BEDFORD INVESTMENTS LTD V ALDER & CO LTD HC AK CIV-2006-404-1567

BEDFORD INVESTMENTS LTD V ALDER & CO LTD HC AK CIV-2006-404-1567 17 May 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2006-404-1567IN THE MATTER OF an application pursuant to section 120 of the Property Law Act 1952 BETWEEN BEDFORD INVESTMENTS LIMITED Applicant AND ALDER & CO LIMITED Respondent Hearing: 3 May 2006 Appearances: A Sorrell for Applicant GJ Satherley for Respondent Judgment: 17 May 2006JUDGMENT OF ASHER JThis judgment was delivered by me on at am/pm pursuant to Rule 540(4) of the High Court Rules Registrar/Deputy Registrar .. DateSolicitors: Jones Young, PO Box 189 Auckland (D Jones) Glaister Ennor, PO Box 63 AucklandTable of ContentsParagraph NumberIntroduction [1]The lease [4]Is there a right of renewal? [7]Does s 120 of the Property Law Act apply? [19]Relief would not be granted in any event [23]Reasons for failure to give notice [26]Conduct of the lessee [27]Prejudice to the Lessee if the relief is not granted [34]The prejudice to the Lessor if the relief is granted [35]Lessor's motivation for the refusal to renew and understanding of the Lessee's intentions[38]Interests of third parties and how they may be affected by any order[39]Conclusion as to relief [40]Conclusion [43]Costs [44]Introduction[1] The applicant, Bedford Investments Limited ("Bedford Investments"), seeks relief against forfeiture against the respondent Alder & Co. Limited ("Alder & Co.") under s 120 of the Property Law Act 1952. [2] Bedford Investments owns a building on the corner of Ponsonby Road and Richmond Road in Auckland. Within that building there are two retail shop premises known as 134 and 134A Ponsonby Road ("the premises"). [3] By an undated Deed of Lease entered into between the parties in 2002 Alder & Co. leased the premises to Bedford Investments. The lease was for a term of four years commencing on 1 March 2002. It was not signed by the Lessor, but the parties accept that it is binding on them. The lease expired on 1 March 2006. It is common ground that Bedford Investments did not forward any notice to renew the lease prior to its termination. Bedford Investments, however, does wish to renew the lease and has sought to do so since termination. Alder & Co. does not wish to renew the lease and to have Bedford Investments as a Lessee. It has refused to renew the lease. This is the situation that has led to the present application.The lease[4] The Deed of Lease is in the standard Auckland District Law Society Third Edition Form. It contains the following clause relating to renewal:RENEWAL OF LEASE 35. Subject to Clause 54 hereof if the Tenant has not been in breach of this lease and has given to the Landlord written notice to renew the lease at least three (3) calendar months before the end of the term then the Landlord will at the cost of the Tenant renew the lease for the next further term from the renewal date as follows: (a) The annual rent shall be agreed upon or failing agreement shall be determined in accordance with clause 2.2 but such annual rent shall not be less than the rent payable during the period of twelve (12) months immediately preceding the renewal date.(b) Such annual rent shall be subject to review during the further term on the review dates or if no dates are specified then after the lapse of the equivalent periods of time as are provided herein for rent reviews. (c) The renewed lease shall otherwise be upon and subject to the covenants and agreements herein expressed and implied except that the term of this lease plus all further terms shall expire on or before the final expiry date. (d) Pending the determination of the renewal rent the Tenant shall pay the rent proposed by the Landlord provided that the rent is substantiated by a registered valuer's report. Upon determination appropriate adjustment shall be made.[5] The words "subject to clause 54 hereof" are in bold, and are an addition to the usual printed clause. Paragraph 54 is one of a number of additional clauses inserted into the lease in addition to the standard clauses. It reads as follows:RENEWAL 54. If at the end of the initial term hereby created the Landlord at its discretion determines that it is prepared to grant a renewal of this lease for one further term of four years on the same terms and for the same uses as are herein contained (including the provisions for rent review as hereinbefore set out but excluding any provision for further renewal) then the Tenant shall be entitled to such a renewal on the basis and subject to the same provisions as are set out in Clause 35 modified however as required by the other provisions of this lease.[6] The First Schedule to the standard Auckland District Law Society form of lease sets out in short form the certain key dates and provisions. There is a provision in the First Schedule for the insertion of "Renewal Dates". There are no renewal dates inserted in the First Schedule in this lease. There is another standard provision in the First Schedule, for "Further Terms". That has been filled in by the following statement:FURTHER TERMS: One further term of four years if Clause 54 hereof applies.Is there a right of renewal?[7] It is the submission of Alder & Co. that the relief against forfeiture jurisdiction set out in s 120 of the Property Law Act 1952 cannot be invoked byBedford Investments in this case, because no contractual right of renewal exists under the terms of the lease. [8] If the standard form paragraph 35 is contained in a lease, without any amplification or conditions, renewal follows as a matter of course when notice is given to renew. It is a contractual obligation that if proper written notice is given, the Lessor must renew, subject to the specific conditions set out in paragraph 35. [9] In this case paragraph 35 is specifically subject to paragraph 54. Paragraph 54 states that entitlement to renewal in terms of paragraph 35 is subject to the Lessor at the end of the initial term determining "at its discretion" that it is prepared to grant a renewal of the lease for one further four year term. There is a fundamental difference between the parties as to how paragraph 54 should be interpreted. [10] Mr Sorrell for Bedford Investments submitted that there is an ambiguity arising from the juxtaposition of paragraph 35 and paragraph 54. He submitted that it is proper to interpret the two paragraphs together so as to entitle the lessee to a right of renewal on performance of its obligations, or, alternatively, that renewal can only be refused on proper grounds. It was submitted that the propriety of the grounds for refusal must be subject to "legal review" under s 120. The further point was made that if there is no right to renew in the lease, paragraphs 35 and 54 are meaningless paragraphs which do not create any legal right whatsoever, because ultimately the Lessor at its discretion can do what it wishes. [11] It is necessary first to consider the plain meaning of the words in the lease. There can be little doubt about the plain meaning of paragraph 54. The Lessor has a discretion which is not fettered in any way as to whether it will grant a renewal of lease. [12] It was suggested that there was some significance in the fact that the discretion is not described as an "unfettered discretion" or emphasised in some similar adjectival manner. I do not consider that this submission has any force. The word "discretion" has the meaning of freedom to act and think as a person wishes orpleases. A matter is disposed of according to the judgment and choice of the person who has the discretion: New Zealand Oxford Dictionary 2005, p 308. That freedom to choose either exists or it does not. If it exists it is not circumscribed in any way. An adjective such as "absolute" does not make a discretion any more of a discretion. I do not consider that it is necessary to interpret the word as meaning the phrase "reasonable discretion" as suggested by Mr Sorrell. While judicial discretions have to be exercised in a principled way, with certain relevant matters to be taken into account and certain irrelevant matters to be ignored, such qualifications are not part of the natural meaning of the word "discretion". [13] The plain meaning of paragraph 54 is that the Lessor has an unfettered choice as to whether or not it will renew the lease at the end of the initial term. [14] The presence of paragraph 54 within the context of the lease as a whole further emphasises this. The fact that there is no entry by the heading "Renewal Dates" in the First Schedule of the lease is consistent with there being no orthodox right of renewal. The fact that the heading "Further Terms" has beside it the statement that there is a further term of four years "if clause 54 hereof applies" further emphasises that any further term is not automatic, and is subject to the Lessor's discretion. The Lessor has a choice as to whether or not there is a further term. The emphasis given to clause 54 by the other references to it in the lease, is reflected by the fact that the Lessee's initials are placed particularly by this clause, in a page of non-standard paragraphs, but not by the other clauses. [15] Therefore, paragraph 35, which is expressly subject to paragraph 54, can be seen as the term which applies should the Lessor choose to exercise its choice in favour of their being a renewal. If Alder & Co. does choose to agree to a renewal of lease without qualification, then paragraph 35 applies, and the lease will be renewed at the cost of the Lessee on the terms set out in paragraph 35. [16] Paragraphs 35 and 54 do not sit together entirely comfortably. Paragraph 35 does presuppose that a renewal will automatically follow the provision of a written notice to renew by the Lessee. Paragraph 54 provides to the contrary. However, paragraph 35 is specifically made subject to paragraph 54, so there is no realambiguity or difficulty. The exercise of the paragraph 54 discretion must occur before paragraph 35 applies. If the discretion is not exercised in favour of renewal under paragraph 54, then paragraph 35 does not apply. [17] There is nothing to inhibit the discretion of the Lessor. It would be wrong to imply this. Such an implication does not meet the test set out in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 of being necessary to give the contract commercial efficacy, and would not be obvious to the officious bystander. It is not required by the context of the lease. That discretion does not have to be executed reasonably or on any particular basis. The Lessor has the choice of saying yes or no. It is irrelevant whether the request to renew is given before or after the termination of the lease. It is the Lessor's choice. If the Lessor says yes, there will be a renewal. If the Lessor says no, the lease will terminate at the expiry of the four-year period, or if it has already terminated, remain terminated. [18] I also record that if indeed the discretion did have to be exercised "reasonably", that for the reasons that I will be setting out in the next section of the judgment, the refusal to renew by Bedford Investments was reasonable.Does s 120 of the Property Law Act apply?[19] The purpose of s 120 of the Property Law Act is to provide relief against forfeiture when the Lessor has agreed in the lease that it will, on the expiry of the lease, grant to the Lessee a renewal of lease, and where the Lessee has failed to give the Lessor notice of its intention to renew. The Lessor may grant or refuse relief as it thinks fit. The relevant sections, sections 120(3) and (4) read as follows:120 Relief of lessee against refusal of lessor to grant a renewal or to assure the reversion (3) Where— (a) By any lease to which this section applies the lessor has covenanted or agreed with the lessee that, subject to the performance or fulfilment of certain covenants, conditions, or agreements by the lessee, the lessor will—(i) On the expiry of the lease grant to the lessee a renewal of the lease or a new lease of the demised premises; or (ii) Whether upon the expiry of the lease or at any time previous thereto assure to the lessee the lessor's reversion expectant on the lease; and (b) The lessee is in breach of any such covenant, condition, or agreement, or has failed to give to the lessor notice of his intention to require or to accept a renewal of a lease or a new lease or an assurance of the lessor's reversion, as the case may be, within the time or in the manner, if any, prescribed by the original lease; and (c) The lessor has refused to grant that renewal or that new lease or to assure that reversion, as the case may be,— the lessee may in any action (whether brought by the lessor or the lessee and whether brought before or after the commencement of this Act), or by proceeding otherwise instituted, apply to the Court for relief. (4) The Court, having regard to all the circumstances of the case, may grant or refuse relief as it thinks fit, and in particular may decree, order, or adjudge— (a) That the lessor shall grant to the lessee a renewal of his lease or a new lease, as the case may require; or (b) That the lessor's covenant or agreement to assure the reversion ought to be specifically performed and carried into execution, and that the lessor shall execute such assurances as the Court thinks proper for that purpose,— on the same terms and conditions in all respects as if all the covenants, conditions, and agreements aforesaid had been duly performed and fulfilled.[20] The pre-condition to the discretion to grant relief provided for in s 120(3) is that the Lessor has covenanted or agreed that it "will" upon the expiry of the lease grant a renewal. The sense in which the word "will" is used in this clause, is that it imports a contractual obligation to grant the renewal of lease. It is necessary for the Lessor to have actually contractually agreed that the renewal will be granted. If there is no such agreement, and the Lessor in fact has a choice as to whether renewal will or will not be granted, then s 120 does not apply, and the discretion in s 120(4) cannot be invoked. [21] Section 120 does not create a right to renew in itself. The existence of the contractual obligation to grant the renewal is the required condition precedent to its application. Bedford Investments is here seeking more than relief from the consequences of error. It is seeking to create a right which does not exist at all under the existing lease, and to then seek relief under s 120, based on that created right. Itcannot do so. The provisions of the lease must be given their plain and natural meaning. If the Lessor is not prepared to exercise its discretion under clause 54 of the lease, there is nothing to relieve. The lease ceased to exist by the effluxion of its term. [22] For these reasons the Court has no jurisdiction to grant the relief sought. The qualifying requirements for the invocation of the s 120 discretion have not been met and the application must fail.Relief would not be granted in any event[23] I will briefly consider whether relief would have been granted in any event, on the assumption that clause 35 of the lease applies in the usual way without qualification. These remarks are also relevant to the question of whether if the discretion had to be exercised "reasonably", it was so exercised. [24] The discretion under s 120 is very wide. In Vince Bevan v Findgard Nominees [1973] 2 NZLR 290, it was stated by Turner P at 297:I think that this section in the Property Law Act, enacted as a remedial measure, should be construed as conferring upon the Court a very wide jurisdiction to do equity in relieving against refusals by lessors to renew leases.[25] In Ponsonby Mall Trust Ltd & Crummer Trading Trust Ltd v New Zealand Food Industries Ltd (High Court Auckland, CIV 2005-405-3631, 5 December 2005), I endeavoured by reference to authorities to briefly summarise certain factors that could taken into account by a Court in exercising the s 120 discretion. These were:(a) Reasons for the failure to give notice, e.g: Whether the failure to renew was inadvertent; (b) Whether the cause of the default was due to any action of the landlord; (c) The lessee's conduct, in particular whether it has complied with all conditions and covenants and has been a good tenant; (d) The prejudice to the lessee if the relief is not granted; (e) The prejudice to the lessor if the relief is granted;(f) The lessor's motivation for the refusal to renew and understanding of the lessee's intentions; and (g) The interests of third parties and how they may be affected by any order.Reasons for failure to give notice[26] There is no doubt that the reason for the failure to seek renewal in the time provided was inadvertence by the Lessee, and that this error was not caused by any action of the Lessor or deliberate conduct. This is not a factor which would count against the exercise of the discretion.Conduct of the lessee[27] However, in terms of factor (c) I consider that the Lessee's conduct in this case will be highly relevant to the exercise of the discretion. [28] There is a lengthy history of non-payment of rental and other expenses by Bedford Investments. Ninety percent of the rent/rates payments since the beginning of the lease have been late. The delays oscillate from one day to 110 days. Most are more than minor. On seven occasions cheques were dishonoured. The evidence is that Mr Alder has had to continually pursue the tenant for rent. He has always claimed and received, when ultimately paid, penalty interest at the rate of 16% per annum. However, the amounts obtained for penalty interest were in quantum not great, and I do not consider that they excuse or ameliorate the significance of the non-payments in terms of the s 120 discretion. [29] Given the continuous and serious defaults, it must be assumed that either the businesses of Bedford Investments were in severe financial difficulties, or the late payments were deliberate. [30] Mr Alder had to personally visit the principal of Bedford Investments, Mr Talyancich, to seek the rent, and often had to call more than once. The Lessor has been in a position throughout the lease where it simply has been unable to be certain that it would get the rent on time.[31] There was also an occasion when the Lessee owed the Lessor for its legal costs, incurred in engaging solicitors to seek payments under the lease. The amount involved was $3,875.63. Ultimately, Alder & Co. had to file a claim in the Small Claims Court, and obtained judgment from the Disputes Tribunal for the amount. [32] Defaults of this level are entirely unacceptable. No excuse was put forward for them. No commercially astute and reasonable Landlord would ever wish to have a tenant that performed in this way. This is a factor which strongly dictates against the granting of relief. [33] Alder & Co. have also raised a number of complaints about the conduct of Bedford Investments, including disputes between shareholders of and family members associated with the company, and an allegation of disputes between Bedford Investments and other tenants. I do not consider these complaints to be of particular relevance.Prejudice to the Lessee if the relief is not granted[34] There is no evidence indicating that there is any particular goodwill or value in the businesses. There is no evidence that there will be any specific losses, although it was stated by Mr Talyancich that his son had spent an estimated $50,000 on the floor and other fittings in the pie shop. It is not clear as to how much of this expense can be recovered by the removal of fittings. I accept that inevitably there will be some prejudice to the Lessee if the relief is not granted, in that a business, or here two businesses, will have to re-locate or be lost, but there is no particular hardship apart from this of which the Court has been made aware.The prejudice to the Lessor if the relief is granted[35] Mr Alder, who is the principal of Alder & Co., is an older man and semi- retired. Clearly he finds a continually defaulting tenant such as Bedford Investments a considerable burden. His counsel has submitted that it is not appropriate that he be forced by a Court ordered renewal to spend his retirement chasing up late payments. The lessor is Bedford Investments, and I do not consider that the personalcircumstances of shareholders or directors have particular relevance. However, there is no doubt that any lessor would find the need to chase rental payments on a monthly basis most inconvenient and costly. [36] Mr Alder has stated also that it may be necessary to carry out substantial remedial work on the premises which may require vacant possession. [37] On an overview, I consider that there will be some prejudice to the Lessor if relief is granted and this is relevant to the exercise of the discretion.Lessor's motivation for the refusal to renew and understanding of the Lessee's intentions[38] I am satisfied that the Lessor's motivation is transparent and commercially reasonable. The Landlord would like to have vacant possession and wishes to get rid of a troublesome tenant.Interests of third parties and how they may be affected by any order[39] There are three employees of Bedford Investments. Their employment will obviously be affected if the businesses have to relocate or close. However, given the inevitability of some sort of loss of employment on termination, I do not in all the circumstances regard this as a significant matter.Conclusion as to relief[40] I would not in my discretion grant relief against forfeiture in this case. I regard the conduct of the Lessee as beyond that which is commercially acceptable, and by a considerable margin. No Landlord should be required by a Court to accept a chronically and inexcusably defaulting tenant. On any reasonable forward prognosis it could be expected that the Lessee will perform in the past as it has in the future. It would be entirely unreasonable to require the Lessor to accept that level of performance.[41] I therefore record that if I had jurisdiction to exercise the discretion under s 120 of the Property Law Act, I would decline to grant relief. [42] If the discretion in clause 54 had to be exercised "reasonably", the same very poor payment record would have made it reasonable for the lessor to have declined to renew. A landlord must be allowed to have a reasonable commercial reaction to a chronically bad payment performance, and say "enough".Conclusion[43] This Court has no jurisdiction to grant relief against forfeiture under s 120 of the Property Law Act 1952. The application is therefore dismissed.Costs[44] I award costs for one counsel in favour of the respondent on a 2B scale.. Asher J