MANVI LTD v SINGH [2014] NZHC 234

MANVI LTD v SINGH [2014] NZHC 234 [18 February 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-4448[2014] NZHC 234UNDER Section 261 Property Law Act 2007IN THE MATTER of a refusal to grant renewal of a leaseBETWEEN MANVI LIMITEDApplicantAND JAGPAL SINGHRespondentHearing: 18 February 2014Counsel: R O Parmenter for the ApplicantA Rowe for the RespondentJudgment: 18 February 2014ORAL JUDGMENT OF THOMAS JSolicitors: Whaley Garnett, Greenlane, AucklandWells & Co, Remuera, AucklandCounsel: R O Parmenter, Auckland[1] The applicant Manvi Ltd (Manvi) has applied for relief against refusal by the respondent Jagpal Singh (the landlord) to renew a lease of shop premises at Vine Street, Mangere. The application falls to be considered under the provisions of the Property Law Act: ss 261 and 264 principally.[2] The application is opposed by the respondent landlord.Backgrounds facts[3] By Deed of Lease dated September 2011 (the exact date is unclear) the landlord leased the premises to Manvi. Rajendra and Manjit Suman were the guarantors of the lease. The lease is in the form of the Auckland District Law Society 5th edition 2008. The term is for two years from 1 June 2011 with two rights of renewal for two years each, the renewal dates being 31 May 2013 and 31 May 2015 with a final expiry date, if the renewals are exercised, of 31 May 2017. The rent review dates are on each renewal date. The use of the premises is for business use as a retail liquor store.[4] The application has been made because the tenant did not serve the notice to renew within sufficient time and the tenant has been in breach of the lease. The relevant background is set out in the affidavit evidence filed with the Court.[5] This is a slightly unusual situation because the principal affidavit evidence for the applicant has come from a Mr Kalkat who has been authorised by Mrs Suman (a director of Manvi) to give evidence. I say an unusual situation because Mr Kalkat gives information about another significant player in all of this which is ManmeetEnterprises Limited ("Manmeet"). I say significant player because it seems thatManmeet had agreed to take over the Manvi business sometime in about 2010 when Manvi encountered problems with its liquor licence, having supplied liquor to a minor. The result of that was that the Council opposed a renewal of the off-licence held by Manvi. It was agreed at some stage around that time, it appears, that Manmeet would take over the Manvi business. Manmeet paid a deposit of $25,000 to Manvi. The liquor licence was granted to Manmeet and the landlord was aware of that. Mr and Mrs Suman remained involved in the business on a daily basis and were paid $1000 a week for doing so.[6] The relevance of all of that is that one of the complaints of the landlord is that there was this agreement for Manmeet to take over the business but yet he was notinformed of that and even as at today's date there has been no formal application forassignment of the lease from Manvi to Manmeet. The landlord says that the tenant has been deceptive in that regard.[7] The breaches of the lease are of understandable concern to the landlord. They are failures for a period of 11 months to pay the increase in rent which occurred as a result of a rent review and failure to pay rates. This is acknowledgedby the tenant. As at today's date however the rent is up to date and the tenants haveput in place a monthly automatic payment of $300 towards outgoing expenses.[8] In short therefore the tenants' position is that there is no subsisting breach ofthe lease, everything is up to date, arrangements have been put in place to ensure that that remains the case, and that they themselves and Manmeet would suffer hardshipwere the lease not renewed. The landlord's position, in short, is that he feels hecannot trust the tenant anymore. He does not particularly want to continue in a relationship in those circumstances. He has been put to considerable cost as a result of all of this and he would really rather not have Manvi as his tenant.[9] Added to all of that there is an issue about costs in connection with the dispute to date and the litigation costs.Provisions of the Property Law Act 2007[10] Section 261 of the Property Law Act 2007 sets out the circumstances when alessee can apply for relief against a lessor's refusal to renew a lease. That applies ifthe lessor has convenanted in writing with the lessee that on expiry of the term the lessor will extend the term of the lease or renew it. It applies if the obligation of the lessor is conditional upon the fulfilment of any condition or the performance of any covenant or agreement of the lessee or the lessee giving notice within a specified time.[11] In this case both of those provisions apply. The tenant is in breach of a condition and has failed to give notice. The landlord has refused to renew.[12] Section 264 provides that in that case the Court may grant relief. It isaccepted that it is an exercise of the Court's discretion. Counsel has referred to what is a useful checklist of relevant considerations being those set out in the case ofSibrad Company Ltd v Kanter & Ors1 where Asher J outlined relevant factors to be taken into account in exercising the discretion.Discussion[13] I turn to consider those factors and how they apply in this case. The first is the reasons for the failure to give notice, whether the failure to renew was inadvertent or deliberate. In this case the notice to renew in accordance with the terms of the lease was several months late. The affidavit evidence is that this was entirely inadvertent and there does not seem to be any dispute about that by the landlord.[14] The second issue is whether the cause of the default was due to any action on the part of the landlord and it is quite properly agreed that there is no complaintabout the landlord's behaviour.[15] The next consideration concerns the tenant's conduct and in particularwhether it has complied with the conditions and covenants of the lease and been a good tenant. I have already referred to the fact that for some 11 months the tenant failed to pay the required increased rental of $260 per month. That applied for the period from June 2011 to April 2012. Payment of the rent is, of course, the primary obligation of a tenant. The landlord relies upon the rent. The same applies to the obligation to pay outgoings. The explanation for that in the affidavit evidence comes back to the arrangement between Manvi and Manmeet and it seems that Manvi did not forward the demands for rates and insurance to Manmeet within the time required.[16] The tenants' position is that Manvi has now seen the light to useMr Parmenter's words. Everything is up to date and arrangements have been put in1 Sibrad Company Ltd v Kanter & Ors (2008) NZCPR 356.place to preclude any issues in the future. Furthermore the tenant offers a bond ofthree month's rent to be held by the landlord until the lease finally terminates.[17] The next consideration is the prejudice to the tenant if the relief is not granted. The evidence is that the directors of Manvi (i.e. Mr and Mrs Suman also the guarantors of the lease) will lose their income stream of $1,000 per week.[18] The next consideration is the prejudice to the landlord. In tandem with that Iwill consider the landlord's motivation for the refusal to renew. Given what has been proposed by the tenant the financial risk to the landlord seems at the lower end of the scale. I say that because not only is there the arrangement in respect of opex there is also the offer of a bond for three months and on top of that any renewal of the lease means that the guarantee given by Mr and Mrs Suman will continue to apply.[19] I note at this point the situation regarding the proposed assignment to Manmeet. That is not a matter for me to consider today. Today I am concerned simply with the question of renewal. If the lease is renewed then the tenant (Manvi) will need to make a proper application to the landlord for consent to assignment. That will include providing all relevant particulars to the landlord and the landlordbeing satisfied of Manmeet's ability to comply with the lease. The landlord wouldthen have the opportunity to require additional comfort from Manmeet as to its compliance with the provisions of the lease.[20] So the real issue it seems to me, so far as the landlord's position is concerned,is that the landlord will be in a relationship for another three and a half years or so with a tenant with whom he is not particularly happy. The tenant has let him down in the past and he feels also that the tenant is not trustworthy. In respect of that I accept the submissions on behalf of the tenant, that is that the landlord was aware of the existence of Manmeet in terms of the application for the liquor licence and it seems that the landlord was aware the rent was in fact being paid by Manmeet. It is however a fair criticism by the landlord. The landlord is entitled to know the identity of his tenant.[21] The next consideration is the interests of third parties. Again Manmeet'sposition is relevant here. Manmeet has paid a deposit of $25,000 to buy thebusiness. It is valued in Manmeet's books at around $250,000 in respect ofgoodwill.[22] So those are the relevant factors to be balanced when it comes to considering the application. However there is a further relevant matter in my assessment and that is the question of costs. The landlord has quite properly, on my reading of the affidavit evidence, incurred substantial legal costs to date in dealing with this matter. The bills which have been rendered to the landlord total $24,511.12 and on top of that there is the cost associated with attendance today. All those bills, with the exception of the January invoice which has only just been rendered, have been paid by the landlord.[23] Mr Parmenter concedes that the invoices, excluding the most recent one focused primarily on the litigation and which amount to $15,902.00, are payable by the tenant pursuant to the provisions of the lease. Clause 6.1 of the lease is relevant in this regard and it provides as follows:6.1 The tenant shall pay ... the landlord's legal costs as between solicitorand client of and incidental to the enforcement or attemptedenforcement of the landlord's rights, remedies and powers under thislease[24] Mr Parmenter concedes that that provision alone would entitle the landlord to be reimbursed for what has loosely been called the commercial costs. There ispotentially some argument about that position, notwithstanding Mr Parmenter'sconcession, and I say that having considered Asher J's evaluation of a similar clausein the Sibrad decision to which I have already referred. His view was, concerning a relief against forfeiture application, that that did not arise from a breach or default by the tenant in performance of a covenant and that a similar provision was not relevant to the issue of costs in that case.[25] This, of course, is not an application for relief against forfeiture. It is still however an application outside of the lease because it is under the Property Law Act.In my assessment I do not need to make a determination one way or the other about that today for the following reasons:(a) Mr Parmenter concedes the point and indeed offers it as part of the package put before the Court as to why the Court should grant the application;(b) Payment of costs is, in my view, a relevant consideration as to whether the application should be granted. It is very difficult todisagree with the landlord's position in this application which is thatreluctantly he is prepared to live with a renewal of the lease but yet, as he puts it in his affidavit:2I am the innocent party in this matter and I have not done anything wrong in the lease and I have been put to significant additional costs. I would really prefer not to have to deal with Manvi or Manmeet again but nevertheless I have adopted a reasonable and practical approach to this matter. I do not believe the same can be said of the applicant.By that he refers to the open offer made under cover of his lawyer'sletter dated 22 November 2013 where he offered a new lease. The tenant quibbles with that for two reasons. First, that it was a new lease as opposed to a renewal and secondly, because it sought an annual rent of $36,000, the rent at present being $21,912, so a 64 percent increase. The landlord's response is that, although there wassome discussion after that between lawyers, there was no counter offer.Conclusion[26] In my assessment the success of the application was not a foregone conclusion. It is a finely balanced matter when a tenant has failed in some of its fundamental obligations and that is to pay the rent, the operating expenses and to deal openly and honestly with the landlord as to the identity of the tenant.2 At 49.[27] I exercise my discretion to grant the application on the following basis:(a) There will be a renewal of the lease as from the renewal date, i.e. 31 May 2013. For the avoidance of doubt I note that there is an automatic review of rent to ascertain the current market rental as at that date and that is pursuant to cl 33.1(a) of the lease;(b) Again for the avoidance of doubt the potential assignment to Manmeet is a matter to be dealt with between the parties;(c) Again for the avoidance of doubt the existing guarantors remain;(d) The tenant is to deposit three months rent as at the rate currently paid with the landlord as a bond to be retained by the landlord until termination of the lease; and(e) The tenant pays the costs incurred by the landlord to date. Those are costs on a solicitor/client basis but I am satisfied, having perused them, they are in the circumstances reasonable.Costs[28] As to the costs associated with today I accept that the usual course is that costs should follow the event. Costs are however always at the discretion of the Court. For the reasons already advanced in respect of the position between the parties and their actions to date I am satisfied that, in the circumstances, the fair result is that the costs of today should lie.________________________________Thomas J