NZPS INVESTMENTS LTD V THE REGISTRAR GENERAL OF LAND CA CA138/06

NZPS INVESTMENTS LTD V THE REGISTRAR GENERAL OF LAND CA CA138/06 31 August 2007IN THE COURT OF APPEAL OF NEW ZEALAND CA138/06 [2007] NZCA 384BETWEEN NZPS INVESTMENTS LIMITED Appellant AND THE REGISTRAR GENERAL OF LAND Respondent Hearing: 21 February 2007 Court: Glazebrook, Robertson and Arnold JJ Counsel: B P Keene QC and S A Grant for Appellant J A L Oliver and J R Burns for Respondent Judgment: 31 August 2007 at 4 pmJUDGMENT OF THE COURT A The appeal is dismissed. B The appellant must pay costs of $6,000, plus usual disbursements. REASONS OF THE COURT(Given by Arnold J)Introduction[1] This case concerns the Unit Titles Act 1972 (the Act). The principal question is whether the Act permits a unit title subdivision by a sublessee. There is a furtherquestion as to the ability of the holder of a future leasehold interest to undertake a unit title subdivision prior to the commencement of that leasehold estate. In the High Court, Allan J held that the Act did not permit either: HK AK CIV 2005404-6920 9 June 2006.Background[2] The appellant is involved in the development of land in Auckland. It has interest in land at Albany under a sublease. The series of transactions which led to the appellant obtaining its interest, and issuing the present proceedings, is not contentious and was helpfully summarised by Allan J as follows:[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 Limited (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 registered under 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 [the appellant] (the first sublease). [The appellant] in turn intends to sublease as sublessee to a nominee (the second sublease). Both first and second subleases are tobe registered. [The appellant] seeks to subdivide the land pursuant to s 3 of the Act. To that end [the appellant] 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 [the appellant] 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 2006.[3] The appellant then commenced this proceeding, in which it sought under the Declaratory Judgments Act 1908 two declarations about the Act: (a) Does it allow 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) Does it allow 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?High Court decision[4] Allan J concluded that the Act did not permit unit title subdivision by a sublessee, nor did it permit a unit title subdivision of a leasehold estate before commencement of the relevant lease or sublease. Since the appellant's submissions were directed primarily at challenging the Judge's reasoning we set that reasoning in some detail. [5] Having outlined the factual background, the Judge noted that, although there was evidence that similar leasehold structures had been utilised in respect of otherdevelopments, there was no evidence of the commercial or legal reasons that underpin the use of such structures. He said that he had been advised from the Bar that there were taxation advantages to utilising the structure (at [11] – [12]). [6] In relation to the first issue, the question is whether the expressions "lease", "leasehold", "lessor" and "lessee" in the Act refer simply to a leasehold interest derived directly from the holder of the freehold estate or whether they also refer to subleases. [7] The Judge noted that the words "lease", "lessor" and "lessee" were not defined in the Act, nor were they defined in the Land Transfer Act 1952. He recorded that there are definitions of the terms in s 117 of the Property Law Act 1952 which include subleases ("underleases") but said that they were expressed to be relevant only for the purposes of ss 118 and 119 of that Act. The Judge also concluded that dictionary definitions were too general to be of any help. Accordingly he looked to the Act for helpful context. [8] Allan J derived considerable assistance from ss 5(1)(f) and 31(4) of the Act. [9] Section 5(1)(f) 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 the plan, have consented in writing to its being deposited: Provided that any such consent may be given by an agent duly authorised in writing.The Judge said:[49] . 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.[10] As to s 31(4), it provides: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.Of that provision, the Judge said:[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 lessors only).[11] The Judge also relied on the fact that the "protections" for unit proprietors conferred by s 29 of the Act did not apply to other than the leasehold interest subject to the unit title subdevelopment. Section 29(1) provides:The term of the lease or any renewed or extended term shall be deemed not to have expired until the unit plan has been cancelled or a certificate of expiry has been registered in accordance with the provisions of subsection (3).Accordingly, if the Act were interpreted so as to permit unit title subdivisions of subleasehold interests, there would be uncertainty as to the position under the superior lease(s) in circumstances where s 29(1) applied. [12] The Judge noted (at [63]) that the appellant had accepted that, on its interpretation of the Act, proprietors of units created following a unit title subdivision of a subleasehold estate would be exposed to risks for which they had noprotection under the Act. Accordingly, the appellant had said that it intended to provide for restrictions on the rights of superior lessors to terminate the relevant leasehold interests. The appellants had led evidence from an Auckland solicitor, Mr Hornabrook, outlining the nature of the restrictions (see further at [41] below). Broadly, what was intended was that the superior leases would be modified by a registered deed of covenant to incorporate provisions substantially similar to s 29 of the Act. Of this, the Judge said:[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 object 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 the legal 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.[13] As to the second issue, namely that the Act permitted unit titles to be created in respect of a registered future subleasehold estate, the Judge said that, in view of his finding in relation to the first issue, a declaration relating to sublease interests was inappropriate. However, he went on to deal with the wider question whether the Act can accommodate a proposal which involves successive leases. [14] The Judge said:[74] [The appellant] 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 perpetually renewable). 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. [15] The Judge noted that, if the appellant was right, there could be an unlimited number of titles and bodies corporate (at [76]). While the appellant's counsel had accepted that there would be two certificates of title for each unit and two bodies corporate, counsel argued that the obligations and entitlements arising under the two leasehold estates would be "quite separate and distinct" (at [77]) and could bemanaged through appropriate contractual provisions. The Judge said that he doubted that Parliament intended that the difficulties that would be created by the simultaneous existence of two certificates of title for each unit, and two bodies corporate, could be left to be resolved by contractual arrangements between the parties (at [78]). He also pointed to what he described as "an insuperable problem" arising from the operation of s 29(1) (at [79] – [85]). [16] Accordingly, the Judge held that the Act did not provide for what was proposed (at [86]).DiscussionGeneral overview of the Act[17] The Long Title to the Act 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.The Act has been described as a "statutory moulding of the Torrens system" - Hinde McMorland & Sim Land Law in New Zealand (2004) at [14.022]. [18] Unlike its Australian antecedents, the Act provides for the creation of unit titles in respect of leasehold land. In relation to such land, the Act has been described as a code: New Zealand Railways Corporation v Body Corporate 64686(1990) 1 NZ ConvC 190,499 at 190,502 (HC). Despite this, there is no clear statement in the Act that it does, or does not, permit a unit title subdivision in respect of land held under a sublease. [19] As the Judge noted at [40], in Proprietors of Hiruharama Ponui Block Inc v Attorney-General (No 2) [2004] 1 NZLR 394 at [24] (HC) Rodney Hansen J made declarations which involved the creation of unit titles in relation to land held under a sublease. The appellant relies on this case as authority for its interpretation of the Act. However, there was no argument in that case on the question whether unit titlesubdivision of subleasehold was permitted under the Act, or even recognition that it could be an issue. Accordingly, the case provides no real assistance. [20] Turning to the Act, we first provide a brief overview. Under s 3(1) the 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]" may subdivide the relevant land into: (a) two or more principal units; (b) as many accessory units as he or she wishes; and (c) common property. [21] Under s 4, the deposit of an appropriate plan under the Land Transfer Act effects the subdivision of the land. Section 4(2) provides: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 each proprietor of the unit is contingently entitled by virtue of the provisions of sections 45 and 47 of this Act.[22] Once a stratum estate in a unit has been created, the registered proprietor of that estate may transfer, lease, mortgage or settle it in the normal way, but the underlying estate, whether fee simple or leasehold, may not devolve or be dealt with in any way (s 4(3)). On the deposit of the plan, the registered proprietor of the land to which the plan relates becomes a body corporate. Thereafter the proprietors for the time being of the units on the land became members of the body corporate (s 12).[23] Section 15 sets out the duties of the body corporate. These include taking out insurance and keeping the common property in a state of good repair. The body corporate must establish a fund sufficient to enable it to perform its duties. Contributions to the fund are to be levied on unit proprietors in proportion to the unit entitlement of their respective units. Unit entitlements also determine proprietors' rights and obligations in other respects (see s 6(3)). A registered valuer fixes the entitlements before the unit plan is deposited (s 6). [24] Part 2 of the Act contains special provisions relating to leasehold land. In respect of leasehold land, the body corporate is treated as the lessee under the lease, having all the lessee's rights and liabilities (s 23). [25] As we have said, the Act differed from its Australian antecedents by allowing for unit title subdivisions of leasehold land. Allowing such subdivisions posed special problems. A former Registrar-General of Lands, E K Phillips, in an article entitled "Unit Titles and Leasehold Land" in Hinde (ed) Studies in the Law of Landlord and Tenant: The Adams Memorial Essays (1975), described the position as follows (at 437):The overriding consideration in any unit or strata title development is the preservation of the complex for so long as the body corporate of owners has the desire to maintain the identity of the complex. Nothing is permissible which would allow an individual owner to place himself in a position where some outside person or agency could compel him to take some action which would jeopardise the continuation of the complex as an entity. The attainment of this objective creates special problems in the case of leasehold land and the special measures which were adopted in the [Act] must now be considered. The unit proprietor must be in a position to deal with his unit title as freely as with any ordinary form of title but at the same time it is essential to ensure that no action by a lessor or licensor can be taken which would represent a threat to the structure which has been carefully built up in the other parts of the Act to preserve the common interests of the unit holders. To do this it has been necessary to override in a quite arbitrary way the ordinary relationships of lessor and lessee whether arising under statute or from the contract itself. But this cannot be done without the consent of the lessor, for s 5(1)(f) of the [Act] contains a provision that a unit plan may not be deposited unless the grantor of the lease or licence has consented in writing to its being deposited. In view of the arbitrary curtailments of the lessor's rights which are dealt with in this paper it would be hard to imagine a lessor giving his consent unless he were a party to and directly concerned with the unit development. [Emphasis added.][26] Examples of the curtailment of a lessor's ordinary rights where there is a subdivision of leasehold land are: (a) Section 24, which provides that the lessor's consent is not required to any dealing with a stratum estate in leasehold; (b) Section 25, which places restrictions on surrenders and releases; (c) Section 27, which removes a lessor's right of forfeiture and re-entry and limits the power to levy distress; (d) Section 29, which deems a lease not to expire until the relevant unit plan has expired, or a certificate of cancellation has been issued. [27] However, in Henwood et al (eds) Brookers Land Law (Looseleaf) at 3.3.03(2) it is suggested that Mr Phillips may have overstated the impact of the Act on the lessor's rights. It is noted that, despite the deposit of a unit plan, a lessor may: (a) Deal with the reversionary estate as if the unit plan had not been deposited (s 22(2)); (b) Mortgage and transfer the land. In addition, the lessor will have the benefit of an implied guarantee by the unit holders of the payment of rent, and observance of the lessee's covenants, by the body corporate (s 26), and may apply to the High Court for the appointment of an administrator or for the cancellation of the unit plan (s 28). The Act, then, is not one-sided.First issue – unit title subdevelopment of subleasehold interests[28] The Act provides for the creation of stratum estates "in leasehold" (s 4(2)). The question is whether this includes land held under a sublease. We agree with the appellant that the words "lease", "leasehold", "lessor" and "lessee" are capable insome contexts of encompassing all leasehold interests, whether superior or derivative (ie, derived from another leasehold interest). But do they in this Act? [29] The appellant's primary argument is straightforward. Section 3(1) permits the registered proprietor of an estate as lessee under a registered memorandum of lease to undertake a unit title subdivision. The appellant is the registered proprietor of the estates as lessee under the two subleases that it wishes to subdivide. In other words, a sublease is a "lease". The appellant relied on the definition of "lease" in s 117 of the Property Law Act (which includes subleases), on the basis that the sections to which that definition applies (ss 118 and 119 of the Property Law Act) are part of the legislative framework within which the Act operates. The appellant argued that the fact that licensees are allowed to subdivide land held subject to a licence is significant, because a sublease provides greater security than a licence. Overall, the appellant says, there is nothing in the Act to suggest that a more limited meaning was intended. [30] Our task is to interpret the text of the Act in light of its purpose (s 5 of the Interpretation Act 1999). We note first that the Act does distinguish between leases and subleases, in the sense that it does refer to both in the context of interests granted by unit proprietors – see ss 18(2), 19(1) and (2), 45(2)(b) and (3) and 47(2)(b). By way of example, s 18 deals with transfers of common property. Section 18(1) provides that a memorandum of transfer relating to common property must be accompanied by a new unit plan that will substitute for the existing plan. Section 18(2) provides:Where any unit is subject to any existing registered mortgage, charge, lease, or sublease, the Register shall not register any transfer of the whole or any part or parts of the common property until there has been produced to him a consent in writing by every registered mortgagee, annuitant, lessee, and sublessee to the release of his interest in the land comprised in the transfer; and upon registration of the transfer each such consent shall operate as a discharge of the mortgage or charge, or a surrender of the lease or sublease, as to the land comprised in the transfer, as the case may be.[31] The Judge described these provisions as being "of no real assistance" (at [56]). For our part, we consider that they do provide some assistance, to the extent at least that they indicate that Parliament did not intend that expressions suchas "lease" in the Act would necessarily cover all forms of leasehold interest, both superior and derivative. Put another way, if Parliament had intended the concept of "lease" to be compendious (ie, to cover both leasehold and subleasehold interests) in the provisions dealing with the establishment of unit subdivisions as the appellant contends, there would be no logical reason for it to take a different approach when identifying possible interests in units. That said, we accept that the point is by no means decisive. [32] We now turn to s 5(1)(f) (quoted at [9] above). The appellant said that the reference to "grantor of the lease" is important when contrasted with the immediately following reference to "registered proprietor of any mortgage". The reference to "grantor" rather than "registered proprietor" indicates, the appellant said, an intention to broaden the scope of leasehold interests beyond those granted by registered proprietors of the fee simple to derivative leasehold interests. [33] This does not, however, meet the Judge's concern that, if the appellant is right, there will be a gap in s 5(1)(f) (at [49]). The effect of the subsection is that, where a leasehold estate is to be the subject of a unit title subdivision, the grantor of the lease must consent in writing to the deposit of the subdivision plan. Clearly that is a reference to the grantor of the particular leasehold estate from which the unit subdivision is to occur. In the case of a sublease, the grantor would be the lessee under the head lease. But there is no provision requiring that the grantor of that head lease give consent, even though that grantor would have a real interest in the proposed subdivision. [34] The appellant attempted to meet this point by arguing that head leases contain restrictions on the use to which the land can be put. A sublease granted by a head lessee must comply with the restrictions in the head lease. As a matter of contract, then, the head lessor would have to consent to any subdivision of a subleasehold estate. Further the appellant said, if the head lessor re-enters for breach of the head lease, it suffers no prejudice as it acquires a development, with rents guaranteed by the body corporate. If there is a default in the payment of the rents, it can apply to the court to wind up the unit plan.[35] The difficulty with this is that as a matter of contract a unit title subdivision of a subleasehold estate could not occur without the consent of the sublessor. Despite that, Parliament has enacted a provision requiring the subleassor's written consent to the deposit of a unit plan. We see no logical reason for Parliament to require such a consent from a sublessor but not from a head lessor. Accordingly this indicates, and we put it no higher than that, that Parliament did not intend to permit the unit titles in respect of subleasehold interests. [36] In short, it is unlikely that Parliament would have intended to leave something which it evidently regards as important (given s 5(1)(f)) to be dealt with by way of contractual provisions. [37] The appellant also submitted in this context that the Act had been drafted over 35 years ago, and the drafters may not have contemplated the possibility of subleasehold unit titles. It said that the operation of the Act should not be suspended in the 1970s. We return to that submission at [54] below. [38] The Judge also gave considerable weight to s 31(4), which deals with merger (quoted at [10] above). He said that, if the Act was interpreted to allow the unit title subdivision of subleasehold interests, it would be necessary, as the appellant had accepted, to place a gloss on that provision to restrict its application to head leases only (at [55]). [39] The appellant submitted that the fact that the section does not apply to subleases does not have the significance that the Judge accorded it. The fact that a definition is inapplicable to some sections of a statute does not, the appellant said, prevent its application to others. Reference was made to O F Nelson & Co Ltd v Police [1932] NZLR 337 at 345 – 347 (CA) and Waitemata Electric Power Board v Kenward [1957] NZLR 695 at 698 – 699 (SC). The appellant submitted that the position of subleases in relation to merger is covered by s 30 of the Property Law Act, and by the common law. [40] The difficulty with this line of argument is that it seems clear that the Act is intended to be a code as far as unit title subdivisions of leasehold interests areconcerned. Accordingly it would be unusual for the term "lease" to have a narrow meaning in one section of the Act and a broad meaning in others in the absence of a specific indication in the Act that that was intended. Apart from that, it seems odd that the Act would deal specifically with merger in relation to lessors who are owners of the freehold estate and unit proprietors who hold stratum estates in leasehold from them but not with merger in relation to sublessors and unit proprietors who hold stratum estates in subleasehold from those sublessors. It may be that transactions involving the latter can be addressed through s 30 of the Property Law Act or through the common law, but the absence of a relevant provision in the Act does, in our view, support the conclusion that Parliament did not have in mind unit title subdivisions of subleasehold interests. [41] Finally we come to the question of protections for unit title proprietors. In his affidavit Mr Hornabrook deposed:Restrictions on superior lessors' termination rights5 To provide additional comfort for unit proprietors, [the appellant] intends to modify the superior leases by way of a registered deed of covenant to incorporate provisions substantially similar to section 29 of [the Act]. I set out below the relevant aspects of that convenant: 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 convenants 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 of 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; and5.3.3 Be prohibited from imposing an annual rent any greater then 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 section 29(3) of [the 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 convenant 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 [the Act] upon expiry of the term of the lease. 6 The Acknowedgment and Consent Deed could be drafted in the form of registrable land convenants which will be noted on all of the estates in the chain from fee simple to the last sublease estate.[42] The appellant submitted that the Judge was wrong to find that the Act does not adequately protect the various parties involved in a development of the type under consideration. The appellant said:The only difference between a development by a lessee and one by a sublessee is the potential effect of the intermediate leases on the development. This effect is eliminated by the terms of the [Act], and the Property Law Act 1952.[43] The appellant referred to the protection provided by the common law (citingWestpac Merchant Finance Ltd v Winstone Industries Ltd [1993] 2 NZLR 247 at 254 (HC)) and to s 119 of the Property Law Act (which allows a sublessee to apply for relief in the event of forfeiture of the head lease) and s 120 of the Land Transfer Act (subsection (5) of which provides that a lease which is subject to a sublease may not be surrendered without the consent of the sublessee).[44] Mr Hornabrook is an experienced property lawyer. He has deposed that certain steps will be taken through the relevant documentation to protect the position of unit proprietors in the event that the appellant's subleasehold interests are subdivided as proposed. It is clear from his affidavit that he considers the protections identified to be necessary. We agree. It may be, as the appellant argues, that provisions in other enactments will also provide protection. But it is implausible that Parliament would have intended to provide protections under the Act to those holding stratum estates in leasehold but to rely upon other enactments to provide similar protections to those holding stratum estates in subleasehold. [45] Accordingly, we agree with the answer given by the Judge in respect of the first declaration.Second issue – future leasehold interests[46] The appellant argued that s 3(1) of the Act implicitly allowed subdivision by a holder of an estate as lessee under a lease that commences in the future. The subsection does not restrict the types of leasehold estates in respect of which a unit plan can be deposited. Under s 4, unit titles for the future lease would issue at the same time as the unit titles for the current lease, provided that the plans for the subdivisions were registered at the same time. The Judge was wrong, the appellant said, in his interpretation of s 29(1) (quoted at [11] above). [47] On the approach advocated by the appellant, there will be two unit title subdivisions in respect of the same land, one covering the period of the first sublease and the other the period of the second. There will, therefore, be two certificates of title in respect of each unit at the same time. Further, there will also be two bodies corporate in existence at the same time. This was confirmed by Mr Hornabrook in his affidavit, where he said:7 There will be two leasehold estates involved, the first being for 21 years (First Lease) and the second commencing upon expiry of the First Lease and having perpetually renewable 35 year terms (Second Lease).8 I anticipate that unit plans will deposit over both the First Lease and the Second Lease simultaneously. I expect titles will issue for both plans at the same time. Those titles will be subject to an encumbrance whereby they cannot be dealt with separately. During the term of the First Lease each proprietor will have two unit titles. 9 The deposit of the plan over the Second Lease would create an estate in leasehold, however, it would be effective only (and immediately) from the commencement date of the Second Lease. 10 When the First Lease expires the First Lease unit plan will be cancelled by application to the Registrar General of Land and the proprietors will be left with one title under the Second Lease. 11 In those circumstances (First and Second Lease unit titles held together), I cannot foresee any reason why in practical terms, the coexistence of the two bodies corporate would be problematic.[48] As the Judge said (at [76]), if the appellant is right, there could in theory be an unlimited number of certificates of title in respect of particular units and of bodies corporate in respect of particular subdivisions. [49] The existence of two (or more) titles in respect of the same unit, and two (or more) bodies corporate in respect of the same group of units, means that special arrangements must be made to facilitate the transfer (as a practical matter) from one title to another, and one body corporate to the other, at the appropriate time. Like the Judge we are doubtful that Parliament would have 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 the parties" (at [78]). [50] The Judge considered that s 29(1) presented an "insuperable problem" for the appellant because it contemplated that a unit title development of a leasehold estate could run beyond the term of the lease. This would create a problem where there was a second lease which was to take effect at the expiration date of the first lease (at [79] – [81]). [51] The appellant challenged this reasoning, arguing that the Act provided sufficient protection through ss 45 and 46. Section 45 provides that a District Land Registrar may cancel a unit plan on the application of all the proprietors of the unitsand s 46 provides for applications to the High Court to cancel plans. The Judge described what the appellant had in mind as follows (at [82]):[The appellant] 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.[52] We agree with the Judge (at [83]) that it is most unlikely that Parliament would have intended that situations of this type be left to be resolved by way of contractual mechanisms. The contemplated process is cumbersome, and may be prolonged. If for some reason the parties failed to pursue it, or to pursue it promptly, considerable confusion and uncertainty could result. [53] Accordingly we consider that the Judge was right to refuse the second declaration.Conclusion[54] The appellant reminded us that we must take account of the purpose of the Act, which, it said, was to permit subdivisions of leasehold land. That is, the Act was an enabling one. Further, the appellant invited us to interpret the Act in a way that recognised what it said was the "current land transfer environment" and to recognise that developers wish to take advantage of complex structures that include the creation of future interests in land. We were invited, in effect, to modernise the Act in this respect. [55] However, the way that the Act came to permit the creation of unit titles in respect of leasehold estates must be remembered. The Minister of Justice, the Hon Sir Roy Jack, explained the reasons when he introduced the Bill to Parliament. He said (at (11 August 1972) 380 NZPD 1735):Part II deals with the special problems that arise where the land involved is held under a lease. 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 thecentral area of Auckland, for example, comprises leasehold land, and accordingly we have had to face the problem.[56] While it is true that the Act permitted the subdivision of leasehold interests, it did so subject to various provisions (such as ss 5(1)(f) and 29), which were intended to deal with anticipated problems. It seems unlikely that Parliament had in mind the creation of complex structures of the sort proposed in this case, given that they can be made to work satisfactorily only by the introduction of additional contractual provisions. The proposed structures simply do not fit comfortably within the Act's provisions. [57] A review of the Act is underway, and a variety of changes have been mooted. Clearly the Act is in need of amendment, as the Law Commission and others have long recognised (see New Zealand Law Commission Shared Ownership of Land(NZLC R59 1999)). It is self-evident that the courts are not well placed to embark on a modernisation process in this area - that is a matter for policy makers and law reformers.Decision[58] The appeal is dismissed. The appellant must pay costs of $6,000 in this Court, plus usual disbursements. We certify for second counsel.Solicitors: Glaister Ennor, Auckland for Appellant Crown Law Office, Wellington for Respondent