Property Law Notes

Non-derogation from Grant

• General Rule: A lessor must not voluntarily prejudice the rights they have created and will not be permitted to do anything inconsistent with the purpose for which the premises are let (Mt Cook National Park Board v Mt Cook Motels Ltd).

  • Mt Cook National Park Board: Responsible for granting concessions (leases and licenses).

  • Mt Cook Motels: Motel business operating within the park, requiring both a lease and a trading license.

  • Issue: Significant increase in license price (20 to 700) made it unaffordable, preventing motel operation.

  • Argument: Mt Cook Motels argued non-derogation from grant, as the Board (lessor and licensor) impaired their ability to fulfill lease obligations.

• Impairment of title or physical interference is not necessary for a breach of non-derogation.

• Question of Fact and Degree: Temporary acts can qualify if sufficiently overwhelming in effect.

• Limitations:

  • No absolute obligation that premises are suitable for lessee's intended purposes (Felton v Brightwell).

  • No obligation that premises can be lawfully used for lessee's purpose (Elder v Auerbach).

• Examples:

  • Obstruction of air to timber drying sheds (Aldin v Latimer Clark, Muirhead & Co).

  • Construction endangering statutory license for explosives storage (Harmer v Jumbil (Nigeria) Tin Areas Ltd).

  • Nuisance from brothel operation on leased premises (Norden v Blueport Enterprises Ltd).

  • Attempt to redefine permitted use of premises (El Inca Ltd v Urlich).

  • Dispute over naming rights of the Majestic Centre (Ernst & Young Nominees v Kiwi Property Holdings Ltd).

Inherent Obligations of Lessee

• Obligation to Pay Rent

  • Implied at common law; codified in PLA 2007 (s 222; sch 3, cl 4).

  • As set out in the contractual agreement - frequency, amount, method etc

• Obligation to Use Premises in a "Tenant-Like Manner"

  • Tenant must perform small maintenance tasks and avoid damaging the property through negligence or wilful actions (Warren v Keen).

  • Extends to the conduct of family and guests.

  • Distinct from repairing covenant obligations, and exists alongside RTA 1986 obligations.

• Obligation to Yield Up Possession

  • Implied at common law; codified in PLA 2007.

  • Lessee must return vacant possession to the lessor upon lease expiry or determination.

• Obligation Not to Commit Waste

  • Implied at common law; codified in PLA 2007 (s 218).

  • Waste is a tort, similar to negligence.

  • Does not extend to reasonable use of the land.

  • Distinct from liability under a repairing covenant.

  • Two Principal Classes of Waste:

    • Voluntary Waste: Positive acts causing detrimental changes to the land (alterations, extraction, mismanagement).

    • Permissive Waste: Omission leading to deterioration of land or buildings.

Implied Covenants

• Conditions read into all lease contracts under the PLA 2007.

• Statutory Obligations:

  • Imposed on Lessor:

    • Non-derogation from grant.

    • Quiet enjoyment.

  • Imposed on Lessee:

    • Pay rent.

    • Not alter buildings without lessor's consent (consent may not be unreasonably withheld).

    • Not cause nuisance or commit waste.

    • Keep and yield up premises in existing condition.

    • Use premises reasonably.

• Statutory Powers:

  • Powers of Lessor:

    • Enter premises at reasonable times for inspection, repair, or compliance (without unreasonable interference).

    • Cancel lease if rent is unpaid for 15 working days, or breach unremedied for 15 working days.

  • Powers of Lessee:

    • Terminate lease if premises become unusable for specified purposes (with reasonable notice).

Express Covenants

• Explicitly included in lease agreements.

• Express covenants exclude any implied covenant covering the same subject matter (Malzy v Eichholz).

  • Express covenants override implied covenants.

• Express covenants may negate, vary, or extend statutory covenants implied under the PLA 2007 (s279(2)).

  • Applies only to non-residential tenancies. Certain covenants under RTA 1986 cannot be overridden.

• Lessee's Covenant to Pay Rent

  • Rent can be in the form of money, goods, or services.

  • Nominal rent ("peppercorn") is valid.

  • A rent-lease is also valid (Sinclair v Connell).

  • Liability for rent accrues daily, unless otherwise specified.

  • Rent amount must be certain but may vary during the lease.

  • Rent variation requires agreement between parties if not provisioned in the lease.

  • Time and method of rent payment should be specified.

• Under PLA 2007, rent is payable monthly in advance, unless otherwise agreed.

  • Co-lessees' liability to pay rent can be joint, or joint and several.

    • Joint: All co-lessees equally liable.

    • Joint and Several: Obligations remain despite subtraction of one co-lessee.

  • Abatement (suspension of rent):

    • Complete or proportionate if premises are damaged or destroyed.

    • Where there is breach of a repairing covenant and lessee has work done.

    • Lessee may withhold rent if lessor breaches a covenant.

  • Lessee is not liable for rent during eviction from the premises.

    • Eviction can be physical or any act by lessor intending to deprive enjoyment of premises.

    • Rent is abated proportionally if eviction is from part of the premises.

• Lessee's Covenant to Repair

  • PLA 2007 implies a covenant by lessee to keep premises in repair (ss 206(2) and 218).

  • Lease provisions regarding repair are usually modified and expanded.

  • Implied covenant does not apply where there is an express repairing covenant, or only applies to the extent that the express covenant doesn't.

  • "Reasonable wear and tear" accepted (PLA 2007, sch 3, cl 13).

    • What is "reasonable" depends on the contemplated use of the premises.

• Lessee's Covenant Not to Assign, Sublease, etc.

  • Right to assign a lease is inherent, so any limitation must be express (Wagner (WE) Ltd v Photo Engravers Ltd).

  • Covenant against assigning/subletting is construed strictly against lessor (Contra Proferentem).

  • Absolute Prohibition:

    • Assignee/sublessee still obtains an estate if lessee breaches.

    • Lessor can:

      • Let the lease stand and sue for damages.

      • Cancel the lease if there is an express or implied "forfeiture" clause.

  • Qualified Prohibition:

    • Lessee cannot assign without lessor's consent (consent not to be unreasonably withheld).

    • Under PLA 2007 (s 226), written notice must be given within a reasonable time if consent is refused, and lessee may request written reasons.

    • Burden of showing refusal is unreasonable lies on the lessee.

Transactions with Leases

• Renewal of Leases: Express Right of Renewal

  • Common in lease agreements.

  • May be a covenant by lessor or option to renew for lessee (Weg Motors Ltd v Hales).

  • Should indicate the number of renewed terms.

  • "Subject to an indefinite right of renewal" is too vague, needs to be definitive.

  • May be perpetual (Upper Hutt City v Upper Hutt District Cricket Club Inc).

    • also definitive but usually a long time e.g. renewal for 100 times.

• Purchase of the Reversion

  • Reversion: Future interest retained by lessor, reverting upon lease expiry.

  • Some leases (ground leases) grant lessee option to purchase lessor's reversion at a stated price with notice.

  • This option is a unilateral offer, not a contract itself.

• Assignment of Leases

  • Nature of Assignment

    • Entire leasehold interest must be transferred for effective assignment.

    • Retaining even a briefest reversion makes the transaction a sublease (Neva Holdings Ltd v Wilson).

  • Concept of "Privity"

    • Leases are both an interest in land and a contract.

      • Privity of Estate and Privity of Contract are connections binding lessor and lessee.

        • Privity of Estate: Relationship through the land.

        • Privity of Contract: Contractual relationship between the parties.

          • When a lease is effectively assigned, there is no longer privity of estate between the lessee who has assigned the lease and lessor.

          • However the contractual relationship will endure until the end of its term - privity of contract remains - therefore the original lessee is still contractually bound to the lessor.

          • Claims can still be brought against the original lessee, even when it maybe the fault of the subsequent assignee.

          • Privity of estate only exists between the present lessee (who is the assignee) and the present lessor (the assignor).

  • Effect of Assignment

    • S241, PLA 2007 - Transferor/assignor remains liable for rent and observance of covenants due to continued Privity of Contract.

    • Original lessee may be an additional defendant if an assignee defaults.

    • Lessor may have first recourse against original lessee but can only recover from one party.

    • Liability of Original Lessee to Original Lessor

      • Original lessee's liability continues through lease extensions, as they technically involve no new contract.

      • Liability ceases if the lease is renewed whether by surrender and regrant or by expiry and new grant Wagener (WE) Ltd v Photo Engravers Ltd) (Sina Holdings Ltd v Westpac Banking Corp (Privy of Contract Broken)

• Subleases

  • Transfer of less than the entire leasehold interest.

  • Right to sublet is inherent unless limited by covenant.

  • Granting a sublease reserves a reversion for the original lessee (now sublessor), creating privity of contract and estate with sublessee.

  • Original Lessor and Lessee connected via Privty of Estate and Privity of Contract.

  • Original Lessor is connected with Sublessee via Privty of Estate and Privity of Contract.

  • No Direct Relationship between Head Lessor and Sublessee.

    • Enforcement of lease covenants impossible directly against sublessee

    • Unless the benefit of the head lessor's covenant may have been assigned in the sublease, making them easy to enforce against head lessor.

    • In a sublease the original lessee maintains a reversionary interest.

    • It is the substance not the form, of any arrangement that will be decisive.

Determination of a Lease (Fixed Tenancies)

• Expiry

  • Fixed-term lease terminates on expiry.

  • No need for notice unless specifically required.

  • Terms should ensure the expiry date is identifiable.

• Occurrence of a Terminating Event

  • Lease terminates automatically upon the event's occurrence without notice or formality, where a fixed-term lease is terminable upon the occurance of a state event.

  • Where a fixed-term is terminable upon occurance of a breach by the lessee…

    • Tantamount to cancellation of the lease; governed by ss244-252 of PLA 2007.

    • Lessee may seek relief from cancellation (PLA 2007, pt4. subpt 6).

• Break Clause (aka Option to Surrender)

  • Empowers lessee to end lease prematurely.

  • Common in substantial-term leases.

    • E.g. In a 21 year lease a lessee may be granted an exercisable optino to determine at the end of 7th year.

  • All joint lessees (or lessors) must give exercising notice, unilateral action won't be effective.

• Notice to Terminate (Periodic Tenancies)

  • Inherent to periodic tenancy; cannot be restricted.

  • Notice may be given by fewer than all joint lessors or joint lessees.

  • Notice must be clear, unambiguous, and comply with notice period and express conditions (e.g., written requirement).

  • Any period of notice may be expressly agreed on by the parties. In the absence of such express agreement, or any relevant statutory provision, common law periods of notice will by implication.

• Merger

  • Occurs when lessee acquires the reversion, or a third party acquires both.

  • Merger also results from surrender.

  • Lessor's remedies against lessee are preserved despite merger.

• Frustration

  • Contract law principle; contractalisation of leases.

  • Premature determination due to unforeseen event destroying the contract's basis.

  • Recognition of frustratio of a lease in a case of "not never, but hardly ever" (National Carriers Ltd v Panalpina (Northern) Ltd).

• Surrender

  • Express Surrender

    • Lessee offers estate to lessor, who accepts; lease merges into lessor's estate and is extinguished.

    • Lessor is free to accept or reject.

    • Must be in writing, unless a short-term lease (PLA 2007, s 24).

    • Doctrine of part performance may apply without written material.

  • Implied Surrender

    • Lessee delivers possession, and lessor accepts with intent to determine the lease.

    • No express words needed, but conduct must evidence mutual intention.

      • E.g. Moving off the land - preforming acts that are consistent with yielding up possession (handing up keys, changing address for corrospondence in regards to lease)(Benjamin v Wareham Associates (NZ) Ltd).

    • Lessee's act in vacating or returning control is the starting point.

    • Lessor is under no obligation to accept a surrender. Silence on the part of the lessor is not conclusive Maori Trustee v Prentice).

• Repudiation/Cancellation

  • Similar to surrender, but determination by lessor, not just lessee's conduct.

  • Statutory authorities:

    • Cancellation by lessee: Contract and Commercial Law Act 2017 (ss 34,49).

    • Cancellation by lessors: Property Law Act 2007 (ss 244-264).

    • Examples of repudiatory conduct:

      • Lessee abandons premises.

      • Lessee fails/refuses to pay rent for a substantial period but occupies the premises.

    • Lessor's Right to Cancel

      • Governed by the PLA 2007 ss244-264

        • Lessor may cancel the lease in one of two ways:

          • "Re-enter the land peaceably" (non-residential leases) - both physical occupation and other actions such as serving of formal notice for occupaition.

          • Apply to court for order of possession

            • 'Constructive reentry' - leasing property with to someone else etc

            • Notice must be given before lessor intends to cancel the lease

            • Where lessee is in breachm giving rise to lessor's power to re-enter and cancel, lessor may:

              • Proceed with the cancellation; or

              • Pursue the breach by an action for damages; or

              • Diregard the breach altogether

              • If Lessor cancels lease Lessee may be granted relief

    • Lessee's Right to Relief

      • Governed by PLA 2007, ss253-264.

      • Relief uncommon without rent paid up or secured.

      • Court has discretion to grant relief, even if cancellation is an essential term or breach is irremediable (PLA 2007, s 256).