NZPS INVESTMENTS LIMITED V THE REGISTRAR GENERAL OF LAND HC AK CIV 2005-404-6920

NZPS INVESTMENTS LIMITED V THE REGISTRAR GENERAL OF LAND HC AK CIV 2005-404-6920 9 June 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2005-404-6920UNDER THE DECLARATORY JUDGMENTS ACT 1908 BETWEEN NZPS INVESTMENTS LIMITED Applicant AND THE REGISTRAR GENERAL OF LAND Respondent Hearing: 20 February 2006 Appearances: A Galbraith QC and S A Grant for applicant J A L Oliver for respondent Judgment: 9 June 2006JUDGMENT OF ALLAN JSolicitors: Hornabrook Macdonald Lawyers PO Box 91845 Auckland Crown Law Office, PO Box 2858, Wellington oliver@crownlaw.govt.nzCounsel Argalbraith@xtra.co.nz Sandragrant@shortlandchambers.co.nz[1] This proceeding raises two important questions as to the scope of the Unit Titles Act 1972 (the Act). The applicant seeks declaratory relief couched in the following terms:A. A declaration pursuant to the Declaratory Judgments Act 1908 to the effect that the Unit Titles Act 1972 allows the holder of an estate as sublessee under a memorandum of lease registered under the Land Transfer Act 1952 in respect of a parcel of land to subdivide that parcel of land for a unit title interest to be created. B. A declaration pursuant to the Declaratory Judgments Act 1908 to the effect that the Unit Titles Act 1972 allows the holder of a registered future leasehold estate as sublessee under a memorandum of lease in respect of a parcel of land to subdivide that parcel of land into unit titles at any time after that leasehold estate is registered, and prior to the date of commencement of that leasehold estate.[2] The applicant (NZPS) is involved in the development of land at Albany near Auckland. Albany City has been earmarked as the site of intensive future development, including the large scale construction of residential accommodation. [3] The registered freehold proprietor of the land with which this proceeding is concerned is Albany City Land Limited (ACLL). [4] On 16 June 2005, ACLL agreed to lease the land to Albany City Development Corporation Ltd (ACDCL) for a term of 21 years from 24 June 2005 (the first lease). That lease is registered against the title to the land pursuant to the Land Transfer Act 1952. A leasehold title has been issued. [5] On 22 June 2005, ACDCL in turn entered into a sub-lease of its interest in the first lease, to Albany City Holdings Limited (ACHL), for 20 years and 364 days from 24 June 2005. That sub-lease is likewise registered against the title to the land under the Land Transfer Act, and a leasehold title has been issued in respect of that sub-lease. On the same day, 22 June 2005, ACLL entered into a lease direct with ACHL for a period of 35 years, commencing 24 June 2026 (the second lease). The term of the second lease commences upon the day of expiry of the first lease. The second lease is perpetually renewable for successive terms of 35 years, is registeredunder the Land Transfer Act and is the subject of a leasehold title issued under that Act. [6] ACHL therefore holds an interest as sub-lessee under the first lease for 21 years (less one day), and as lessee under the second lease for a period of 35 years commencing upon the date of expiry of the first lease, with a right of perpetual renewal for successive terms of 35 years. [7] The first and second leases, and the sublease of the first lease, all contain provisions permitting the respective lessees to subdivide the land pursuant to the Act, and the relevant lessor or sublessor is required to co-operate with the lessee or sublessee in order to give effect to the contemplated subdivisions. [8] ACHL has now agreed to sublease separately titled parts of each of its two leasehold interests under the first and second leases to NZPS (the first sublease). NZPS in turn intends to sublease as sublessee to a nominee (the second sublease). Both first and second subleases are to be registered. NZPS seeks to subdivide the land pursuant to s 3 of the Act. To that end NZPS sought approval from the Auckland Office of Land Information New Zealand to its proposal to subdivide the land in its capacity as registered proprietor of an estate as lessee. The matter was referred to the Office of the Registrar General who, on 24 November 2005, advised the solicitors for NZPS that it was not considered possible: a) For a sublessee to subdivide land into unit titles pursuant to s 3 of the Act; b) For two concurrent stratum estates in leasehold to exist, as might occur if the first lease was not cancelled on or before its expiry date, or if a certificate of expiry was not registered in respect of it on or immediately after 24 June 2026. [9] Promptly thereafter NZPS commenced this proceeding. Its entry into the first sublease was predicated on its ability to subdivide the land and to sell the titles pursuant to s 3 of the Act. It says that it will suffer loss and damage if it is notpermitted to subdivide the land into unit titles, or if the second lease cannot lawfully succeed, or co-exist with, the first lease. NZPS further says that if it is unable to resort to the provisions of the Act, then it will not be possible to develop the land concerned in any viable fashion. [10] It further claims that if the second lease cannot lawfully succeed, or co-exist with, the first lease, then the first unit title development will be limited to 21 years and will require to be succeeded by a further unit title subdivision at the end of that period. There is evidence that a structure of that sort would render the sale of the unit titles difficult if not impossible, and that the value of the land and all the interests created in it will therefore be dramatically decreased. [11] There is also evidence that much of Albany City is the subject of substantially similar leasehold structures as those set up in this case, and so a refusal to grant the declarations sought will be likely to have drastic financial consequences, not only for NZPS in respect of its current proposed development, but also for others currently participating in what is said to be Auckland's most significant land development. [12] There is no evidence as to the commercial or legal reasons which underpin the complex chain of leases which are directly relevant to this case, or for that matter other similar structures in the Albany City area. Nor is there any evidence as to the advantages to be derived from the proposal that the initial lease of 20 years and 364 days be succeeded by a second lease of 21 years with a right of perpetual renewal for successive terms of 35 years thereafter. I was however told from the bar that there are taxation advantages in a structure of that sort. [13] The scale of the proposed development is impressive. NZPS has an unconditional contract to purchase a 2 hectare block located within the newly zoned Albany City. The development is to consist of approximately 585 apartments, and is the first of a number of proposed residential developments to be undertaken within Albany City, which is likely to become Auckland's second largest new residential catchment area.[14] The zoning requirements of the North Shore City Council dictate high density residential uses. Mr Christopher Minty, a consultant engaged by NZPS, says in evidence that, of necessity, unit title configurations will be required in order to meet the Council's zoning requirements, as well as affording purchasers the degree of security of title expected in a development of this nature.Question A: Counsels' submissions[15] The gravamen of the case for NZPS is that although the Act caters specifically and in detail for the position of lessees, but not of sublessees, nevertheless the purpose for which the legislation was enacted suggests that subleases must be included by implication. There is nothing in the Act which expressly excludes subleases. There is no policy reason for exclusion, and it is for the Crown to show, as a matter of statutory construction, that subleases must necessarily be excluded. [16] Mr Galbraith submitted that not only had the Crown failed in that regard, it had also failed to identify any policy considerations which might support the exclusion of subleases from the purview of the Act. [17] Mr Oliver, for the Crown, concentrated on the language of the statute itself, and submitted that while subleases were not directly excluded, the proper construction of the Act led to the inescapable conclusion that it was never intended to provide for the subdivision of other than freehold land, or leasehold land held on a lease directly from the proprietor of the freehold estate.The genesis of the Act[18] The long title to the Act describes both its purpose and its substance. It reads:An Act to facilitate the subdivision of land into units that are to be owned by individual proprietors, and common property that is to be owned by all the unit proprietors as tenants in common, and to provide for the use and management of the units and common property.[19] Section 3 of the Act carries that objective into effect by providing for the subdivision of land in accordance with the provisions of the Act into: a) Two or more principal units; and aa) such number of accessory units (if any) as the registered proprietor may wish; and b) common property, being so much of the land as is not comprised in any unit. [20] Section 4(2) provides that the deposit of a unit plan shall have the effect of creating in each unit a stratum estate in freehold or a stratum estate in leasehold as the case may be, which is to comprise: a) The fee simple estate or as the case may be the estate as lessee or licensee in the unit itself; b) The undivided share in the fee simple estate, or as the case may be, the estate as lessee or licensee, in the common property to which the proprietor of the unit is entitled on a proportionate basis pursuant to s 9, and c) The undivided share in the fee simple estate, or as the case may be, the estate as lessee or licensee in all the units to which the proprietor of the unit is contingently entitled under ss 45 and 47 of the Act, which deal with cancellation of the plan on the application of the proprietors or upon order of the Court made under the Act. [21] The proprietor of each stratum estate has the right to enjoy exclusive occupation and use of a particular area, which is delineated both in horizontal and vertical terms. Common areas are managed by a body corporate, which comprises all registered proprietors of units comprised in the unit plan which creates the strata titles: World Vision of New Zealand Trust Board v Seal [2004] 1 NZLR 673 at [4].[22] As was said by Master Williams (as he then was), in New Zealand Railways Corporation v Body Corporate 64686 (1990) 1 NZ ConvC 190,499 at 190,502:It is tolerably clear that unit titles were to be engrafted onto New Zealand's long-standing Torrens system of land registration. They were to disturb the underlying precepts of that system – particularly that all extant interests should appear on the register – only to the extent that their unique nature required.[23] The Act authorises the creation of unit titles in respect of both freehold and leasehold estates in land. The decision to include leasehold estates was not free of difficulty. In the Parliamentary debates on the Unit Titles Bill (formerly known as the Flat and Office Ownership Bill), the Hon Sir Roy Jack noted that:The Australians have not found it necessary to make special provision in respect of leasehold land, presumably because there is not much leasehold land in their built-up areas. However, much of the central area of Auckland, for example, comprises leasehold land, and accordingly we have had to face the problem. This largely explains, incidentally, why this Bill is somewhat longer than its Australian counterpart – a feature that drew some criticism when the Bill was originally introduced. The leasehold estate is divided up into the respective stratum estates in leasehold and the body corporate owns no legal estate under the lease. (11 August 1972) 380 NZPD 1765[24] The same point is picked up by Mr E K Phillips in his contribution entitled "Unit Titles and Leasehold Land", published as part of Studies in the Law of Landlord and Tenant: the Adams Memorial Essays, Wellington, Butterworths 1975, at 435-6.The difference of approach to leasehold tenures on the two sides of the Tasman may not be generally appreciated and it is worthwhile briefly to consider the reasons for the differing attitudes. New Zealand has had a long history of leasehold tenures dating from the Land Acts of the 1850s which provided for the various forms of leases in perpetuity, small grazing leases, pastoral runs, and so on, which today are all ultimately capable of being freeholded. In addition to the Crown lease type of tenure we have seen local authorities given statutory authority to lease land for periods of years under Part XIII of the Municipal Corporations Act 1954 and Part XIII of the Counties Act 1956. The Crown has played a further part with the provisions of the Housing Act 1955, which allow for the purchase of Crown land on the instalment system. All the above Acts, whether providing for a form of leasehold interest or a licence of one form or another, adopted the device of constituting the lease or agreement as a folio of the register under the Land Transfer Act 1952, thus providing the accepted Torrens System public registration facilities. No such system has ever been adopted in the States of Australia. There the practice which proved so unsatisfactory in NewZealand of allowing Government Departments to operate their own registration systems still exists. In the light of this situation the original New South Wales Conveyancing (Strata Titles) Act 1961 firmly opted out of allowing anything but a freehold title to be the subject of a unit title development, and this attitude has been followed by the other States.[25] The explanation provided in the House by the Minister responsible for the Bill, assists in an understanding of the aims and objectives of the legislation. The decision to make provision for leasehold land in the Act, where the Australian counterpart legislation contained no such provision, appears to have been taken largely in light of the fact that much of central Auckland is held on leasehold title. I am also entitled to take judicial notice of the fact that a good deal of Auckland's eastern suburbs consists likewise of leasehold land, some of it held on long term, perpetually renewable, leases. [26] Mr E K Phillips was formerly Registrar General of Land, and so had some considerable familiarity with the Act and with the background against which it was enacted. It is of interest to note in passing that neither the Minister, nor Mr Phillips in his article, refers at any point to the possibility that the Act might apply to subleases.The approach to statutory construction[27] In the end, most issues of statutory interpretation come down to this question: what is the natural and ordinary meaning of the words of the Act, read in their context and in the light of the purpose of the Act: McKenzie v Attorney General[1992] 2 NZLR 14, 17 (CA). Where a word may have two or more possible meanings, then the Court ought to select that which best accords with the purpose of the legislation: Bray v New Zealand Sports Drug Agency [2001] 2 NZLR 160 (CA). [28] The Court will be guided in its task by the provisions of ss 5 and 6 of the Interpretation Act 1999 which read respectively:5 Ascertaining meaning of legislation(1) The meaning of an enactment must be ascertained from its text and in the light of its purpose.(2) The matters that may be considered in ascertaining the meaning of an enactment include the indications provided in the enactment. (3) Examples of those indications are preambles, the analysis, a table of contents, headings to Parts and sections, marginal notes, diagrams, graphics, examples and explanatory material, and the organisation and format of the enactment.6 Enactments apply to circumstances as they ariseAn enactment applies to circumstances as they arise.The Act in outline[29] The long title to the Act underscores the facilitative purpose of the legislation, but of itself provides no assistance as to whether sublease interests fall within its provisions. Neither is any assistance to be gained from the definitions which appear in s 2. [30] The Act is thereafter divided into four parts. Part I provides for the creation of stratum estates. Part II makes special provision for leasehold land and it is that part of the legislation with which this judgment is principally concerned. Part III contains a number of miscellaneous provisions, including provisions relating to the cancellation or redevelopment of existing unit title schemes. Part IV provides for the conversion of existing schemes. [31] Section 3 declares that a registered proprietor of an estate in fee simple, or of an estate as lessee under a memorandum of lease registered under the Land Transfer Act, or of an estate as lessee or licensee under a lease or licence from the Crown registered under that Act, may subdivide that parcel of land in accordance with the provisions of the Act. [32] Section 4 makes provision for the carrying into effect of such a subdivision. As relevant it reads:4. Subdivision effected when plan deposited(1) The subdivision of land so as to provide for units shall be effected by the deposit under the Land Transfer Act 1952 of a plan specifying the units in their relation to a building or buildings already erected on the land. Theplan (in this Act referred to as a unit plan) shall comply with the provisions of all regulations as to survey made under the Survey Act 1986. (2) The deposit of a unit plan shall have the effect of creating in each unit a stratum estate in freehold or a stratum estate in leasehold, as the case may be, which shall comprise— (a) The fee simple estate or, as the case may be, the estate as lessee or licensee in the unit determinable in accordance with any of the provisions of sections 45, 47, and 48, of this Act; and (b) The undivided share in the fee simple estate or, as the case may be, the estate as lessee or licensee in the common property to which the proprietor of the unit is entitled by virtue of section 9 of this Act; and (c) The undivided share in the fee simple estate, or, as the case may be, the estate as lessee or licensee in all the units to which the proprietor of the unit is contingently entitled by virtue of the provisions of sections 45 and 47 of this Act. (3) Upon the creation of a stratum estate in a unit, that estate may devolve or be transferred, leased, mortgaged, or settled, and any transfer, lease, mortgage, or settlement shall have the same effect, as if the stratum estate were an estate in fee simple in land or an interest in land under a lease or licence, as the case may be; but the fee simple estate or, as the case may be, the interest as lessee or licensee in the land or any part of the land shall not be capable of devolving or being dealt with in any way, and none of the component parts of a stratum estate shall, except as provided in section 9 of this Act, be capable of devolving or being dealt with independently of the others. (3A) Notwithstanding anything in subsection (3) of this section, any proprietor of a unit may grant an easement over the unit, but only with the consent of every proprietor and every mortgagee of all the other units comprising the development. (6) Except as otherwise provided in this Act and subject to any necessary modifications, the provisions of the Land Transfer Act 1952 shall apply to every stratum estate in freehold and stratum estate in leasehold and to every dealing with and instrument affecting any such estate.[33] Section 5(1)(f) is of some importance in the context of the issues arising in this case. It provides that a unit plan may not be deposited:Unless the grantor of the lease or licence if the land is held under a lease or licence, the registered proprietor of any mortgage or charge affecting the land or any part of it, and every caveator whose caveat against the land was lodged with the Registrar before deposit of a plan, have consented in writing to it being deposited [34] Section 12 provides that upon deposit of a unit plan the registered proprietors of the land to which the plan relates, shall become a body corporate having perpetual succession and a common seal. [35] Section 15 sets out the duties of a body corporate which include the provision and maintenance of insurance, the keeping of common property in a state of good repair, compliance with local authority requisitions and the general management of the common property. Section 15(1)(i) requires the body corporate to:Do all things reasonably necessary for the enforcement of any lease or licence under which the land is held.[36] It is necessary to set out ss 21 and 22 in their entirety. They appear at the commencement of Part II of the Act which is headed "Special Provisions Relating to Leasehold Land". They read:21. Application of Part II(1) Where a deposited unit plan relates to an estate as lessee or licensee in any land, the provisions of this Part of this Act shall apply notwithstanding anything contained or implied in the lease or licence or any enactment or rule of law to the contrary. (2) The provisions of Parts I, III, and IV of this Act in so far as they relate to an estate as lessee or licensee in any land shall be read subject to the provisions of this Part of this Act. (3) In this Part of this Act the term "lease" includes a licence, and the terms "lessor" and "lessee" have corresponding meanings.22. Preservation of lessor's interest(1) Neither the deposit of any such unit plan nor any dealing with any unit shown on any such unit plan shall be or shall be deemed to be a severance of the lessor's reversionary estate in the land. (2) Subject to the provisions of this Part of this Act the lessor may deal with the reversionary estate in the land in all respects as if the unit plan had not been deposited.[37] Section 25 imposes restrictions on surrenders and releases where a deposited unit plan relates to a leasehold estate. It provides:25. Restrictions on surrenders and releases(1) After the deposit of a unit plan to which this Part of this Act applies, and until the cancellation thereof, the following provisions shall apply: (a) No proprietor of a unit shall surrender or agree to surrender the stratum estate in leasehold in that unit to the lessor, whether for valuable consideration or otherwise: (b) The lessor shall not release or agree to release any unit or the common property or any part of the common property from the lease, whether for valuable consideration or otherwise: (c) Where the proprietor of a unit purchases or acquires (whether by operation of law or otherwise) the lessor's reversionary estate in the land, that estate shall not merge with the stratum estate in leasehold in that unit: (d) Where the lessor purchases or acquires the stratum estate in leasehold in any unit (whether by operation of law or otherwise) that estate shall not merge with the lessor's reversionary estate. (2) Any purported surrender or release in contravention of paragraph (a) or paragraph (b) of subsection (1) of this section shall be void and of no effect. (3) Nothing in this section shall operate to prohibit: (a) All the proprietors of all the units from dealing with the estate as lessee in the common property as a whole or in any part or parts of the common property: (b) All the proprietors of all the units from surrendering or agreeing to surrender to the lessor the stratum estates in leasehold in all the units: (c) The lessor from releasing or agreeing to release all the units together with the whole of the common property from the lease.[38] Section 30 makes provision for the manner in which members of a body corporate may vote in favour of a resolution to exercise:... a right of renewal of the lease or an option to purchase the reversionary estate in land .[39] Section 31 makes further provision for dealings with the reversionary estate. It provides:31. Merger(1) Where the lessor has purchased or acquired (whether by operation of law or otherwise) the stratum estates in leasehold in all the units shown on the unit plan, or all the proprietors of all the units shown on the plan have purchased or acquired (whether by operation of law or otherwise) the reversionary estate in the whole of the land, the provisions of this section shall apply. (2) In the case where the lessor has purchased or acquired the stratum estates in leasehold in all the units shown on the plan, those estates shall not merge with the lessor's reversionary estate in the land unless and until the lessor deposits with the Registrar a declaration that it is his intention that such merger should occur. (3) In the case where all the proprietors of all the units shown on the plan have purchased or acquired the reversionary estate in the whole of the land, that estate shall not merge with the stratum estates in leasehold in these units unless and until— (a) That reversionary estate is purchased or acquired by those proprietors in shares proportional to the unit entitlement of their respective units; and (b) The registered proprietors deposit with the Registrar a declaration that it is their intention that such merger should occur. (4) The effect of a merger in any case to which this section applies shall be: (a) In any case where the lessor has purchased or acquired the stratum estates in leasehold in all of the units shown on the plan, to vest the stratum estate in freehold in each of the units in the lessor; or (b) In any case where all the registered proprietors of the stratum estates in leasehold in all of the units shown on the plan have purchased or acquired the reversionary estate in the land, to vest the stratum estate in freehold in each of the units in the person who immediately before the merger was the proprietor of that unit. (5) On the deposit of any declaration under subsection (2) or paragraph (b) of subsection (3) of this section, the Registrar, if he is satisfied that the stratum estates in leasehold in all of the units shown on the plan have merged under the provisions of this section with the reversionary estate in the land, shall— (a) Note on the supplementary record sheet a memorial of the merger; (b) Cancel the certificate of title in respect of the stratum estate in leasehold in each of the units, and issue a certificate of title in respect of the stratum estate in freehold in each of theunits to the person entitled thereto in accordance with the provisions of subsection (4) of this section; (c) Cancel the lease; and (d) Cancel the lessor's certificate of title. (6) For the purposes of subsection (5) of this section the outstanding copy of the lease and of every such certificate of title shall be delivered to the Registrar at the time of the deposit of the declaration.Question A: discussion[40] In Proprietors of Hiruharama Ponui Block Inc v Attorney-General (No.2)[2004] 1 NZLR 394, Rodney Hansen J granted without opposition declarations relating to a proposal which involved the creation of unit titles from an interest as sublessee. But the issues in that case did not touch upon the argument raised in this proceeding, so that no real assistance can be derived from it. No other relevant authority was cited. I turn therefore to a consideration of the Act itself [41] Section 2 of the Act provides a number of definitions, but notably there is no definition of the words "lease", "lessor" or "lessee". Neither are those terms defined in the Land Transfer Act 1952. There are definitions in s 117 of the Property Law Act 1952, but only for the limited purposes of ss 118 and 119 of that Act, which deal with forfeiture. Those definitions expressly catch original and derivative under- leases, but the plainly limited application of those definitions is of no assistance in the present case. [42] Several dictionary definitions were cited, but again they are too general to be of any real help. The essential question here is whether where the Act uses the expressions "lease", "leasehold", "lessor" and "lessee" the reference is simply to leasehold interests derived directly from the holder of the freehold estate, or whether the Legislature intended to catch subleases as well. The starting point is the language of the Act. The words used by the Legislature must be given their natural and ordinary meaning, read in their context and having regard to the overall scheme of the legislation.[43] Counsel were agreed that the purpose of the legislation was to provide a statutory framework for a form of land ownership which would facilitate the subdivision of buildings for use as apartments and offices. But Mr Oliver argued that the plain intention of the Act was to create a code which could be read alongside the indefeasibility provisions of the Land Transfer Act, by enacting provisions designed to protect the estate of the proprietor of a unit title. So, s 21(1) of the Act provides that Part II is to apply, notwithstanding anything contained or implied in a lease, or in any enactment or rule of law to the contrary. Section 21(2) provides that Part II is to prevail, in addition, over Parts I, III and IV of the Act. [44] Mr Galbraith, on the other hand, while accepting that the purpose of the legislation is to authorise the creation of unit titles and to confer a measure of protection on the holders of unit titles, argued that Parliament cannot be taken to have intended to provide such proprietors with absolute protection, and that the statute ought to be interpreted in such fashion as to facilitate its broad social purpose, namely, that of providing for high density residential and commercial developments. [45] Mr Galbraith further submitted that it was for the respondent to satisfy the Court that the Act did not in its terms authorise the subdivision of land by sub- lessees. [46] I doubt that anything much is to be gained by viewing the issues in terms of the burden of proof. This is a proceeding under the Declaratory Judgments Act. The Court is asked to determine the meaning and effect of certain of the Act's provisions, so the inquiry is simply as to Parliament's intention, to be gleaned from the language used, and the purpose of the legislation. [47] Part II of the Act (ss 21-31) comprises a number of detailed provisions aimed at regulating the rights and obligations of lessors and lessees in circumstances where the common law or other statutory provisions require modification. The purpose of Part II is to provide a set of statutory rules which are to prevail over any agreement of the parties, express or implied, and any enactment or rule of law to the contrary. The intention of Parliament, to be gleaned from a reading of Part II, was clearly to provide security of title to the proprietors of units, and certainty to lessors. To thatend Part II contains provisions having the effect of modifying the ordinary relationship between lessor and lessee. For example, s 24 provides that the lessor's consent is not to be required to any dealing with the stratum estate in leasehold, and s 27 provides that after deposit of a unit plan, no right of forfeiture or re-entry (whether for non-payment of rent or otherwise) shall be exercisable by the lessor. [48] Contrary to Mr Galbraith's argument, there are, in my view, indications in the legislation that Parliament intended to confine the ambit of the Act to the subdivision of freehold estates and of leasehold estates held directly from the freehold proprietor. [49] Section 5(1)(f) provides that a unit plan may not be deposited unless consents have been provided in writing by the grantor of the lease or licence if the land is held under a lease or licence, the registered proprietor of any mortgage or charge affecting the land or any part of it, and every caveator whose caveat against the land was lodged with the Registrar before the deposit of the plan. The expression "the grantor of the lease" in s 5(1)(f), is clearly a reference to the grantor of the leasehold estate from which the unit titles are to be established, so the consent of the immediate lessor is required. But no provision is made for the consent of the lessor who holds the fee simple, or indeed any intermediate lessor, yet such parties will clearly be affected by the deposit of a unit plan. [50] Had the Legislature intended to provide for the deposit of a unit plan in respect of an estate as sub-lessee, then it might be thought that explicit provision would have been made in s 5(1)(f) for the consent in writing of superior lessors. [51] However, Mr Galbraith submitted that, to the contrary, the opening words of s 5(1)(f) which refer to "the grantor of the lease or licence" suggest a legislative intention to exclude the need for consents from superior lessors and the proprietor of the freehold estates. He submitted that, had Parliament intended to catch everyone, then it would have expressly referred to the proprietor of the fee simple, and of superior leases. [52] I agree that the drafting of s 5(1)(f) leaves something to be desired. But it is unrealistic to read the subsection which explicitly requires the consent of animmediate lessor, any mortgagee or chargeholder, and every caveator, but excludes the need for a consent from the registered proprietor of the fee simple and of any superior lease, as consistent with NZPS's argument. It is not. Such an outcome accords neither with commonsense, nor with the apparent purpose of the Act. The language of s 5(1)(f) does, however, sit happily within the framework of legislation confined to fee simple estates and freehold estates derived directly from the freehold proprietor. [53] Then there is s 31(4), which provides that the effect of a merger:(a) In any case where the lessor has purchased or acquired the stratum estates in leasehold in all of the units shown on the plan, [is] to vest the stratum estate in freehold in each of the units in the lessor; or (b) In any case where all the registered proprietors of the stratum estates in leasehold in all of the units shown on the plan have purchased or acquired the reversionary estate in the land, [is] to vest the stratum estate in freehold in each of the units in the person who immediately before the merger was the proprietor of that unit.[54] The subsection is declaratory. It makes sense only if the expressions "lessor" and "leasehold" are construed as relating to a lease held directly from the registered proprietor of the freehold estate. That much was frankly conceded by Mr Galbraith, who nevertheless submitted that the Court would not be justified in concluding simply by reference to s 31(4) that the Act was incapable of applying to sub- leasehold interests. [55] In theory that may be so, but to hold that the Act does so apply, would be to render it seriously deficient (in the case of s 5(1)(f)), and at the same time seriously unsatisfactory (s 31(4) – because it would be necessary to place a gloss on the subsection in order to restrict its application to head leases only). [56] Mr Oliver submitted that assistance could be derived from the fact the Legislature had, at various points in the Act, distinguished between the words "lease" and "sublease". In that respect he referred to ss 18(2), 19, 45 and 47. But in each case the distinction is made in the context of provisions covering dealings with the estate held by the proprietor of a unit, and not with the entitlement of a party to create unit titles by subdivision. So the distinction is of no real assistance.[57] Mr Oliver further submitted that s 22, which protects "the lessor's reversionary estate in the land" ought to be taken as a reference to a lessor who was the registered proprietor of the fee simple estate in the land, because only such a lessor can be considered to have a reversionary estate "in the land". I doubt whether much reliance can be placed upon that consideration. It depends heavily on the assumption that the Legislature regarded the expression "reversionary estate in the land" as applying only to a head lessor. Mr Galbraith took me to certain legal dictionary definitions which suggested that that might not be so, and to Robert Bryce & Co Ltd v Stowehill Investments Ltd [2000] 3 NZLR 535, 544, where at [46] the Court of Appeal used the term "reversions" in the context of a sublease. [58] Finally, Mr Oliver submitted that if NZPS is right, there could be an unlimited number of lessors in a given case, and that the Act does not make adequate provision for that circumstance. For example, in addition to s 5(1)(f), he pointed to s 27, which excludes the lessor's right of forfeiture or re-entry (whether for non- payment of rent or otherwise), but only in relation to "the lessor". No provision is made for exclusion of those rights in respect of other lessors in the chain. [59] As to that, Mr Galbraith accepted that where there is a chain of lessors, certain of the protections conferred by the Act might not be available to unit proprietors, but with disarming candour, he simply submitted that "that's life", by which I took him to mean that those persons taking interests in land subject to prior to interests, could not expect complete statutory protection. Besides, Mr Galbraith submitted, in other statutes there are provisions which would provide a significant measure of security, in the context of a subdivision founded on a sublease, to the proprietors of units under the Act. Examples to which he referred were s 119 of the Property Law Act, which enables a sub-lessee to seek by Court order an assignment of the head lease direct from the head lessor as an alternative to forfeiture of that lease, and s 120(5) of the Land Transfer Act which provides that the consent of a sub-lessee must be given to the surrender of a head lease. [60] NZPS points also to s 29(1) of the Act, which provides that the term of a lease, or any renewed or extended term, shall be deemed not to have expired until the unit plan has been cancelled under s 45 or a certificate of expiry has been registeredin accordance with the provisions of s 29(3). It follows, so the argument goes, that if a lease superior to that owned by the lessee who subdivides the land is terminated, the subdivided sublease is nevertheless deemed not itself to have expired, so there is a measure of protection for proprietors of units. [61] The general rule at common law is that when a head lease is determined in accordance with its terms, any sub-lease derived from the head lease also comes to an end: Barrett v Morgan [2000] 2 AC 264, 272; Pennell v Payne [1995] QB 192, 197. [62] Section 29(1) appears on its face to be largely procedural in character, and not intended to impose upon a head lessor the constraints for which NZPS contends. Had the subsection been intended to impinge on the established common law right of a head lessor, then rather clearer language might have been expected. [63] NZPS accepts that the construction of the Act for which it argues would expose the proprietors of units to risks for which there is no protection under the Act. To that end, NZPS intends to provide, by contract, for certain restrictions on the rights of superior lessors to terminate relevant leasehold interests. Such contractual provisions are intended "to provide additional comfort for unit proprietors" to use the words of Mr Mark Hornabrook, an Auckland solicitor who is a partner in the firm of solicitors retained by NZPS. His affidavit relevantly reads:Restrictions on superior lessors' termination rights5. To provide additional comfort for unit proprietors, NZPS intends to modify the superior leases by way of a registered deed of covenant to incorporate provisions substantially similar to s 29 of the Unit Titles Act 1972. I set out below the relevant aspects of that covenant: 5.1 All superior lessors (except the lessor to the Body Corporate but including the fee simple proprietor) will acknowledge and consent to the deposit of the unit plan; 5.2 This acknowledgement and consent will be recorded in a deed (to be prepared) and referred to herein as the Acknowledgement and Consent Deed; 5.3 The Acknowledgement and Consent Deed will contain covenants on the part of all lessors in the chain in favour of the Body Corporate whereby such lessor will:5.3.1. Give notice of any breach to the Body Corporate; 5.3.2. Permit the Body Corporate to make payment of all amounts due under the superior leases directly to the relevant lessor, thereby avoiding the possibility of rent being diverted at some point along the chain. Any surplus above the amounts due to the fee simple proprietors will be distributed amongst the other lessors in the chain according to the terms of their various leases; and 5.3.3. Be prohibited from imposing an annual rent any greater than the annual rent payable by the Body Corporate under its lease. This will ensure that the rent charged under the Body Corporate's lease would always be sufficient to discharge the ground rent payment under the most superior lease. 5.3.4. Permit the Body Corporate to remedy any breach by any superior lessee and to obtain recovery of the costs of same against the defaulting party; 5.3.5. Forego any rights of forfeiture, re-entry or distress; 5.3.6. Allow the leases to run on until cancellation of the Unit Plan under s 29(3) of the Unit Titles Act. The lessor to the Body Corporate will covenant in favour of the superior lessors to take all necessary steps under that sub-section if and when it is entitled to do so; 5.3.7. Receive the benefit of a positive covenant by the Body Corporate as lessee to immediately do all things necessary to execute and lodge a certificate of expiry in form 3 of the First Schedule of the Unit Titles Act upon expiry of the term of the lease. 6. The Acknowledgement and Consent Deed could be drafted in the form of registerable land covenants which will be noted on all of the estates in the chain from fee simple to the last sublease estate.[64] It will be seen at once that the proposed covenants are aimed at achieving a greater measure of security for the proprietors of units than is available under the Act. While that objective is wholly laudable, the need for the contemplated covenants raises an obvious question: if the Act was intended to apply to sub-leases and to cater for successive sub-leases, why did it not incorporate provisions of the sort outlined in Mr Hornabrook's affidavit? Part II is clearly aimed at securing thelegal rights and entitlements of unit holders. If the Legislature had intended that the Act apply to sub-lease interests, then it has conspicuously failed to achieve that purpose as Mr Hornabrook's affidavit demonstrates. [65] As a matter of inexorable logic the necessary conclusion is that the Act was intended to apply only to freehold interests, and to leasehold interests derived directly from the freehold estate. That conclusion is fortified by the provisions of ss 5(1)(f) and 31(4) discussed above. [66] My conclusion is unlikely to give rise to any great satisfaction on the part of anyone having an interest in the issue. Indeed, I was told from the bar that a number of developments may have slipped through the registration process, and that there may well be a fairly widespread assumption that the Act does apply to sublease interests. But the answer must lie in appropriate statutory amendments. [67] The Act has not been the subject of any significant amendment since first enacted in 1972, apart from the introduction in 1979 of provisions relating to staged developments. At that time commercial life was a great deal simpler than it is now. The proper inference is that the Legislature simply did not turn its mind to the possibility of a need to accommodate sophisticated legal structures of the type proposed here.Question A: Result[68] For the foregoing reasons I am unable to grant the declaration sought in paragraph A of the prayer for relief.Question B[69] NZPS seeks a second declaration to the effect that the Act permits unit titles to be created in respect of a registered future leasehold estate as sub-lessee. I have held above that the Act does not apply to sub-leases. A declaration which is expressed to relate to sub-lease interests is therefore somewhat inapt. However, Iapprehend that NZPS seeks the guidance of the Court on the wider question of whether the Act can accommodate a proposal which involves successive leases, the second to take effect upon the expiration of the first. Because I am satisfied that NZPS has a sufficient interest in that question, and because the matter may go further, I turn to consider the second question. [70] Nothing in the Act expressly covers the position. It is therefore necessary to consider whether, in the context of the scheme of the Act as a whole, a development involving successive leases may be brought within its provisions. [71] Section 3 of the Act provides for the subdivision of land so as to create units under the Act. Section 4(1) provides that such subdivisions are to be effected by the deposit under the Land Transfer Act 1952 of a plan specifying units in relation to a building or buildings already erected on the land. Section 4(2) provides that the deposit of a unit plan... shall have the effect of creating in each unit a stratum estate in freehold or a stratum estate in leasehold, as the case may be....[72] So the act of depositing the plan triggers the application of the statutory code contained in the Act. For example, s 4(3) provides that upon creation of a stratum estate in a unit, dealings may thereafter take place in respect of that stratum estate. And upon the deposit of the unit plan the Registrar is required, pursuant to s 8 of the Act, to issue certificates of title in respect of the stratum estate in the units so created. [73] Section 12 of the Act provides that on deposit of a unit plan the registered proprietor of the land becomes a body corporate, and further provides that the proprietor or proprietors for the time being of all the units comprised in the unit plan are to constitute that body corporate. Each body corporate created under the Act has the rights, duties, and liabilities set out in the Act, including in particular those provided under ss 13-16. [74] NZPS proposes to deposit simultaneously two unit plans, one for the first lease (from ACDCL for 21 years from 24 June 2005) and one for the second lease (from ACHL for a term of 35 years, commencing 24 June 2026 and perpetuallyrenewable). For commercial reasons it says it must be able to demonstrate to purchasers a continuing chain of legal entitlements. [75] The provisions of the Act, and ss 4, 8 and 12 in particular, would accordingly result in the issue of two certificates of title in respect of each unit and the creation of two bodies corporate. Mr Oliver submits that such an outcome could never have been contemplated by the Legislature, and that it is inimical to the scheme of the Act to allow for the existence of two certificates of title and two bodies corporate in respect of the same unit proprietors. [76] I pause to observe that if NZPS is right, then of course there is no warrant for stopping at two titles, and two bodies corporate – in theory at least there could be an unlimited number of titles and bodies corporate. [77] Mr Galbraith readily accepted the reality that there would be two certificates of title for each unit and two bodies corporate, but pointed out that the obligations and entitlements arising under the two leases are quite separate and distinct. Appropriate contractual provisions would ensure that the two titles are held at all times by the same unit owner, and that the activities of the second body corporate are postponed until the expiration of the first lease, so there would be no overlap and no conflict. [78] As to that, I am doubtful whether Parliament intended that the difficulties created by the simultaneous existence of two certificates of title for each unit, and of two bodies corporate, could be left to contractual negotiation between parties. The plain intention of Parliament was to provide a statutory legal framework which would govern the legal relationships of those affected. The code created by the Act does not envisage that parties might, by entering into appropriate contractual arrangements, effectively engraft onto the provisions of the Act legal interests for which the Act does not specifically provide. [79] Moreover, an insuperable problem arises under s 29 of the Act. Section 29(1) provides that a lease under which a unit title subdivision is created pursuant to s 3, is deemed not to have expired until the unit plan has been cancelled pursuant to s 45, ora certificate of expiry has been registered in accordance with the provisions of s 29(3). That subsection empowers the lessor, or a stipulated majority of proprietors, to lodge with the Registrar a certificate of expiry, but only following expiration of the lease. Thus, a certificate of expiry will always follow the expiration of the lease with the result that the term of the lease will be deemed to have continued beyond its expressed expiry date. [80] The s 45 procedure authorises the Registrar to cancel any plan at any time upon the application of the proprietor or proprietors of all the units shown on the plan. [81] But if the certificate of expiry procedure is utilised, it must inevitably result in a lease running on beyond its expiry date, by virtue of the deeming provisions in s 29(1). Where that occurs (for example in this case in respect of the first lease), then there will be two leases in force in respect of the unit title development at the same time: the first lease is deemed to run on beyond its expiry date, and the second lease will have come into force because its term is to commence upon the stipulated expiry date of the first lease. Similarly it would follow that there would be two active bodies corporate in respect of the same development. Such an outcome would render the Act unworkable, and throw into doubt the precise legal rights and obligations of all those affected. [82] Mr Galbraith's answer to that is to rely upon s 45, which provides that all the proprietors in all the units in a development may join together in applying to the Registrar to cancel a unit plan. NZPS says that appropriate contractual provisions can be organised which would require all proprietors to join in such an application, which can be made at any time. Provided that the application is made in advance of the expiration of the term of the first lease, then cancellation by the Registrar can be effected with effect from the date of termination of the lease. No overlap would then occur. [83] While outwardly sensible, that argument does not answer the problem. In the first place it can never have been contemplated by the Legislature that responsibilityfor avoiding a confusing, and indeed impracticable, state of affairs, would rest with the registered proprietors as members of the body corporate. [84] Second, there is force in Mr Oliver's submission that it would be intolerable to expose the Registrar to a possible compensation claim under s 172 of the Land Transfer Act by reason of a delay in the processing of a s 45 application. Section 45(3) imposes obligations on the Registrar, prior to cancellation, to satisfy himself as to payment of rates, the consent of any administrator, and the discharge of all caveats, mortgages, charges, leases and subleases registered against the title to each unit. [85] In some cases there will be an inevitable delay in processing a cancellation application, which may well extend beyond the expiry date of the first lease. So the duplication problems earlier discussed would arise. [86] The applicant's development proposals are no doubt founded upon sound commercial considerations. But the Act does not provide for what is proposed, and will become unworkable if those proposals were to be carried into effect. There is no doubt that parties may enter into a lease to take effect at some stipulated future time, but the accommodation of that possibility within the structure of this Act was not, in my view, in the contemplation of the Legislature in 1972.Question B: Result[87] For the foregoing reasons I am unable to grant the declaration sought.Disposition[88] The applicant's claim is dismissed. [89] The respondent is entitled to costs. Counsel may file memoranda if they cannot agree.C J Allan J