PROPRIETORS OF WAKATU v CURNOW [2014] NZHC 2782

PROPRIETORS OF WAKATU v CURNOW [2014] NZHC 2782 [7 November 2014]IN THE HIGH COURT OF NEW ZEALANDNELSON REGISTRYCIV-2014-442-27[2014] NZHC 2782UNDER the Property Law Act 2007IN THE MATTER OF an application for a possession order unders 251 of the Property Law Act 2007BETWEEN PROPRIETORS OF WAKATUApplicantAND MICHAEL ALBERT CURNOWDefendantHearing: 30 October 2014Appearances: M S Smith for the applicantThe respondent in personJudgmentReasons:7 November 2014REASONS FOR JUDGMENT AND FINALISED ORDERS OF CLIFFORD JIntroduction[1] The applicant, the Proprietors of Wakatū – a Māori Incorporation constituted under the Wakatū Incorporation Order 1977, leases a property at 4 Staples Street,Motueka to the respondent, Mr Curnow. With effect from June 2008, when the rent under that lease was reviewed, Mr Curnow has failed to pay the full amount of rent due. Mr Curnow has also failed to participate in the dispute resolution proceduresprovided in his lease agreement with Wakatū. On that basis, in reliance on decisions such as Emery v Andrews, Grant v Hannay, and MFT Properties Ltd v Country Club Apartments Ltd,1 Wakatū originally applied for a possession order under s 251 of the1 Emery v Andrews HC Auckland CIV-2011-404-2903, 8 July 2011; Grant v Hannay (2010) 11 NZCRR 283 (HC); MFT Properties Ltd v Country Club Apartments Ltd CIV-2010-404-5913, 13 April 2011.Property Law Act 2007 (the Act) and, recognising Mr Curnow's prima facie right to relief from forfeiture if he pays the outstanding rent, for contingent orders for relief, in the following terms:(a) That Mr Curnow pays to Wakatū within 10 workings days of the issuance of this Court's judgment:(i) all arrears of rental owing under a Lease dated 1 July 2002, registered under no. 5480816.1 and relating to 4 Staples Street, Motueka (the Lease) as at that date together with interest calculated at five per cent, including the arrears relating to the 2008 rent increase together with interest calculated at five per cent on those arrears;(ii) the costs and interest ordered to be paid to Wakatū in respectof rent arrears by the District Court in its sealed judgment/order of 30 April 2012; and(iii) the costs and expenses incurred by Wakatū relating to this application on a solicitor/client basis.(b) That if Mr Curnow wishes to dispute the revised rental set by the applicant in 2008, he must:(i) submit to an arbitration before Mr K G Stevenson within 15 working days of the issuance of this Court's judgment (or,if Mr Stevenson is not available to act, or if he refuses to act, then before an arbitrator appointed by the President of theArbitrators' and Mediators' Institution of New ZealandIncorporated);(ii) undertake that arbitration according to terms and a timetable set by Mr Stevenson (or, if Mr Stevenson is not available to act, or if he refuses to act, then before an arbitrator appointedby the President of the Arbitrators' and Mediators' Institute ofNew Zealand Incorporated); and(iii) pay the revised rental set by the applicant in 2008 unless and until an arbitration award has been issued by Mr Stevenson (or, if Mr Stevenson is not available to act, or if he refuses to act, then before an arbitrator appointed by the President of theArbitrators' and Mediators' Institute of New Zealand Incorporated).(c) That Mr Curnow shall ensure from the date of this judgment until the expiry or termination of the Lease, that the rent payable under the Lease is not (without the prior consent of the applicant) in arrears by any more than 21 days.(d) That in the event Mr Curnow fails to satisfy any of conditions (a) to(c) above, Wakatū is entitled to apply on 24 hours' notice forjudgment for:(i) cancellation of the Lease;(ii) possession of the premises at 4 Staples Street, Motueka; and(iii) the full amount of rental arrears owing by Mr Curnow at the date of judgment, together with interest calculated at five per cent.(e) Such further or other relief as the Court considers just.[2] The terms of the order requiring Mr Curnow to pay outstanding rent at the revised rental levels, and then dispute that through arbitration, reflect the dispute resolution provisions provided in Mr Curnow's lease with Wakatū.[3] I heard Wakatū's application on 30 October 2014. In an oral decision Iobserved:(a) That having read the originating application and the two affidavits in support, and also having read the two written submissions filed by Mr Curnow and having heard from Mr Smith for Wakatū andMr Curnow personally, I had reached the clear view that Wakatū hadestablished a prima facie entitlement to cancellation, and that Wakatūhad therefore established the grounds for the contingent orders for relief that it sought.(b) That in the course of the hearing which, given Mr Curnow was appearing for himself, I had conducted somewhat informally, I had discussed matters further with Mr Curnow. Mr Curnow indicated that he was not in a position to pay the rent but acknowledged that he hadno real grounds on which to oppose Wakatū's application. I hadadvised him of the consequences of cancellation for him in terms of the forfeiture not only of his right of possession but also of any interest he might have in the improvements. I had also discussed that matter with Mr Smith.(c) That Mr Smith, having taken further instructions from Wakatū,applied for varied contingent orders, namely that:(i) Mr Curnow be granted relief from forfeiture on the basis that he would have until 5.00 pm Friday 14 November 2014 to pay outstanding rent arrears at the rate of $12,915 plus GST per annum, costs as ordered by the District Court and interest at five per cent;(ii) Failing payment, which would appear likely, Mr Curnow wasto provide vacant possession of the property to Wakatū bymidday on Sunday 16 November;(iii) Wakatū would then as lessor in possession effect a sale of theproperty by public auction or private treaty by Friday19 December 2014 and would account to Mr Curnow for the proceeds of that sale less rental and other arrears owed; and(d) In the event that difficulties arise with the sale of the property, leave would be reserved to apply to the Court on short notice for written directions.[4] That rental rate of $12,915.00 plus GST per annum is less than the rateoriginally set by Wakatū on review, and reflects the outcome of an assessment Wakatū obtained in the context of an unsuccessful arbitration with Mr Curnow.[5] I then indicated that I would give a formal judgment to that effect, subject to Mr Smith filing detailed revised orders conforming to the terms sought.Final judgment and orders[6] Mr Smith has now filed those orders and I therefore set out the reasons forgiving judgment in terms of those orders as sought by Wakatū, and make orders inthose terms.The law[7] The applicable law in this area is well settled. The cancellation of leases is governed by ss 243 to 264 of the Act. Those provisions are a code and they override any inconsistent lease terms (s 243).[8] Section 244(1) provides that a lessor who wishes to cancel a lease because of a breach of covenant by the lessee may either apply to a Court for an order for possession of the land, or re-enter the land peaceably. Where the covenant which has been breached is the covenant to pay rent, a notice of intention to cancel the lease needs to be served on the lessee (ss 244(2) and 245). That notice must comply with prescribed requirements, set out in ss 245 and 249.[9] When the application comes before the Court, it has a discretion whether to make an order cancelling the lease (s 251(1)). In exercising that discretion, theacceptance of rent by the lessor after notice of intention to cancel the lease has beengiven does not operate as a waiver of the lessor's rights (s 250).2[10] If the Court makes an order cancelling a lease, it may provide for the cancellation to take effect either on the making of the order, or on a later specified date (s 244(3)). By s 251(2) the Court's order may also:(a) order the lessee to pay the rent up to the date of cancellation or any later date on which the lessee yields up possession;(b) order the lessee to pay reasonable compensation for the breach;(c) impose on the lessee or the lessor any other conditions that it thinks fit.[11] A lessee wishing to resist an order for cancellation of the lease may apply to the Court for relief against cancellation (s 253(1)). That may be sought in thelessor's proceeding brought for an order for possession or in a separate proceeding (s 253(3)). Notably, the application for relief does not, in itself, constitute an admission of breach of a covenant justifying cancellation (s 255).[12] As in the case of applications for possession orders, orders made by the Courton a lessee's application for relief against cancellation can be made to take effect onthe making of the order or on a later specified date (s 244(3)). The Court in determining an application for relief is also able, by s 256(1), to grant:(a) the relief sought on any conditions (if any) as to expenses, damages, compensation or any other relevant matters that it thinks fit; and(b) an injunction restraining any similar breach in the future.[13] Section 256(2) goes on to provide that the Court may grant relief against the cancellation of a lease even though the cancellation is for a breach of an essential term of the lease, or the breach is not capable of being remedied.The facts[14] Wakatū leases the property to Mr Curnow under Lease no. 5480816.1.2 The relevance of that consideration here is that Mr Curnow did pay part of the rent due.[15] The term of the Lease is for a period of 21 years commencing on 10 July 2002, but is perpetually renewable. The Lease is a renewal of a previous lease. The rental is payable half yearly in advance.[16] Mr Curnow covenants in clause 1 to pay rent as prescribed in the Lease.[17] For the first six years from the commencement of the Lease until 30 June 2008, the yearly rent was $4,750 plus GST if applicable. Thereafter the annual rent was to be set in accordance with a process prescribed in the Lease with reference tothe Māori Reserved Land Amendment Act 1997.[18] Schedule 1 of that Act sets out those requirements. Very much in summary:(a) Not earlier than six months before a rent review date and not later than 12 months after a rent review date, either party to the Lease may give to the other party notice in writing stating what the party giving the notice considers to be the fair annual rent of the land for the next ensuing period of the term of the Lease so that the rent is uniform throughout the whole of that ensuing period. Wakatū gave notice on13 June 2008 stating the fair rent to be $16,302.00 plus GST if applicable.(b) Where the party to the lease that gives a notice under clause 4 does receive (within three months after the date on which the notice is given) a notice under cl 4 from the other party to the Lease objecting to the specified annual rent or proposing a different annual rent. Mr Curnow gave a notice of objection on 26 June 2008.(c) In that situation, if the parties do not (before the rent review date) agree on an annual rent, then: the annual rent payable from the rent review date is to bedetermined in accordance with clauses 32 to 34 [of Schedule 1], but until so determined the annual rent payable from the rent review date is to be the annual rent specified in the notice given by the lessor or, if the lessor has not given a notice specifying an annual rent, then by the lessee.(d) The process to resolve rent review disputes involves mediation then, if unsuccessful , binding arbitration under the Arbitration Act 1996.[19] Mr Curnow paid the annual rent at the rate agreed in the Lease from the date of commencement of the Lease on 10 July 2002 until the rent was revised in 2008 following the rent review provided for in the Lease. The annual rent was short paid from June 2008 onwards. By 22 January 2014 the outstanding rent totalled $62,400.60, as well as interest at five per cent of $9,759.42.[20] After unsuccessful attempts to enter into mediation and arbitration with Mr Curnow (it would appear Mr Curnow was a member of a group negotiating andarbitrating with Wakatū but withdrew from that group at some point), Wakatūobtained judgment in the District Court for rental arrears.3 There were then, as Iunderstand , further attempts by Wakatū to engage in a process of arbitration but these attempts were also unsuccessful. Thus, whilst Mr Curnow disputes the revised annual rent, he has refused to engage in the process prescribed in the Lease for resolving rent review disputes.[21] As a result, Wakatū served notice on Mr Curnow under s 245 of the MāoriReserved Land Amendment Act on 21 January 2014.[22] As noted above, that notice has not been complied with. Prima facie this justifies the cancellation of the Lease under s 251.Mr Curnow's grounds of opposition[23] As set out in his statement of 24 June 2014 and the documents exhibited to it,Mr Curnow opposes Wakatū's application for cancellation on the grounds:(a) that the revised annual rent Wakatū set in 2008 is not correct; and(b) that he has tried unsuccessfully to settle the dispute with Wakatū.3 Wakatū v Curnow DC Nelson CIV-2010-042-76, 9 March 2012.Analysis[24] The Lease prescribes a clear process for resolving rent review disputes. It involves the submission of the dispute first to mediation and, failing that, to arbitration. Pending the outcome of the mediation and/or arbitration, Mr Curnow isobliged to pay rent at the revised rate (the Lease providing for a final "wash up" atthe end of the rent review dispute and based on its outcome).[25] Based on the narrative set out above, I am satisfied that Mr Curnow failed to comply with the process which he agreed to.[26] Moreover, and as already indicated, the fact that Mr Curnow has acknowledged he is unable to pay the increased rent, and has offered settlement on terms that I infer involve the payment of some lesser sum, does not itself justify his non-payment of rent from June 2008 until the present day. The Lease clearlyprovides for a "pay now and argue later" approach. It was for those reasons that I was satisfied that Wakatū had established its prima facie entitlement to cancellation of the Lease.The conditional orders sought[27] The contingent orders first sought by Wakatū would, on the assumption that –as Mr Curnow acknowledged would be the case – Mr Curnow was unable to pay rental arrears, have resulted in Mr Curnow not only losing his right to possession but also any interest he might have in the improvements.[28] Responsibly recognising the implications of that for Mr Curnow, Wakatū nowseeks amended contingent orders. It does so in terms which particularise the sums owing by Mr Curnow to it, and sets out a procedure whereby in effect Mr Curnow is granted contingent relief from forfeiture for failure to pay those amounts on the basisthat, if he does not pay them, he is to surrender possession of the property to Wakatūso that it may be sold with vacant possession. Wakatū will then, having deducted allamounts owing to it, account to Mr Curnow for the balance of the sale proceeds. I consider this to be an equitable outcome in the present circumstances.[29] It was originally proposed by Wakatū that vacant possession be given bySunday 16 November 2014: that date has now been extended to Sunday 23 November. Moreover, an adjustment is proposed to take account of the fact thatrental is paid in advance, by Wakatū providing Mr Curnow with a pro rata credit should the leasehold interest be sold to a third party prior to 31 December 2014.That arrangement is proposed by Wakatū in the hope that it will incentiviseMr Curnow to co-operate in securing a sale of the leasehold interest.[30] For all those reasons, I make the following orders as sought by Wakatū:(a) Mr Curnow will pay to Wakatū by 5.00 pm on Friday 21 November 2014:(i) all rental arrears owing under the Lease dated 1 July 2002 registered as No. 5480816.1 and relating to 4 Staples Street, Motueka, calculated from 17 June 2008 to [today] at the rate of $12,915.00 plus GST per annum and totalling $47,522.40;(ii) the costs and disbursements totalling $10,905.41 which were ordered to be paid by Mr Curnow to Wakatū in the District Court's sealed order of 30 April 2012;(iii) interest calculated at five per cent on the two sums totalling $9,016.69;(iv) a contribution of $5,000 towards Wakatū's legal costs inbringing this originating application;being a combined total of $72,444.50.(b) If Mr Curnow fails to pay the combined total of $72,444.50 by 5.00 pm on Friday 21 November 2014 then:(i) Mr Curnow is to provide vacant possession of the property at 4 Staples Street by midday on Sunday 23 November 2014;(ii) Wakatū is to effect a sale of the leasehold interest by public auction or private tender by Friday 19 December 2014;(iii) Wakatū is to pay the proceeds of the sale of the leaseholdinterest, less the total arrears of $72,444.50 (less a pro rata credit to Mr Curnow if the leasehold is transferred to a third party prior to 31 December 2014) owed by Mr Curnow toWakatū, to Mr Curnow;(iv) if the sale of the leasehold interest is not effected by 31 December 2014, rent will continue to accrue at the rate of $12,915.00 plus GST per annum until the leasehold interest is sold, and Wakatū will be entitled to further deduct such arrearsfrom the proceeds of the sale of the leasehold interest before it makes any payment of those proceeds to Mr Curnow;[31] Leave is reserved should issues arise which require the further assistance of this Court."Clifford J"Solicitors:Wakatū Incorporation, Nelson.Copy to M A Curnow, Motueka.