MFT PROPERTIES LIMITED V COUNTRY CLUB APARTMENTS LIMITED HC AK CIV-2010-404-005913

MFT PROPERTIES LIMITED V COUNTRY CLUB APARTMENTS LIMITED HC AK CIV-2010-404-005913 13 April 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2010-404-005913BETWEEN MFT PROPERTIES LIMITEDApplicantAND COUNTRY CLUB APARTMENTSLIMITEDRespondentHearing: 9 February 2011Counsel: R Pidgeon for the PlaintiffL Turner and J Garnett for the DefendantJudgment: 13 April 2011RESERVED JUDGMENT OF WOOLFORD JThis judgment was delivered by me on 13 April 2011 at 4.00pmpursuant to r 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:Thorne, Thorne, White & Clark-Walker, PO Box 140, Shortland St, Auckland. DX CP21508Whaley & Garnett, PO Box 17181, Greenlane, Auckland. DX CP33502Introduction[1] MFT Properties Limited (MFT) makes application for an order for possession of a number of apartments, car parks and other commercial areas in the Quest on Mount at 15 Mount Street, Auckland (the premises) and cancelling the lease of the premises under s 245 of the Property Law Act 2007 (the Act).[2] Country Club Apartments Limited (Country Club) makes application for anorder granting relief in respect of MFT's earlier notice of intention to cancel the leaseand granting a renewal of the lease under ss 253 and 261 of the Act. Both applications seek ancillary orders relating to the payment of sums said to be owing between the parties.Factual background[3] Country Club operates the Quest on Mount serviced apartments pursuant to a franchise from Quest Apartment Group Limited. Country Club took an assignment of various leases making up the Quest on Mount business at the same time it entered into the franchise agreement. Mr Graeme Latta, the sole director and shareholder of Country Club, negotiated the assignment of the leases with Mr David Compton, the previous building manager, as part of the purchase of the business.[4] One of the leases making up the business was the lease of the premises from MFT. Mr Gary McNabb is the sole director of MFT which is owned by the McNabb Investment Trust.[5] A deed of assignment of lease of the premises was executed between Oxford Leases (2001) Limited (Oxford) as assignor, Country Club as assignee, Mr Latta as guarantor of the assignee and MFT as landlord. The date of the assignment was 1 March 2006. The first schedule to the deed of assignment refers to the assigned lease as dated 1 October 2001 with three rights of renewal of five years each. The current rent was said to be $136,000 plus GST per annum. The lease variations were said to be nil.[6] The assigned lease dated 1 October 2001 was between MFT and Oxford. It was for a term of five years with three further terms of five years. The renewal dates were specified as 1 October 2006, 1 October 2011 and 1 October 2016. The final expiry date was 30 September 2021. The annual rent was $110,900 plus GST with biennial review dates commencing on 1 October 2003. The tenant was obliged to pay 100 percent of outgoings including rates and body corporate charges.[7] Mr Latta deposes that when he took over the lease he was mistaken about the terms that applied because in his discussions with Mr Compton, he was given an earlier agreement to lease dated 16 March 2001. The agreement to lease specified the annual rent to be $110,900 inclusive of GST and provided for the tenant to pay the rates and body corporate charges. The only difference between the agreement to lease and the subsequent deed of lease, however, was that the annual rent of $110,900 changed from GST inclusive to GST exclusive.[8] In any event, Mr Latta signed the deed of assignment of lease as a director of Country Club as assignee and personally as guarantor of the assignee. That specified the rent of the premises as $136,000 plus GST. He also signed an agreement for sale and purchase of the business which contained a schedule of leases as Annex 3. In that schedule, the gross annual rent for the premises was shown as $153,000 (being $136,000 plus GST).[9] Mr Latta deposes that on the first day of taking over the business, Mr Compton told him to put $12,750 into MFT's account. That sum equates withthe monthly rent at a rate of $136,000 plus GST per annum. It appears that Mr Latta did so and paid a similar sum on a monthly basis over the next few months before negotiating a reduction of rent with Mr McNabb in mid-2006.[10] Mr Latta deposes that he met with Mr McNabb in mid-2006 and it was agreed that Country Club would pay a monthly rent of $8,420, or $101,040 per annum for the premises. Mr Latta says that this figure was GST inclusive whereas in an email dated 14 May 2009 (the rent review email) Mr McNabb says that it was GST exclusive. In addition, Mr Latta says that Mr McNabb also agreed that MFT would pay the rates and body corporate charges relating to the premises. Thisappears to be consistent with the rent review email in which Mr McNabb identifies outgoings of $3200 per month as having been paid by MFT since 2004 (although in evidence he stated it was actually 2005 that MFT starting paying the outgoings).[11] The lease expired on 30 September 2006, seven months after Country Club took over the business. It was never formally renewed. Mr Latta says that MFT never indicated it required formal renewal of the lease and it never occurred to him or Country Club that it was required. In any event, Country Club continued paying rent of $8,420 (inclusive of GST) per month. The rent was, however, inevitably paid late (it was due on the first of each month) and often in instalments. Mr Latta says that although late the rent was always paid in the month it was due. There were, however, occasions on which it was not.[12] In mid-2009, Mr Latta sought a further reduction in rent from Mr McNabb. He proposed a 12 percent reduction to $7,410 (inclusive of GST) per month. This was never agreed.[13] Discussions regarding the rent were then put on hold because of negotiations between Mr Latta and Mr McNabb about the possible purchase of the premises by Country Club. In the end these negotiations came to nothing because Country Club was unable to raise the finance required to purchase the premises.[14] While these negotiations were taking place, the solicitors acting for MFT wrote to Country Club on 15 October 2009 advising it that the concession that MFT gave to it on rent and operating expenses was now at an end and requiring Country Club to pay the contract rent of $136,000 plus GST and outgoings from that date.[15] Country Club responded by saying that it was still very interested in purchasing the premises and in the meantime suggested obtaining valuations so as to reach agreement on a new rental. Country Club disputed that the rent it was paying was a concession. It maintained it was as a result of a rent review process.[16] When negotiations between Mr Latta and Mr McNabb over the purchase of the premises broke down finally in mid-2010, MFT served a notice of intention tocancel the lease dated 14 June 2010 on Country Club. This relied on alleged breaches of the obligation to pay the rent as recorded in the deed of assignment. When Country Club said that rent had been paid as agreed between the parties, MFT responded by saying that there had been a failure to renew the lease and that the tenancy was therefore a monthly tenancy. To attempt to remedy the situation (without acknowledging that a formal renewal had been necessary) Country Club'ssolicitor sought to give notice of renewal on 29 July 2010. This was refused.[17] In addition to filing its application for possession and to cancel the lease, MFT also issued a statutory demand in respect of rental withheld by Country Club. Country Club applied to set aside the statutory demand. Country Club said that it had not been paid for accommodation provided to Mr David Colvin, a colleague of Mr McNabb. The application to set aside the statutory demand was settled on the basis that this proceeding was likely to address all of the issues being advanced by the parties.David Colvin accommodation[18] While the parties were still on amicable terms, Mr McNabb approached Mr Latta in February 2010 requesting long stay accommodation for a colleague. The colleague was David Colvin, the Chief Executive Officer of New Zealand Mint Limited, another company owned by the McNabb Investment Trust. Mr Latta agreed to provide accommodation. The length of stay was, however, not agreed. Nor was the rate to be paid. Mr Latta did not in fact learn that Mr Colvin was employed by New Zealand Mint Limited until sometime after he started staying at the Quest on Mount.[19] The agreement was obviously an informal arrangement between business men who had on-going contact. At the time there had been lengthy discussions between the parties about the rent payable under the lease and a proposal had been put forward that Country Club purchase the premises. Mr McNabb thought paymentfor Mr Colvin's accommodation would be sorted out when agreement was reachedwith Mr Latta on the wider issues relating to the lease. Mr Latta did not seek payment for Mr Colvin's accommodation for many months.[20] It was only after the statutory demand was served on Country Club by MFT on 3 August 2010 seeking the payment of $16,480, being the undisputed part of the rent for the months of July and August 2010, that Mr Latta issued invoices to MFTfor Mr Colvin's accommodation. Mr Latta says that because the rate had not beenagreed, Country Club was entitled to charge what he called the "rack rate", a figurewhich ranged between $180 and $215 per night. The total sum invoiced for the five months from 28 February 2010 to 31 July 2010 was, therefore, $27,615.[21] However, it is my view that it was an implied term of the arrangement that, if agreement could not later be reached between the parties, a reasonable weekly rate would be paid in respect of Mr Colvin's accommodation. On the website for Queston Mount, the long stay rate for a studio apartment was advertised at $315 per week, while that for a one bedroom apartment was advertised at $350 per week. However, Country Club did have a long stay tenant in one of the studio apartments in the Quest on Mount who paid $250 per week, significantly less than the advertised rate. Mr Latta said that this was the worst apartment in the complex and Mr Colvin stayed in superior apartments. Mr Colvin had stayed in a studio apartment for five-and-a- half months and a one bedroom apartment for two weeks.[22] The advertised long stay rates did not include servicing. There was somedispute between the parties as to whether Mr Colvin's apartment was serviced.Mr Latta says it was. Although he does not have direct knowledge of the issue, Mr McNabb says that it was not.[23] In the absence of agreement and in knowledge of the long stay tenant who paid $250 per week, New Zealand Mint Limited paid the sum of $5,358 to Country Club on 30 November 2010 representing what it said was a rental of $250 per week.[24] If I have to determine the issue, I would find that a reasonable weekly rate for Mr Colvin's accommodation would be $350 per week. Although Mr Colvin stayed mostly in a studio apartment, I accept Mr Latta's evidence that there was someservicing of his apartment because as manager of the Quest on Mount he would have arranged it. I am therefore of the opinion that the rate for a one bedroom apartmentwould be more appropriate. It was however clearly a debt of New Zealand Mint Limited.Renewal of lease[25] Country Club did not formally renew the lease of the premises on 1 October 2006. It says it overlooked doing so and that both parties acted as if it had been formally renewed. It now makes application for relief against refusal to renew the lease under s 261 of the Property Law Act 2007.[26] The relevant factors to be taken into account by a Court in exercising its discretion to grant relief were summarised by Asher J in Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd:1(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 allconditions 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 relief is granted.(f) The lessor's motivation for the refusal to renew and understanding of the lessee's intentions.(g) The interests of third parties and how they may be affected by any order.1 Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd (2005) 7 NZCPR 48 (HC) at [29].[27] After hearing evidence, I have formed the view that Country Club is entitled to relief in respect of MFT's refusal to renew the lease.[28] Looking at the relevant factors, the failure to give notice of renewal was clearly inadvertent. MFT was not the cause of default. While Country Club was not paying the rental in the assignment of lease, this arrangement had been negotiated between the parties and continued for approximately three years, until mid to late 2009. Country Club also believes it is not required to pay the rental set out in the assignment of lease. There would be prejudice to Country Club if relief was not granted as it would be difficult for Country Club to continue operating the business if it did not have access to the office and other commercial areas forming part of the premises. There is some prejudice to MFT if renewal is granted, but that is limited to the difference in rental than a new tenant may pay. MFT refused to renew the lease because it was in dispute with Country Club over the rent properly payable. Third parties would not be affected if relief was granted. Finally, the renewed term will, in any event, expire on 30 September 2011.[29] I therefore order MFT to renew the lease for a period of five years from 1 October 2006 to expire on 30 September 2011 pursuant to s 264(2)(a)(i) of the Property Law Act 2007. Although I have granted Country Club relief against the refusal to renew the lease, the more contentious issue is whether I should now grantMFT's application to cancel the lease.Rent payable[30] The starting point for determining the key issue of the rent payable is the deed of lease dated 1 October 2001, which was assigned to Country Club on 1 March 2006. The annual rent payable in the deed of lease was $110,900 exclusive of GST. The tenant was also obliged to pay 100 percent of the outgoings on the premises.[31] The annual rent was increased to $136,000 exclusive of GST by the deed of assignment dated 1 March 2006. This met the requirements of s 2(2) of the Contracts Enforcement Act 19562 which provided:(2) No contract to which this section applies shall be enforceable by action unless the contract or some memorandum or note thereof is in writing and is signed by the party to be charged therewith or by some other person lawfully authorised by him.[32] The crucial issue is whether MFT's acceptance of a reduced rental since mid- 2006 was purely a pragmatic decision to assist Country Club through difficult economic times and a concession which was revocable at will, or whether it constituted a binding variation of the lease.[33] MFT submits that the arrangement to accept a reduced rental is unenforceable due to failure to comply with s 2 of the Contracts Enforcement Act.[34] Country Club accepts that the law requires that leases and variations to them are recorded in writing. It submits that s 2 of the Contracts Enforcement Act (which it accepts still governs the situation) simply requires that there be a note of the relevant contract or variation signed by the party charged therewith. It submits that the rent review email dated 14 May 2009, some three years after the agreement, meets that requirement.[35] The rent review email, sent from Mr McNabb to Mr Latta, reads:"Hi Graeme,Trust you are well.Sorry it's taken a while to get back to you.With regard to the rent issue.I feel we need to be treated differently than other owners, as our holdings are predominantly Commercial, and based on a below market rate of $250 psm the conference centre alone would be $30,000pa plus outgoings, and personally I think where it sits at the moment is not unreasonable, especially as we have been chopped now several times. If it were to be formally valued I believe it would sit at the 2002 level.2002 2004 2006 ProposedMonthly rent $9,242 $9,242 $8,420 $7,4102 Now repealed but still applicable to the lease through the operation of s 367(4) Property Law Act 2007.Outgoings 0 $3,200 $3,200 $3,200NET to us $9,242 $6,042 $5,220 $4,210These figures are GST exclusive.It also represents $2m of property at cost, and you are proposing a 2.5% return.So I hope you can see it from my perceptive.I will pop in for coffee next week sometimeregardsGary[36] Country Club submits that the word "Gary" at the foot of the email is the signature of "the party charged therewith" in terms of s 2(2) of the Contracts Enforcement Act.[37] The first difficulty is that the email may not accurately reflect the rent payable. According to Country Club, the agreed rent was $8,420 inclusive of GST whereas the email makes plain that the figure is GST exclusive. The parties, therefore, do not appear to have been ad idem. This suggests that there was no concluded agreement.[38] A second difficulty is the submission that the word "Gary" is a signature of the party charged therewith. In Welsh v Gatchell3 Miller J reviewed the requirements of s 2(2) of the Contracts Enforcement Act at some length. At para [51] he stated:[51] I draw from these cases the following propositions. Although the content of the document and the signature upon it may be written at the same time and by the same person, they serve different legal purposes. A signature is a distinct and personal act that identifies the party to be charged and evidences his or her intention to be bound by the contents of the document. For that reason, a name need not be interpreted as a signature where it serves some other purpose, as in the case where it appears as part of the substantive content. A signature may appear in any position, but it must govern the whole. A name, initials, or other mark that identifies the party to be charged may suffice as a signature. It need not be handwritten; in particular, it may be stamped or typed.[39] The name "Gary" sufficiently identifies Mr McNabb but I am of the view that it does not evidence his intention to bind MFT to the contents of the document. The email was sent at a time when Mr Latta was proposing a further reduction in rent.3 Welsh v Gatchell [2009] 1 NZLR 241 (HC).Mr McNabb refers to historic levels of rent received and the level proposed by Mr Latta, saying personally he thought where it sat at the moment was not unreasonable. Mr McNabb was expressing a personal view during the course of negotiations and not expressing an intention to bind MFT to the reduced rent it had been receiving. It is my view that the rent review email therefore does not meet the requirements of s 2(2) of the Contracts Enforcement Act.[40] Country Club submits in the alternative that the doctrine of part performance would render the 2006 rent agreement enforceable. It refers to the test enunciated inTA Dellaca Ltd v PDL Industries Ltd4 in which Tipping J summarised the matters to be considered by the Court in a part performance case:1. Was there a sufficient oral agreement such as would have been enforceable but for the Act?2. Has there been part performance of that oral agreement by the doing of something which:(a) clearly amounts to a step in the performance of a contractual obligation or the exercise of a contractual right under the oral contract; and(b) when viewed independently of the oral contract was, on the probabilities, done on the footing that a contract relating to the land and such as that alleged was in existence.3. Do the circumstances in which that part performance took place make it unconscionable (fraudulent in equity) for the defendant to rely on the Act?[41] Country Club submits that each of the elements is amply met in the present circumstances.[42] However, in Take Harvest Ltd v Liu5 the Privy Council considered the effect of s 3(1) of the Hong Kong Conveyancing and Property Ordinance which provided that, subject to s 6(2) (which related to the creation by parol of leases for a term not exceeding three years at the best rent which could reasonably be obtained without a premium), no action should be brought upon any contract for the sale or other disposition of land unless the agreement upon which such action was brought, or4 TA Dellaca Ltd v PDL Industries Ltd [1992] 3 NZLR 88 (HC) at 109.5 [1993] AC 552.some memorandum or note thereof, was in writing; and s 3(2) which provided that s 3(1) did not affect the law relating to part performance.[43] The Privy Council stated:6Their Lordships cannot accept in its unqualified form the proposition that, in cases such as this, an oral agreement is available as a defence in the same way and to the same extent as any enforceable contract. If due regard is to be paid to the statute, the question in any given case must be whether the party who relies on the oral agreement is in substance seeking to enforce it. If he is so seeking, it matters not whether he happens to be plaintiff or defendant in the proceedings or whether, as a matter of formal pleading, he is seeking to enforce the oral agreement by way of claim, defence, counter- claim or otherwise...In any such case its due effect must be given to the statute.[44] MFT seeks the payment of the rent specified in the deed of assignment of lease. In response, Country Club seek to rely on the oral agreement in mid-2006 forthe purpose of resisting MFT's claim. In those circumstances, it is clear that Country Club is seeking to enforce the oral agreement such that it would be unconscionable for MFT to rely on s 2 of the Contracts Enforcement Act. Furthermore, Country Club have not acted to their detriment in reliance on the oral agreement. In fact, Country Club has had a substantial benefit over a lengthy period of time through reduced rent and the payment of outgoings by MFT.[45] I adopt a similar approach to that of Associate Judge Gendall in Tennyson Motor Inn (2003) Ltd v Wallace.7 He stated:[25] I turn now to deal now with the arguments raised by the applicant. The first is that there has been an oral variation of the Lease. The Lease is for a term of twenty five years and under S.49A Property Law Act 1952 and S.2Contracts Enforcement Act 1956 it is required to be in writing.[26] Burrows Law of Contract in New Zealand at paras. 19.3.1 and 19.2.1 makes clear that an oral variation of a contract required by law to be evidenced in writing (such as the Lease), is ineffective with the result that the present variation of lease claimed by the applicant must be considered to be ineffective.[27] Although there is no doubt that some other arrangement existed with respect to the building insurances and the lift service contract for approximately four years up to 2007, in my view, at best from the6 at 569.7 Tennyson Motor Inn (2003) Ltd v Wallace HC Napier CIV-2007-441-739, 19 November 2007.applicant's point of view this was either an indulgence on the part of the respondents as landlords, or alternatively, a year by year waiver of the strict provisions contained in the Lease....[30] Next, counsel for the applicant endeavoured to argue that although the variation to the lease was not in writing, nevertheless, the doctrine of part performance applies here. Again I reject this argument. In my view the evidence indicates that what has occurred here is simply that for a period of some four years the respondents as landlords (probably without taking proper advice) simply agreed by way of an indulgence or annual waiver not to enforce their rights with respect to the insurance and the lift service contract provisions in the Lease. The doctrine of part performance does not assist the applicant here.[31] Further, counsel for the applicant endeavoured to argue before me that the oral variation agreement here could be enforced under the doctrine of equitable estoppel. As to this, he maintained that either through a representation made by, or the actions of, the respondents as landlords, the parties proceeded on the basis of an underlying assumption that the Lease had been varied and this was relied upon by the applicant to its detriment. In my view this suggestion is quickly disposed of. The evidence does not support this contention put forward by counsel for the applicant. In any event, it is quite clear to me that there has been no change of position on the part of the applicant as tenant to his detriment here as a result of any claimed estoppel...[32] I am satisfied therefore that there has been no actionable estoppel here.[46] I am, therefore, of the view that the rent payable for the premises is $136,000 plus GST per annum. Country Club is also obliged to pay 100 percent of the outgoings, including rates and body corporate charges. Mr Latta had agreed to pay that amount in the deed of assignment he signed, which he intended to be binding on both Country Club and MFT. He also had clear notice of the amount payable both in the deed of assignment and in the sale and purchase agreement. The agreement reached with Mr McNabb in mid-2006, that MFT would accept a reduced rent and pay the outgoings, was an indulgence or a waiver of the strict provisions of the lease.[47] The rationale for the statutory requirement that any variation be formally recorded in writing is obvious. It gives certainty to the parties. The rent review email demonstrates clearly the uncertainty that can result if informal arrangements would suffice to bind the parties.[48] MFT revoked its indulgence by an email from its solicitor to Country Club dated 15 October 2009. It sought payment from that date of the rental of $136,000 plus GST per annum and of all the outgoings. Country Club replied two days later disputing that any concession had been given and stating that the change in rent was due to a rent review process completed in 2007 between Mr Latta and Mr McNabb.[49] The lease does allow for a review of rent every second year from 1 October 2001. While a rent review may have been initiated prior to 1 October 2007 to take effect from that date, the lease provided that the rent may be reviewed by MFT, not Country Club, and that the new rent shall not be less than the annual rent payable during the 12 months immediately preceding the relevant review date. There is no evidence of the rent review process set out in the lease having been followed.[50] Country Club has refused to pay the rent of $136,000 plus GST per annum. It has also refused to pay any of the outgoings. Country Club has, therefore, knowingly been in breach of the lease since 15 October 2009. It owes MFT the difference between what it has paid since that time and the rent of $136,000 plus GST per annum and all outgoings.[51] I do not make any specific findings in relation to any rent that may be owing prior to 15 October 2009. I did not receive evidence of the particular sums paid before that date nor did I hear detailed argument about the effect of the indulgence or waiver granted by MFT.Availability of set off[52] Country Club claims a set off in respect of what it says is the amountoutstanding for Mr Colvin's accommodation. As noted earlier, however, it is myopinion that the debt is one that is not owed by MFT but rather by New Zealand Mint Limited.[53] For that reason, I am not required to make any finding as to whether the lease expressly prohibits any set off. In any event, the amount which is outstanding inrespect of Mr Colvin's accommodation, based on my finding of what was reasonable in all the circumstances, is nowhere near the amount of rent which has been outstanding since 15 October 2009.Results/orders[54] I make the following orders:(a) Renewing the lease for a period of five years from 1 October 2006, to expire on 30 September 2011.(b) Cancelling the lease with effect from 14 days following the date of judgment unless within those 14 days Country Club pays MFT a sum equivalent to the difference between the rent of $136,000 plus GST per annum together with all outgoings on the premises from 15 October 2009 until the date of judgment and the rent actually paid in that period.(c) Permitting MFT to take possession of the premises 14 days after the date of judgment unless the sum specified in para [54](a) is paid within those 14 days.(d) If the sum specified in para [54](a) is paid within those 14 days and the lease is accordingly not cancelled, directing that Country Club continue to pay rent of $136,000 plus GST per annum together with all outgoings on the premises as provided for in the deed of lease unless otherwise agreed between the parties.[55] The applicant is entitled to costs on a 2B basis. If the parties cannot agrees on quantum, they are to file memoranda within 14 days of the date of the judgment.__________________________Woolford J