TURRALL & ANOR v TEVITA INVESTMENTS SAMOA LIMITED [2014] NZHC 3043

TURRALL & ANOR v TEVITA INVESTMENTS SAMOA LIMITED [2014] NZHC 3043 [1 December 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2014-404-2687[2014] NZHC 3043IN THE MATTER of s 244 of the Property Law Act 2007BETWEEN JOHN GRAHAM TURRALL and PETERWILLIAM BUTLERApplicantsAND TEVITA INVESTMENTS SAMOALIMITEDRespondentHearing: 1 December 2014Appearances: W G C Templeton for ApplicantsP N Teei for RespondentJudgment: 1 December 2014ORAL JUDGMENT OF TOOGOOD J[1] The respondent ("Tevita") operates the Mt Roskill Motor Inn which is locatedat 565 Mt Albert Road, Epsom. The motel property is leased by Tevita from a trust of which the applicants are the trustees. The lease was originally entered into between the trustees and a company, now no longer registered, in March 1996 for a 21-year term which expires on 9 February 2017.[2] The lessee's interest was assigned to Tevita in 2007 and the respondent hascontinued to run the motel since then.[3] There have been longstanding issues about the maintenance of the property. By virtue of clause 5(a) of the lease, the obligation to keep the premises in good and substantial tenantable repair, order and condition is on the lessee, Tevita.[4] The consent of the applicants to the transfer of the lease to Tevita was given subject to conditions which included personal covenants given by the directors and proprietors of Tevita. Clause 8 of the deed of covenant dated 12 April 2007 contains an acknowledgement by the covenantors that there were then outstanding repairs and maintenance which had not been carried out and for which the lessee was liable under the lease. It was also acknowledged that, as a consequence, the trustees were then entitled to give notice of default under the lease pursuant to clause 2.[5] Tevita is now seriously in default of its obligation to pay rent. By 13 June 2014 a total sum of $103,604.42 was owing for arrears of rent, penalties and interest. On 23 July 2014, the trustees served on Tevita a notice of intention to cancel thelease under the Property Law Act 2007 ("the Act") in the following terms:The Landlord hereby gives you notice that:-(i) You have failed to pay rent due and payable pursuant to the Lease and as at 13th June 2014 you had failed to pay rent of $103,604.42 (inclusive of Goods and Services Tax).(ii) The said rent has been outstand [sic] for a period in excess of 10 working days and in excess of 14 working days.(iii) You are required to remedy your failure to pay the rent by paying the sum of $103,604.42 to the landlord.(iv) In the event that you do not pay the sum of $103,604.42 within the 10 working days following service of this notice on you the Landlord may –a) Apply to the Court for an order for possession of the land; orb) Re-enter the premises.[6] The sum claimed was not paid and on 10 October 2014 the trustees applied for the orders now sought, in the following terms:(a) For possession of the land situated at 565 Mount Albert Road, Epsom, Auckland (being all that parcel of land containing 1,967m2more or less on Lot 2, Deposited Plan 77492, and being contained in Indemnifier [sic] NA 33D/530), currently subject to an unregistered Lease between the Applicants as Landlord and the First Respondent as tenant.(b) Confirming cancellation of the Lease between the Applicants and the Respondent, and between the Applicants and Mount Roskill Motor Inn (2000) Limited.(c) That there be judgment that the Respondent is to pay the Applicants rent and outgoings of $111,093.62, plus accumulated interest of $60.87 per day from 13 June 2014 to the date of judgment.(d) For costs on a solicitor/client basis, or in the alternative, for costs asfixed by the Court on a "2B" basis.[7] The respondent seeks relief against cancellation under s 253 of the Act. Pared down to the essentials of his argument, there are two grounds advanced by Mr Teei in opposing the making of the orders sought by the applicants. First, he argues that the notice issued on 23 July 2014 is invalid because it did not comply with the requirement in s 245(3)(c) of the Act to adequately inform Tevita of the period within which the breach of its rental obligations must be remedied. Thestatute provides that the period must "not be less than 10 working days after the dateof service of the notice". Second, he submits that the Court should exercise itsdiscretion against making the orders for possession and cancellation of the lease.[8] Mr Teei's argument about the validity of the notice is that notice that Tevitawas required to pay the sum of $103,604.42 "within the 10 working days following service" did not comply with the obligation to specify a period for remedying thebreach which is not less than 10 working days after the date of service of the notice.[9] I do not accept that submission. The statutory obligation is to allow a period of not less than 10 working days after service; it follows that giving 10 working days after or following service complies with the obligation. There is no ambiguity in the notice and it complies with the period the statute requires to be given, even though it is worded differently.1[10] As to the exercise of the discretion, I have regard to the relevant matters summarised by Hammond J in Studio X Ltd v Mobil Oil New Zealand Ltd.2 It is not disputed that the respondent is seriously in arrears of its obligation to pay rent and I am not persuaded that there is any reason why the landlords should not be entitled to exercise their rights under the lease. The monthly rental of $7,954.17 has been paid from time to time, but the sum now claimed by the applicants is in excess of$140,000. The respondent's position, in its essential elements, is that Tevita hadfallen into arrears because of the need to spend money on repairs and maintenance, but that does not mean that the failure to pay the rent was inadvertent or beyond their control. Putting aside the absence of evidence of what repairs and maintenance have been undertaken, it is acknowledged in any event that the landlord has no obligation under the lease to meet the cost of repairs or maintenance and that no set-off against rent owing could be claimed.[11] Further, I am not satisfied that there is any substance to the suggestion that the covenantors had been misled into believing that a settlement payment of $65,000 at the time of the transfer of the lease somehow required the applicants to assume responsibility for repairs and maintenance in the future.[12] In essence, the respondent's position is that it needs time to get the propertyinto a condition where the business can be sold; that it will pay the current rent in the meantime; and that, when the business is sold, the company would then be able to meet the arrears out of the proceeds of sale.[13] It is difficult for the respondent to attract appropriate offers from prospective purchasers of the business, however, because of the short period to the expiry of the1 Bryers v Harts Contributory Mortgages Nominee Co Limited [2002] 3 NZLR 343 (CA) at 349.2 Studio X Ltd v Mobil Oil New Zealand Ltd [1996] 2 NZLR 697 (HC) at 701.lease, there being no right of renewal. Carrying out repairs will not address that apparent obstacle to a sale. What the respondent is really after is an order of the Court which extends the lease or requires the applicants to grant a new lease for a further period of 10 years. In that event, Tevita says, the sale of the business becomes more attractive with the result that the landlords will get their money in due course.[14] However, Mr Teei did not attempt to persuade me that the Court had any jurisdiction under the Act to require the landlords to enter into a wholly new lease arrangement. The reality is that, without a long term-lease, the respondent is stuck with a bargain which does not make it easy for it to sell the business. Even if I was to accept that the respondent has arranged finance to meet some of the existing debt, there is no realistic prospect of the respondent being in the position to meet the whole of the arrears immediately out of its present resources.[15] There is no arguable basis on which the Court, in the absence of thelandlords' consent, could extend the respondent further time for compliance with itsobligations on conditions which give the respondent no more than a hope of securing a favourable sale of the business at some unspecified time.[16] Mr Teei has said all that might be said on the respondent's behalf but theapplicants are entitled to orders under s 251 of the Property Law Act and I make them in the following terms:(a) An order granting to the applicants possession of the land situated at 565 Mt Albert Road, Epsom, Auckland (being all that parcel of land containing 1,967 m2 more or less on Lot 2, Deposited Plan 77492, and being contained in Identifier NA 33D/530), currently subject to an unregistered lease between the applicants as landlord and the respondent as tenant.(b) An order cancelling the lease between the applicants and the respondent, and between the applicants and Mt Roskill Motor Inn (2000) Ltd entered into on 9 February 1996.(c) An order requiring the respondent to pay to the applicants rent and outgoings of $140,572.70, being the amount owing at 9 November 2014, together with unpaid rental, penalties and interest owing between 9 November 2014 and the date upon which the applicants take possession of the property.(d) An order that the respondent shall pay costs and disbursements to the applicants in accordance with clause 41 of the lease in the sum of $20,427.19, the particulars of which are set out at paragraph 23 of Mr Templeton's submissions dated 26 November 2014...Toogood J