parties never said which 4, but Sibrad didn't exclude any 4. Nuisance, disturbance or damage to landlord and neighbors and using land in a noxious or offensive manner contrary to lease. Consistent minor breaches together accounted for this conduct. Breakdown in communication; Abrupt and unfriendly attitude (Kanter) Hostile and aggressive behavior (Sibrad)

Breaches were so serious that Kanters probably could have cancelled the lease based on then and not have to wait to refuse to renew. Breakdown in communication (Sibrad side with abusive language within children’s hearing) Particularly inexcusable because they are in the wrong.  Sibrad;  Would suffer some loss (not as much as claimed) E.g. he could sell stock and could rotate stock on his land But; Sibrad had been a ‘bad tenant’ - likely to persist The landlord + family lived in close proximity. Prejudice in having a hostile/uncooperative tenant in breach in these circumstances. Don’t want bulls to escape with children around  = NO relief

What is a lease?

Can be registered under Torrens system  Landlord has an interest in the reversion (original set of rights reverting back to them at the end of the lease.) Tenant gets right to possess land for an indefinite period Lease = binding to 3rd parties (proprietary rights) Licenses = personal contractual rights subject to privity of contract = not binding to 3rd parties

Definitional core of a lease

Exclusive possession  For a definite period/certain term  Note: usually a rent but not essential

GENERAL FORMAL REQUIREMENTS

S 24: form; contracts for disposition of land not enforceable unless in writing; 

• Contract is in writing or its terms are recorded in writing; and 

• Contract or written record is signed by the party against whom the contract is sought to be enforced. 

• NOTE; Does not include a short-term lease

S 26; Doctrine of part performance is not affected.

Historical types of leases

Legal Lease: 

• Historically 2 steps for legal lease (Agreement + conveyancing Deed), conferring best title (good against the world - nemo dat)

Equitable Lease: 

• Contract for lease = treated as though it was the lease itself. 

• Parties with a contract for a lease had an ‘equitable lease’ = vulnerable to bona fide purchasers for value without notice. 

• When equity will treat an agreement as an equitable lease; Rule in Walsh v Lonsdale: 

  • Must be enforceable (agreement, intention to create legal relations, consideration and certainty) AND either’ 

  • a) Written and signed; or (now in s 24 PLA)

  • b) Oral contract that has been partly performed [usually tenant entering and paying rent]. (now s 26 PLA)

Types of leases now

PLA AND LTA (Torrens System)

• Best interest = registered ‘indefeasible’ title (indefeasible = bind the world at large)

• Key distinction is between registered and off register interests

• All off register interests are treated as equitable. 

• Equitable/off register interests can be defeated by someone else going on the register

• Walsh v Lonsdale requirements as modified by ss 24 and 26 PLA still creates an equitable lease (quite common and may underpin a caveat.)

PLA rules apply to both registered and equitable leases. 

Short-term leases

exception to formal requirements

• S 207; defines a short-term lease; 

  • An unregistered lease 

  • Term commences not later than 20 working days after the date of the contract to lease; and 

  • Is a lease for a term of 1 year or less; or 

  • Periodic tenancy for periods of 1 year or less;

• S 208: can be made orally or in writing

• S 209; effect; lessee who occupies land under short term lease has legal interest  [historic sense] in the land (subject to the Land Transfer Act)

ways to show lease exists

1. registered lease

2. unregistered lease (written + signed or oral + part performance)

3. Short term leases (oral or written subject to short term lease requirements)

Landlords default obligation (Covenants)

S 218 PLA 2007; default covenants implied into leases unless the lease says otherwise;  Quiet enjoyment - central obligation owed by the landlord to the tenant (Often an express covenant) (clause 9 of Part 2, schedule 3) Promise to refrain from substantial interference with Tenant's possession.

Tenants default obligations

PLA 2007; s 216; schedule 3;  4(1) Lessee will pay the rent payable under the lease when it falls due.  5(1) Lessee will not without the consent of the lessor alter any building that comprises or is part of the leased premises.  6(1) Lessee will not do or permit to be done (2) any act or thing that causes… any nuisance, damage or disturbance 13(1) Keep and yield up premises in existing condition

Who can be bound by the covenants - PLA Changes of landlord/tenant

For assignments of the reversion to LX; New landlord X receives the benefit of all covenants under the lease. LX also subject to all obligations that former Landlord had to T.  For assignment of the lease to TX: Tenant X becomes current landlord’s tenant (LX owes TX same obligations L1 owed T1) The original tenant, and any new tenant, carry on being bound by all obligations for the duration of the lease. Even though they have passed on their interest.  (Transferor or assignor remains liable s 241 PLA)  Why do the new PLA rules say nothing about liability of subtenants under the L1-T1 lease? Think about the nature of the problem that the Act was trying to fix. Tenant 1 retains a reversion (still holding them liable?)

CL what happens if tenant or landlord changes (replaced by PLA requirements this is just to have an idea)

Contract-centric view: parties to the contract under it's terms. L1 + T1 due to privity of contract not L1 & T2.

• So, T1 continues to owe obligations to L1 despite assignment to T2 unless contracted out.

• So no contract between T2 + L1

Property-centric view; Those in a property relationship. So, L1 & T2, due to privity of estate.

• LX and TX need to have the estate that original L1 or T1 had.

• Consequence; T X and LX owe some of the original obligations. Estate only absorbs obligations that 'touch and concern' the estate (rent etc) -> not personal contract stuff eg opening a competing business.

Note: pre-2008 leases will be dealt with above (in real life)

Cancellation (s 12 PLA) as a remedy - when may landlord cancel a lease?

• Tenant fails to pay rent (subject to 15 day grace period)

• Tenant failing to observe or perform any other covenant (subject to 15 day grace period) (express or implied in the lease)

Cancellation procedure; to avoid landlord abuse of power. (code)

S 244 to 264 = code which; 

• limits what parties can be agreed to concerning cancellation (s 243(3) - can’t contact out of the code. 

• Put in place procedural requirements which limits landlord powers - Landlord wishing to cancel for breach must serve a formal notice on tenant saying so + specifying breach, giving time to remedy etc. 

• Empowers courts to provide relief against cancellation or proposed cancellation, or the refusal to extend or renew a lease (where there is a right of renewal)

S 253: who can apply for relief?

S 253(1): where the landlord has cancelled or proposes to cancel a lease the tenant may apply to a court for relief against (proposed) cancellation.

Or s 253(3) may be sought in a proceeding brought by the Landlord to cancel the lease. 

Powers of court on application for relief: s 256

• Court has wide discretion, may grant on any condition it thinks fit.

• Can be relieved even it it’s an irremediable breach (serious) or an essential term has been breached.

Principles to grant relief come out of case law and equity (1 what they aim to do, 2 types of breaches)

Attempt to weigh up how proportionate cancellation is to the breach.

Breach by failure to pay rent:

For non-rent breaches:

Principal for cancellation consideration for Breach by failure to pay rent:

• If breach is solely failure to pay rent - presumptive right to relief on payment of rent as 'restored… all that the landlord is entitled to’ (Mulholland v Waimarie Industries Ltd.) 

• But; no relief if clear tenant is insolvent [even if they have managed to scrape rent payment] (Mulholland v Waimairie Industries Ltd.)

Courts to consider for non-rent breaches (cancellation)

Studio X ltd v Mobil Oil NZ Ltd as cited in Strong v Hurunui Hotel; Courts to consider when exercising discretion.

• Was breach advertent or deliberately committed

• Was breach entirely beyond the tenants control 

• Can breach be remedied by the tenant

• Is the tenant willing and able to fulfil their obligations in the future?

• Conduct of the landlord (did it contribute to the breach) - does the Landlord have clean hands?

• Financial position of the tenant (sometimes 3rd parties - contracting purchasers of interest)

• Whether a breach has occasioned lasting damage to the landlord

• Is cancellation really a proportionate outcome to the breach (major vs minor)

If there is minor break down in communication (due to breach) e.g. mildly pissed off, or a little short with tenant its treated neutrally (it’s bound to happen) (Strong v Hurunui Hotel) 

Major break down in communication e.g. hostile and aggressive behavior may play a factor into cancelling lease or not renewing it (Courts will consider this) (Sibrad Company v Kanters)

Serious permanent damage to the land increases likelihood of no relief (Sibrad Company v Kanters)