LAWS205 W11

L1

Workshop Logistics and Client Counseling Simulations

• Workshop Schedules and Flexibility

  • The current workshop period focuses on Landlord and Tenant law.

  • Students are required to attend their allocated workshop times due to limited room capacities. However, if a student is unable to attend (e.g., due to illness), they must message the instructor to arrange an alternative session.

• The Workshop Scenario Design

  • The scenarios presented in tutorials/workshops are intentionally written to be more vague than traditional exam or test questions.

  • Purpose of Vagueness: The exercise is designed to simulate a client interview. In real-world practice, clients often provide a "shotgun" of information—some relevant, some irrelevant, and much of it incomplete.

  • Analytical Task: Students must identify gaps in the information provided and determine what specific details would be necessary to advise the client, while still making determinations based on the facts currently available.

Review Sessions and Course Timeline

• Upcoming Review Sessions

  • Review sessions are scheduled for next week, occurring in either the Thursday or Friday lecture slot.

  • If student demand is high (determined by a vote), the instructor is available to conduct two review sessions.

• Course Progress

  • The term is in Week 5, nearing the end of the semester. Lectures will conclude by the end of next week.

Fundamental Rights and Obligations: Quiet Enjoyment

• Concept Overview

  • Rights and obligations are "two sides of the same coin": the rights of the lessee represent the obligations of the lessor, and vice-versa.

• The Right to Quiet Enjoyment

  • This is the primary right enjoyed by a lessee. It is not merely about physical peace or serenity.

  • Definition: Securing the lessee against interruption in their possession of the property.

  • Broad Interpretation: Possession is viewed through a wide lens, encompassing not just physical presence but freedom from interference (e.g., detailed or invasive supervision by the lessor).

• Case Study: Norden v Blueport Enterprises Ltd

  • This case illustrated the expansion of quiet enjoyment in New Zealand law.

  • It involved two distinct types of lessees under one lessor (the case involved a brothel operating near another business).

  • Legal Principle: A lessor can be held responsible for a breach of quiet enjoyment if they are aware of problematic behavior by one tenant that impedes the rights of another, provided the lessor has sufficient control over the situation. This expands liability to include the actions of other lessees or third parties.

Non-Derogation from Grant

• Definition

  • Non-derogation from grant means the lessor must not prejudice the successful fulfillment of the purpose for which the lease was granted.

• Overlap with Quiet Enjoyment

  • While similar to quiet enjoyment, non-derogation focuses specifically on the intended purpose of the lease.

• Case Study: Mount Cook National Park Board v Mount Cook Motels Ltd

  • The Board acted as both the lessor of the land and the licensor for the business operation within the national park. The lease was contingent upon holding the license.

  • The Board significantly increased the license cost in subsequent years, making it financially impossible for the motel to operate.

  • Court Finding: This constituted a derogation from grant. By making the license unaffordable, the Board effectively prevented the fulfillment of the lease's purpose (operating a motel).

• Distinguishing Factors

  • Physical Interference Not Required: Unlike many quiet enjoyment claims, non-derogation does not require physical entry or interference with title. In Mount Cook, the interference was purely financial/administrative (manipulating numbers).

  • Fact and Degree: Whether an action constitutes derogation depends heavily on the specific circumstances and the severity of the behavior.

Suitability of Premises and Statutory Differences

• General Principle for Non-Residential Leases

  • There is no general implied principle or contractual term that premises must be suitable for the specific purpose for which they are leased.

  • Responsibility: It is the lessee's responsibility to ensure the land meets their needs. For example, if a lessee rents a farm to host a music festival, they are responsible for obtaining resource consents and ensuring zoning compliance; the lessor has no obligation to provide a property "fit for a festival."

• The Residential Distinction

  • Residential Tenancy Act (RTA): Unlike commercial/non-residential leases, residential properties have statutory habitability requirements. In New Zealand, this includes the Healthy Home Standards (covering insulation, heating, and smoke alarms).

Obligations of the Lessee

• 1. Obligation to Pay Rent

  • While rent is not an essential element of a lease (a lease can be gratuitous), if a lease includes rent provisions, the lessee is legally obligated to pay.

  • This includes adhering to the specified amount, period, frequency, and method (e.g., bank transfer or cash).

  • This is codified in the Property Law Act (PLA) and was previously implied at common law.

• 2. Tenant-Like Manner

  • Case Reference: Warren v Keene.

  • This is a common law obligation requiring the tenant to perform "little jobs" a reasonable tenant would do to prevent damage (e.g., cleaning gutters, changing light bulbs).

  • The lessee must not damage the property willfully or negligently and is responsible for repairs if their family or guests cause damage.

  • Difference from Repairing Covenant: A repairing covenant is a more substantial obligation to keep premises in a specific good condition, whereas “tenant-like manner” is about basic maintenance and non-negligence.

• 3. Yielding Up Possession

  • When the lease is determined (ends), the lessee must provide vacant possession.

  • Requirements: Remove all personal property and return all access devices (keys, garage openers, key cards).

  • Damages: Failure to yield up possession can result in the lessor recovering damages for loss of prospective rent.

• 4. The Doctrine of Waste

  • Waste is a tort-based claim codified in the PLA for non-residential leases. It involves acts going beyond the “reasonable use” of land that decrease the property's value.

  • Voluntary Waste: Positive acts of the tenant that alter the land, such as cutting down timber or knocking down interior walls. This requires the lessor to spend money to "put it right" at the end of the term.

  • Permissive Waste: Omissions or failures to act, such as allowing a roof leak to persist until the structure collapses.

Statutory Implied Covenants and Powers (Property Law Act)

• Implied Covenants for Non-Residential Leases

  • Under the PLA, certain covenants are implied in all leases unless expressly excluded:

    • Lessor Obligations: Non-derogation from grant and quiet enjoyment.Lessee Obligations: Pay rent; no alterations without consent (consent not to be unreasonably withheld); no nuisance or waste; keep and yield up premises in existing condition; use premises reasonably.

• Lessor's Statutory Powers

  • Power of Entry: The lessor may enter the premises at "all reasonable times" to inspect, repair, or ensure regulatory compliance. They must not unreasonably interfere with the lessee’s use.

  • Power of Cancellation: The lessor may cancel the lease if rent remains unpaid for $15$ working days, or if a breach remains unremedied for the same duration. This acts as a "self-help" remedy.

• Lessee's Statutory Powers

  • Termination: The lessee can terminate the lease if the premises become unusable for the purposes specified in the lease (expressly or by implication).

Express Covenants and Freedom of Contract

• Contracting Out

  • In non-residential leases, express covenants in a contract can negative, vary, or extend statutory implied covenants. This reflects the principle of Freedom of Contract.

• Rationale for Difference Between Commercial and Residential

  • Commercial: Merchants are presumed to have equal bargaining power. If they agree to terms, even if they deviate from the PLA, the law generally respects that agreement.

  • Residential: The RTA protects tenants who typically have less bargaining power. Residential tenants rely on the property for the human right to shelter; therefore, certain statutory protections cannot be contracted out of (e.g., a landlord cannot contract out of the duty to provide heating).

Specifics of Rental Covenants

• Rent as Consideration

  • Rent does not require monetary payment; it can be goods or services (e.g., a Rolex watch or performance of services).

  • Rent does not need to reflect market value; "peppercorn rent" (e.g., $1$ dollar per year) is valid.

• Accrual and Certainty

  • Accrual: Under the PLA, the default is that rent accrues "day by day," but parties usually negotiate monthly or weekly periods.

  • Certainty: The amount must be certain. Variations (rent increases) must be specified in the lease; otherwise, they require a new agreement between parties.

• Liability

  • Joint Liability: If one co-lessee is released, all are released.

  • Joint and Several Liability: Releasing one co-lessee does not release the others from their obligation to pay the full rent.

L2

Administrative Matters: Workshops and Mid-Year Test Preparation

• Workshop Scenario Context:

  • Students should not be concerned if workshop scenarios seem difficult or vague.

  • They are intentionally designed with less information than actual exam or mid-year test questions.

  • The format is meant to simulate a client interview, typically consisting of a bulleted list of information rather than a full narrative.

  • Exam and test questions will follow a real narrative structure, which can be seen in prior years' papers.

• Mid-Year Test Answer Strategies:

  • Answer strategies for essay-type questions will be covered extensively during the review session next week.

  • The lecturer may dedicate $2$ days to review if material on leases and residential tenancies is completed quickly.

• Critical Guidance: "Quality over Quantity":

  • A warning was issued against "fact dumping" or "knowledge dumping."

  • Tutors suggesting that students should simply dump all information without application are incorrect.

  • The test is open book specifically to focus on analysis, not the regurgitation of information.

  • The goal is to identify relevant issues within a fact pattern and apply the law to resolve them effectively.

  • Students should prioritize a high-quality, selective response over a high volume of poorly applied facts.

Express Covenants in Nonresidential Leases

• Overview of Covenants:

  • Under the Property Law Act, certain covenants are implied into all leases.

  • Parties often include express covenants to explicitly define agreements.

• Flexibility in Nonresidential Leases:

  • For nonresidential leases in New Zealand, express covenants are highly flexible.

  • Parties can use express covenants to negate, modify, or extend statutory implied covenants under the Property Law Act.

  • Policy Rationale: This preservation of freedom of contract allows commercial parties to decide their own rights and obligations.

  • Limitations: While flexible, parties' ability to contract out of inherent rights like quiet enjoyment is limited.

• Comparison with Residential Tenancies:

  • The Residential Tenancies Act assumes an unequal bargaining power between the landlord (more power) and the tenant.

  • Consequently, there is significantly less ability to modify implied covenants in a residential context compared to a nonresidential context.

Specific Express Covenants: Rent and Repair

• The Covenant to Pay Rent:

  • Rent is not a legal essential for a lease (rent-free leases are possible), but it is standard practice.

  • Certainty: The amount of rent must be certain, even if it is set to fluctuate or change over the duration of the lease.

  • Rental Abatement: Express covenants often provide for situations where rent is suspended or withheld (abated). This may occur if:

    • The premises are significantly damaged or destroyed.

    • The lessor breaches a repairing covenant, jeopardizing the lessee's enjoyment.

  • Eviction and Liability: If a lessor effectively evicts a lessee (e.g., changing locks, fencing the property, or interfering with quiet enjoyment), the lessee is not liable for rent or other covenants during that period.

  • Partial Eviction: If the lessee is evicted from only a portion of the premises, the liability to pay rent is abated proportionally to that part.

• The Covenant to Repair:

  • Implied vs. Express: The Property Law Act implies covenants for the lessee to keep premises in repair and not commit waste. However, express covenants usually override these statutory defaults.

  • Scope: In nonresidential leases, repairing covenants generally extend to both buildings and the land itself (e.g., maintaining a garden/lawn).

  • Nonresidential vs. Residential Onus: In nonresidential leases, the onus of repair is often placed on the lessee. In residential leases, the landlord bears most repair obligations (e.g., plumbing, stovetops).

  • Reasonable Wear and Tear: Normally accepted, but its definition is contextual. It depends on the "contemplated use" of the space (e.g., a jewelry store vs. an indoor kids' playground).

Express Covenants: Assignment and Alienation

• Inherent Right to Assign:

  • The right to assign a lease is built into all leases as a proprietary interest in land (the right of alienation).

  • Courts generally dislike restraints on alienation.

• Covenants Restricting Assignment:

  • Any limitation on the right to assign, sublet, or part with possession must be expressed.

  • Such covenants are construed strictly against the lessor.

  • Types of Prohibitions:

    • Absolute Prohibition: It is possible in nonresidential leases to completely prohibit assignment. If breached, the lessor can cancel the lease or let it stand, though the assignee may still obtain an estate in land.

    • Qualified Prohibition: Assignment is permitted only with the lessor's consent. Under the Property Law Act, this requires written notice. Consent must not be unreasonably withheld.

  • Burden of Proof: The lessee bears the burden of showing that a refusal to grant consent was unreasonable.

• Residential Distinction: Under the Residential Tenancies Act, any provision preventing a tenant from assigning the tenancy is of no effect.

Major Lease Transactions: Renewal and Purchase of the Reversion

• Renewal:

  • Exclusively relevant to fixed-term leases or misnamed "perpetual leases."

  • Gives the lessee a right to renew the lease for a further term at the end of the current period.

  • Can be framed as a covenant by the lessor or an option for the lessee.

  • Requirements: Must specify the number of renewed terms (e.g., a one-off extension, $5$ renewals, or unlimited).

  • Writing Requirement: All rights of renewal must be in writing unless it involves a short-term lease (e.g., a $1$-month lease with a $1$-month renewal).

• Purchase of the Reversion:

  • Reversionary Interest: The "stick" in the bundle of rights that the lessor retains, representing the future interest when the lease ends.

  • Function: Allows the lessee to purchase that future interest, converting their leasehold into a fee simple / freehold tenancy.

  • Context: Rare in residential leases; more common in ground leases (lease of land only, such as agricultural land in South Canterbury for Lucerne hay).

  • Legal Nature: The provision is viewed as a unilateral offer, not a contract. However, it creates an immediate equitable interest that can sustain a caveat (to be discussed later by Tony).

The Doctrine of Privity and Assignment

• Duality of Leases: Leases are both proprietary (estates in land) and contractual.

• Types of Privity:

  • Privity of Estate: The proprietary relationship of tenure in land between the current lessor and current lessee.

  • Privity of Contract: The relationship based on the rights and obligations set out in the lease agreement.

• Dynamics After Assignment:

  • If Lessor $A$ leases to Lessee $B$, and $B$ assigns to Assignee $C$:

    • Privity of Estate now exists between $A$ and $C$.

    • Privity of Contract remains between $A$ and $B$.

  • Ongoing Liability of the Original Lessee (B):

    • $B$ remains liable to $A$ for rent and all leasehold covenants because the contract still exists.

    • $B$ is an "alternative defendant." If $C$ defaults, $A$ can sue $B$ directly.

    • $A$ cannot get a windfall (recover from both), but they can choose whom to pursue.

  • Duration of Liability: $B$'s liability continues through any extensions or renewals exercised by $C$, as no new contract is created.

  • Termination of Liability: $B$'s liability only ends if $A$ expressly releases them, or if there is a "surrender and re-grant" or a new contract created entirely between $A$ and $C$.

Subleases

• Definition: Any transfer of rights by the lessee to a third party that is less than the entire remaining leasehold interest.

• Inherent Right: Like assignment, the right to sublease is inherent but can be limited by express covenants in nonresidential contexts.

• Privity Relationships in Subleasing:

  • Lessor ($A$) and Original Lessee ($B$) have Privity of Contract and Privity of Estate.

  • Lessee ($B$) and Sublessee ($C$) have Privity of Contract and Privity of Estate.

  • Head Lessor (A) and Sublessee (C): There is no privity of any kind. $A$ cannot directly enforce covenants against $C$. Enforcement must typically go through $B$.

• Substance Over Form:

  • The label give by parties (Assignment vs. Sublease) does not matter; the court looks at the substance.

  • The Reversion Test: If the original lessee ($B$) retains any interest or gets the property back at any point (e.g., leasing it out for $1$ year of a $5$-year term), it is a sublease. If they part with the entire interest, it is an assignment.

L3

Administrative Announcements and Test Guidance

• Course Progress and Schedule: The course is approaching its conclusion with only a few lectures remaining. These sessions will finalize the discussion on leases, specifically focusing on residential tenancies. Next week will feature a test review session following the completion of the residential tenancy material.

• Test Citations Policy:

  • For the lecturer's content, students are not expected to cite cases that were not discussed with a significant level of detail.

  • Case citations mentioned only as parentheticals or brief name-drops in the lecture do not need to be cited on the test.

  • Regarding readings: If a case appears in the assigned readings but was not discussed during the lecture, students are welcome to engage with and cite it, but it is not a requirement for the test.

  • The primary expectation is for students to cite and engage with the major cases explicitly discussed within the course.

• Analytical Focus: The teaching staff (‘Tony’ and the current lecturer) prioritize critical analysis over the mere reproduction of citations. Essential skills being assessed include:

  • Stating the legal rule and its origin accurately.

  • Effective issue spotting.

  • Applying law to facts and analyzing identified issues.

Transactions with Leases: Subleases vs. Assignments

• Subleases vs. Assignments: The fundamental distinction lies in the nature of the interest retained.

  • In a sublease, the original lessee (the sublessor) retains a reversionary interest. Consequently, a sublease must inherently be for a term less than the entire remaining duration of the master lease.

  • The exception to the duration rule occurs if the sublease is only for a specific portion of the property, in which case it may potentially last for the entire term.

  • An assignment involves the transfer of the entire leasehold interest without any reversionary right retained by the initial lessee.

• Substance Over Form: The label assigned by parties (e.g., calling an arrangement a "sublease") is not determinative. Courts will investigate the actual nature of the relationship and the rights transferred. If all rights are transferred despite a "sublease" label, it is legally an assignment.

Determination of Leases: Expiry and Terminating Events

• Expiry: This applies to fixed-term leases.

  • Determination occurs automatically when the specific date passes or a defined event occurs.

  • General Rule: No notice is required to end a fixed-term lease unless specifically mandated by the lease agreement.

  • Expiry triggers the lessee's obligation to yield up vacant possession, and the interest reverts to the owner.

  • Certainty of Term: This is one of the four essentials of a lease. For leases calibrated to an event (e.g., clearing a quarry), the event must be sufficiently well-defined to meet this requirement.

• Holding Over Situations: If a lessee remains on the property after the expiry date, they are in a "holding over" position. The nature of the resulting arrangement depends on the circumstances:

  • Section $210$ Lease: Governed by the Property Law Act in the absence of an express agreement.

  • Tenancy at Will: A minimal protection arrangement.

  • Tenancy at Sufferance: Minimal protection where the lessor's stance is unclear.

• Holding Over Clauses: Many non-residential leases contain express clauses that convert a fixed-term lease into a periodic tenancy (typically monthly) upon expiry.

  • These clauses usually require $1$ month’s written notice for termination.

  • Express holding over clauses take precedence over Section $210$ of the Property Law Act because the statute applies only in the absence of an express agreement.

• Occurrence of a Terminating Event: Beyond a fixed date, a lease may end based on a stated event.

  • Example: A lease for a quarry might end once all ore has been extracted.

  • Breach-Based Termination: A fixed-term lease may be terminable upon a lessee's breach (e.g., non-payment of rent). This operates as a cancellation governed by Sections $244$ to $252$ of the Property Law Act. This process allows the lessor to terminate while granting the lessee the right to seek relief from cancellation.

Break Clauses and Joint Interest Considerations

• Break Clauses: These provide the lessee with an option to surrender before the full term expires.

  • They are common in very long-term leases, such as Glasgow-type leases or pastoral leases with terms of, for example, $21$ years.

  • Example: A $21$-year lease might grant the lessee the option to determine the lease at the end of the $7\text{th}$ or $14\text{th}$ year milestones.

  • This mechanism protects lessees from long-term liabilities (e.g., if they can no longer afford the rent) and helps preserve goodwill in relationships between charitable organizations (hospitals, schools) or farm owners.

• Joint Party Rule: To exercise a break clause, all joint lessees must agree to the surrender; a unilateral action by one joint lessee is not effective. Similarly, all joint lessors must agree to accept the surrender.

Notice to Terminate Periodic Tenancies

• Periodic Tenancies: These are characterized by their ability to renew perpetually, bypassing the "certainty of term" requirement because either party possesses an inherent right to terminate by giving notice.

• Unilateral Action: Unlike break clauses in fixed leases, notice to terminate a periodic lease may be given by fewer than all joint lessors or joint lessees.

• Requirements for Notice:

  • Clarity: Must be clear and unambiguous. Conduct alone (e.g., failing to pay rent or moving belongings) is insufficient; there must be a communication of intention.

  • Formalities: Specific forms (email, letter, etc.) and notice periods are typically defined in the lease agreement.

  • Statutory Rules: Section $210$ leases require a $20$ working day notice period. Residential tenancies have their own separate statutory requirements.

• Notice Period Calibration: In the absence of an express agreement, common law calibrates the notice period to the rental payment cycle:

  • Weekly rent = $1$ week notice.

  • Fortnightly rent = $2$ week notice.

  • Monthly rent = $1$ month notice.

Merger and Frustration

• Merger: Occurs when the leasehold interest and the reversionary interest (the fee simple) come into the ownership of the same person.

  • Example: A lessee purchases the reversion from the owner.

  • Example: A third party acquires both the lease and the fee simple from the original parties.

  • In these cases, the leasehold "folds into" the fee simple. All remedies for breaches of the lease that occurred prior to the merger are preserved.

• Frustration: A contract law principle applied to leases when an unforeseen event destroys the basis of the contract.

  • Rarity: Applied "hardly ever" in lease contexts because property law principles or lease clauses usually resolve the issue first.

  • Examples:

  • Destruction of premises by fire.

  • Cancellation of a one-off event (like a concert) that was the sole purpose of the lease.

  • Strait of Hormuz Analogy: Fundamental extraneous delay, such as the closure of shipping lanes preventing cargo loading, which renders the lease pointless.

Surrender: Express and Implied

• Express Surrender: The lessee explicitly offers the estate back, and the lessor accepts.

  • This leads to merger and the extinguishment of the lease.

  • Lessor's Discretion: A lessor is not obligated to accept a surrender; they may prefer to keep the lease (and its rental income) ongoing, as the lessee has contractual obligations for the full term.

  • Writing Requirement: Under the Property Law Act, express surrenders must be in writing unless the lease is for a term of less than $1$ year.

  • Part Performance: If there is no writing but the parties have acted on an oral agreement (e.g., yielding possession), a court may grant specific performance of the surrender.

• Implied Surrender: Inferred from conduct demonstrating a mutual intention to end the lease.

  • Conduct Examples: The lessee clears out belongings and hands the keys to the lessor, who accepts them with a handshake.

  • Limits of Conduct: Silence or independent action by the lessee (like dropping keys in a post box and driving away) is not enough to imply acceptance by the lessor.

Repudiation and Cancellation

• Repudiatory Conduct: One party demonstrates an intention to abandon the contract (e.g., abandoning the premises or failing to pay rent for a substantial duration).

• Statutory Framework: Cancellation is governed by Sections $244$ to $264$ of the Property Law Act. It applies when a breach of a leasehold covenant (contractual obligation) triggers a right of termination.

• Methods of Exercise (Lessor):

  • Physical Reentry: The lessor peaceably reclaims the land (e.g., changing locks). This is not permitted for residential tenancies.

  • Court Order: Applying for an order of possession.

  • Legal Proceedings: Serving a statement of claim demanding possession is equivalent to reentry.

  • Constructive Reentry: Performing an act that unequivocally indicates the lessee’s interest is determined (though its validity under the Property Law Act is debated).

• Notice Prerequisite: A lessor cannot reenter without first giving notice to the lessee, stating the breach (e.g., arrears of $3$ months' rent) and the intention to reenter or seek a court order.

• Lessor's Options Upon Breach: The lessor is not required to cancel. They may:

  • Proceed with cancellation.

  • Bring an action for damages (e.g., for breach of a repairing covenant).

  • Ignore the breach (common in long-term relationships where the lessor trusts the lessee will eventually pay).

Relief from Cancellation

• Lessee's Rights: If a lessor intends to cancel, the lessee may apply to the court for relief under Sections $253$ to $264$ of the Property Law Act.

• Minimum Threshold: It is highly unlikely a court will grant relief if the lessee has not, at minimum, paid up the rent currently in arrears.

• Judicial Discretion: The court considers several factors in determining whether to grant relief:

  • Intent: Was the breach advertent (intentional) or inadvertent (accidental)?

  • Remediability: Can the lessee perform their future obligations?

  • Conduct: How has the lessor behaved (e.g., were they excessively harsh)?

  • Gravity: How serious was the breach?

  • Financial Position: The relative financial impact on both parties.

  • Proportionality: Whether the advantage gained by the lessor is proportional to the damage sustained.

Questions & Discussion

• Question: Does the lessor have to offer the lessee a remedy for the breach?

• Answer: It depends primarily on the lease agreement (the contract). If the lease is silent, the process is governed by the Property Law Act. While the lessor does not necessarily have to provide a right to remedy, the lessee has the statutory right to apply to the court for relief from cancellation, potentially allowing them to fix the issue and maintain the lease.