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Court of Appeal of New Zealand |
Last Updated: 23 August 2018
IN THE COURT OF APPEAL OF NEW ZEALAND CA233/98
BETWEEN S & M PROPERTY HOLDINGS
LIMITED
Appellant
AND WATERLOO INVESTMENTS LIMITED
Respondent
Hearing: 21 April 1999
Coram: Gault J Henry J Thomas J Blanchard J Tipping J
Appearances: J E Hodder and E S K Dalzell for Appellant
J L Marshall and K C Johnston for Respondent
Judgment: 22 June 1999
JUDGMENTS OF THE COURT
[1] The circumstances in which this appeal comes before the Court and the issue for determination are fully set out in the judgments of the others members of the Court which I have read in draft. They all conclude that in valuing the ground rent (“the fair annual rent of the land”) on renewal of a Glasgow lease there is not to be taken into account a heritage listing imposed in respect of the north and east facades of the building on the land notified in the Wellington City Council Proposed District Plan.
[2] The combined reasons of my brother Judges have almost persuaded me to the same view. But I find myself unconvinced that the heritage listing is to be distinguished in principle from a zoning requirement.
[3] It is common ground that the valuation is to be made having regard to the terms of the lease and any constraints upon the use of the land contained in the lease or imposed by law.
[4] The other members of the Court characterise the heritage listing as affecting the building not the land. As I see it the effect is upon both the building and the land. It prohibits, without consent, demolition or alteration of the two facades of the existing building. It also prohibits, without consent, development of the land unless preserving the two facades.
[5] The valuation is required to fix the rent for a new 21 year lease following exercise of a right of renewal. The valuation is to be made at the date of the new lease. At that date the requirement of the Proposed Plan, having the force of law pursuant to the Resource Management Act 1991, was to restrict development of the land in the same way as a zoning requirement or height restriction.
[6] The fact that the heritage listing has arisen out of the lessee’s use of the land is no distinction. Many zoning designations arise out of established usage for particular purposes of buildings on land.
[7] If the conventional means of determining value by identifying highest and best use is employed, it seems to be contradictory to proceed on the basis of use of the land that is inconsistent with the law. The lease expressly requires (cl 6) that all buildings are to be erected in accordance with the by-laws and regulations of the local authority and the general law for the time being in force.
[8] Section 9 of the Resource Management Act provides:
Restriction on use of land – (1) No person may use any land in a manner that contravenes a rule in a district plan or proposed district plan unless the activity is -
(a) Expressly allowed by a resource consent granted by the territorial authority responsible for the plan.
[9] The appropriate resource consent is called a “land use consent” (s87(a)).
[10] I would allow the appeal.
HENRY J
[11] This appeal, brought by way of transfer direct to this Court by order of the High Court, is from an arbitration award made by Sir Ian Barker QC on 6 August 1998. It raises an issue concerning the construction of a rent review provision in a Glasgow type lease, expressed in a form similar to that used in many such leases over the past years.
[12] The lease is of land situated in Wellington and now the site of the Waterloo Hotel. Although executed on 30 July 1979 with a commencement date of 1 April 1977, it is in fact the renewal of a lease originally granted in 1935 by the Crown as lessor. The respondent acquired the lessor’s interest in December 1993, and the lessee’s interest was transferred to the appellant in September 1997. The hotel was erected in 1936. It is a lease in perpetuity, and contains rights of renewal for successive periods of 21 years with rent reviews being conducted at those same intervals. The critical clauses are:
[13] The question of law posed for the Court is:
Whether clause 12 of the lease dated 30 July 1979, under which the respondent is now lessor and the appellant is now lessee, precludes a valuation of the ground rental payable under the lease from taking into
account the impact of the heritage protections relating to the improvements on the land (here being the listing of the Waterloo Hotel building as a Heritage Building in the Wellington City Council’s Proposed District Scheme, and the registration of the building as a category II building by the New Zealand Historic Places Trust).
[14] For the purposes of the arbitration hearing the parties were agreed that the arbitrator was bound by the decision of the High Court in Auckland City Council v SEG Holdings Ltd (Auckland Registry CP435/95, 7 May 1996), and accordingly he was not permitted to take the heritage listing into account when making his valuation of the fair annual rent. The award was therefore made on that basis.
[15] The proposed district plan of the Wellington City Council lists the north and east facades (only) of the present building under the Schedule of Heritage Buildings. The building has a New Zealand Historic Places Trust registration. Although there is provision in the Historic Places Act 1993 for registration of covenants running with the land, this title is not encumbered in any such way. The effect of the listing is that in the absence of a resource consent, the two facades of the building are protected and must be retained in the event of any redevelopment. The issue of the relevance or absence of relevance of a heritage listing, or its equivalent, has not previously come before this Court. So far as I am aware, it has only come under consideration by the High Court in SEG Holdings, and there by way of review of an arbitration award made under the 1908 Act. In reaching his decision in SEG Holdings, Williams J relied on and applied what he termed a lengthy and consistent line of authority, commencing with that of this Court in The Drapery and General Importing Company of New Zealand (Limited) v The Mayor of Wellington (1912) 31 NZLR 598, known as the DIC case.
The lease
[16] The lease contains a number of provisions which are relevant in the sense of assisting to set the overall context of the review clauses. Clause 5 requires approval on behalf of the lessor before any buildings or structures are erected on the land. Clause 6 requires all buildings to be erected in strict accordance with local authority by-laws and regulations and the general law. Under clause 7 all buildings must be
kept in good repair by the lessee. Clause 8 prohibits the lessee from cutting up or subdividing the land into lanes or streets without prior consent. It also restricts the removal of earth, clay, gravel shingle or sand from the land. Under clause 24 if the lease is not renewed or if there is default and the lease terminates, all buildings revert to the lessor. Such provisions are commonly found, and do not render this lease in any way extraordinary.
The issue
[17] For the lessee, Mr Hodder’s argument was that the words of clause 12 had to be given their literal meaning and effect. The only “disregard” is the value of buildings or improvements, and their existence or presence could be relevant to the valuation and taken into account. The essence of Mr Marshall’s argument for the lessor is that the existence or presence of the building must be ignored for the purposes of the valuation exercise. The valuer must proceed to value the ground rent of the land on the assumption that it is vacant land, void of any buildings or improvements. From that premise it is argued that because the heritage listing is directed to the building, which for the purposes of the valuer does not exist, it cannot be taken into account. The validity of the respective approaches must be tested against the words of the lease and what the parties could reasonably have been understood to mean by them.
[18] In the course of argument reference was made to the Court possibly making a policy decision in order to resolve the dispute, in the sense of determining in respect of leases of this kind which party should bear the “risk” that a building may be subjected to restrictions such as those which are imposed by an external authority. In my view that is neither necessary nor appropriate. What is in issue here is the obligation of the valuer as dictated by the terms of this lease. The parties have agreed that the instructions to the valuer are to be those contained in clauses 11 and 12, and it is those provisions which fall to be construed in accordance with accepted principles.
[19] When the lease was first granted in 1935 the land was void of buildings or other improvements. The lessee had the right to erect buildings or effect other
improvements, subject to adherence to local body and general law requirements and to compliance with the terms of the lease. Any such improvements were essentially matters of choice for the lessee. It was on these bases that the original rent was set and the lessee elected to construct the hotel. The respective rights and obligations of the parties to the lease have not altered in any material respect during its currency.
[20] As earlier noted, the heritage listing is directed only to the structure of the building. Other than perhaps indirectly by reason of the existence of the building and the consequences of the restriction imposed on its alteration or demolition, the listing does not attach to or affect the land.
[21] In my view the argument for the lessor must prevail. Despite some initial attraction, I do not think Mr Hodder’s carefully constructed submissions, concentrated as they were on the reference in clause 12 to value, can be sustained as demonstrating the true meaning and intent of the provisions of this lease. Mr Hodder accepted that if clause 12 required the valuer to disregard any buildings or improvements, or simply to assess the unimproved value of the land, the heritage listing would be irrelevant; in those circumstances, the land was to be valued as though void of buildings. The appellant’s case was firmly based on the contention that the only “disregard” was the value of buildings or improvements, and accordingly the existence of the building and its presence on the land could be taken into account. This is the foundation of his argument, and the premise which allows the listing to be taken into account. If the premise is not sound, the argument must fail.
[22] When considered against the background earlier discussed, the meaning and intent of the lease provisions become clear. Clause 12 contains a direction that the valuation shall take no account of the value of any buildings or improvements. It also directs that the full ground rental be fairly valued. As to the first direction, if the value of buildings and improvements is to be disregarded, the only value which falls to be assessed is that of the land, namely the land without buildings or improvements. In reality the valuer has only two choices available. Either to value the bare land, or to value the land with buildings and improvements. The concept of
undertaking the latter exercise, but without taking into account the value of the buildings and improvements, is difficult to grasp and has the air of unreality.
[23] The consequences of such an exercise demonstrate that it does not represent the intent of this lease. It is common ground that the “highest and best use” valuation method employed by the arbitrator in the present case was appropriate. That method is based on an assumption that the notional prudent lessee will put the land to the best use to which the site is suited. The rent will be what is fair to pay for that purpose. If the exercise requires the existence of buildings to be taken into account, the prudent lessee: (a) may not put the site to its best use development because of the excessive costs of demolition; (b) may redevelop by demolishing the buildings at a cost; (c) may sell the buildings for removal. In each case the same land will have a different ground rental value, the value being dictated by the existing use made of the land by the lessee. That cannot represent the intent of clause 12. The benefits and burdens attaching to improvements, including any effect on the lessee’s ability to use the land, rest with the lessee.
[24] The conclusion that the valuation is to be of the bare land is reinforced by the second direction to make a fair valuation of the full ground rental. That term is entirely consistent with the concept of a bare or unimproved land valuation. Ground rental is generally understood as being payment for the use of land as a building site. The term is inconsistent with a different valuation approach which recognises the existence of buildings constructed by the lessee during the currency of a lease. The original lease was only of bare land, and it is that which is to be revalued when the lease is renewed. Under the lessee’s argument, the enquiry becomes what the lessee should pay, not for the use of the lessor’s land as demised, but for the use of the lessor’s land now that the lessee has elected to construct the particular buildings on it. In my opinion the former is the true enquiry.
[25] The strongest point in support of the lessee’s contentions is that it is prohibited by law from putting the site to its highest and best use. The hotel cannot be totally demolished, and the site developed to its full potential. Unfairness, it is said, results if the valuation does not reflect that fact. There are two answers. First, the listing does no more than control the way in which the lessee can use its own
building. The constraint arises solely from the use to which the lessee has put the land, not from any control placed on the land itself. Secondly, as Mr Hodder acknowledged, the result is the same if the lease was expressed as requiring the valuation to be of the unimproved land, or of the land without buildings or improvements - a common rent review provision. High authority for the proposition that in such cases the land is valued as void of buildings can be found in Tetzner v Colonial Sugar Refining Co Ltd [1958] AC 50, 56-57, and Tooheys Ltd v Valuer- General [1925] AC 439,445. The parties are bound by their bargain, and the concept of “fairness” cannot override the words of the lease. As to fairness, it can be noted that clause 12 requires the full ground rental to be fairly valued, and also that relief from a heritage restriction is available through the Environment Court under s85(3) of the Resource Management Act 1991 (Steven v Christchurch City Council [1998] NZRM 289).
[26] It was further submitted that the heritage listing was analogous to a zoning provision, both being made under the authority of a district or proposed plan. But zoning as it was referred to in this context is directed to site use regardless of buildings, and when making a ground rental valuation zoning provisions such as site coverage and height restrictions are applied to a bare land situation. In contrast this listing is directed to protection of a particular building erected on the site, which for the reasons already discussed is the concern of the lessee, not the lessor. The difference is also exemplified by the fact that if the building is destroyed the listing ceases to be operative, whereas zoning provisions remain effective.
[27] The same principles contended for by Mr Hodder must apply if the whole building is protected. On the lessee’s argument, in that case the valuation exercise must take into account the existence of the building, including for example its site coverage, as determining possible development. Even assuming the value of the building can somehow be ignored in doing that, the ground rental value then becomes driven by the building including such features as size and location which may have nothing to do with its historical or heritage features. In my view that cannot be right. Put shortly, it is not the intent of clause 12 that improvements carried out by the lessee impact on or govern ground rental value.
[28] To construe this lease as requiring the valuer to proceed on the assumption that the land is void of buildings is, as Williams J held in SEG Holdings, firmly based on authority. It is also practical as a general proposition, and does not offend commercial reality.
[29] In the DIC case the Court of Appeal, comprising Stout CJ, Williams, Edwards and Cooper JJ, was concerned with three deeds of lease. Two required a valuation of “the fair annual ground-rent of the said land only, without any buildings or improvements”. The third lease, dated 30 September 1905, required a valuation of the annual rental of the demised premises and provided that “in ascertaining such land rental the valuers shall not take into consideration the valuation of any building or improvements then existing upon the demised premises, but should value the full improved ground-rental of the said premises”. In a short judgment, the Court detailed the questions posed to it and the answers to these questions. Of present relevance are numbers 7 and 8.
Question 7
What, under the provisions of each of the said two leases, is the true basis on which the valuers should ascertain the fair annual ground-rent of the land included in the said lease only, without any buildings or improvements, for the renewed term?
Answer
As to question 7, the true basis on which the valuers must proceed is that there are no buildings or improvements on the land. They must ascertain what a prudent lessee would give for the ground-rent of the land for the term, and on the conditions as to renewal and other terms, &c., mentioned in the lease. They must put out of consideration the fact – if it be a fact – that there are buildings or improvements on the land.
Question 8
In the case of the lease of the 30th of September, 1905, the like questions arise as to the interpretation of the words ‘the full and improved ground-rental of the said premises that ought to be payable during the said term.’
Answer
As to the questions raised in paragraph 8, we are of opinion that there is no difference in the mode that has to be followed in valuing the ground-rents under the third lease from that of the other two leases.
[30] The effective contention for the lessees, rejected by the Court, was that the valuation of the land had to be based on the particular use to which the land had been put – if there was a building, that determined the use for valuation purposes. The similarity to the present contention is apparent.
[31] DIC has been consistently followed without question in leases with a provision indistinguishable from the present. We were not referred to any authority in conflict with the basic proposition put forward by Mr Marshall for the lessor, and to apply it here does not run counter to the words of clauses 11 and 12 when viewed in the context of the lease as a whole.. The novel nature of the present situation does not justify a construction of those provisions which cannot withstand analysis as a general proposition.
Conclusion
[32] For the above reasons I would answer the question posed in the affirmative, and accordingly dismiss the appeal against the award of the arbitrator.
Result
[33] That being the view of the majority, the question posed to the Court is answered in the affirmative. The appeal against the award of the arbitrator is dismissed. The respondent is entitled to costs, which are fixed in the sum of $5000 together with reasonable disbursements as approved by the Registrar.
THOMAS J and BLANCHARD J
[34] The question in issue in this appeal is whether, in assessing a fair annual rent of land subject to a lease in perpetuity, an arbitrator should take into account the fact that the building on the land is listed as a heritage building in the local authority’s district plan.
[35] The question in issue was presented to us by Mr Hodder for the appellant as a seemingly irreconcilable tension between a view founded in pure theory on the one hand and a more pragmatic approach on the other. We have concluded that this description of the tension is overstated. In our view, as will emerge in this judgment, the case for the respondent accords with sound valuation theory, but it is not devoid of pragmatic or practical considerations.
[36] Having outlined the background facts, we propose to set out the arguments for both points of view before advancing the preferable answer.
The background facts
[37] The subject lease relates to a property on the corner of Waterloo Quay and Bunny Street, Wellington, opposite the Railway Station. On this site stands the Waterloo Hotel, once one of the capital’s finest establishments but now used for backpackers’ accommodation. The hotel was constructed in the art deco architectural style in 1937 soon after a lease of the land, then a railway reserve, had been granted by the Crown for a twenty-one year term with perpetual rights of renewal in the form of lease known as a Glasgow lease.
[38] The succeeding lease commenced on 1 April 1977. It was granted by Her Majesty the Queen to Lion Breweries Ltd. The lessor’s interest subsequently passed to the respondent, Waterloo Investments Ltd.
[39] The lease provides for the lessee to pay, in addition to the rental specified for the term, “all rates taxes charges assessments impositions and outgoings whatsoever”. It requires the lessee, before erecting any buildings or structures on the land, to submit plans to and obtain the approval of the lessor. Clause 6 provides:
THAT all buildings erected on the land hereby demised shall be erected in strict accordance with the building by-laws and regulations
of the local authority having control in the district where the demised land is situated and the general law for the time being in force.
[40] The lessee is made responsible for the repair of buildings and structures. It is not to subdivide the land without the consent of the lessor and is not to remove earth, clay, gravel, shingle or sand from the land “except so far as shall be necessary for the execution of improvement works...or the erection of buildings”.
[41] The following clauses are central to the case:
- THAT on the expiration by effluxion of time of the term hereby granted the Lessee shall have a right to obtain in accordance with the provisions hereinafter contained a renewed lease of the land hereby demised at a rent to be determined by valuation in accordance with the said provisions for the term of twenty-one (21) years computed from the expiration of the lease hereby granted and subject to the same covenants and provisions as this lease including this present provision for the renewal thereof and all provisions ancillary or in relation thereto.
[42] In 1994, and thus before the renewal date, the Wellington City Council notified its Proposed District Plan. The Plan provided for the heritage preservation of places or buildings “which possess historical, architectural, spiritual, social, traditional or other special cultural or natural significance”. One of the techniques used by the Council to ensure the preservation of such places or buildings is to identify, and list in a Schedule, places and buildings, including buildings or parts of buildings, considered to be “of significant heritage value”. The total or partial demolition, destruction, or removal of such buildings is a discretionary activity in terms of the Resource Management Act 1991 and so cannot occur without a resource consent under that Act.
[43] In 1995, after a hearing of the Heritage Hearing Committee of the Wellington City Council on a submission from the lessor seeking deletion of the building from the Schedule of Heritage Buildings, the Committee recommended that the north and east facades of the building should be listed on the Schedule. The Committee considered that “the Waterloo plays an important part in Wellington’s history and has significant streetscape value, while acting as an important element to this entrance of Wellington”. It also has a Category II listing under the Historic Places Act.
[44] The leasehold interest in the property was subsequently acquired by the current lessee, S & M Property Holdings Ltd, the appellant. The company has given a notice of renewal for 21 years from 1 April 1998, but has disputed the amount of the rent for that period. Although provision is made for arbitration by two arbitrators, or an umpire appointed by them, the parties agreed to submit their dispute to The Hon Sir Ian Barker QC, as sole arbitrator.
[45] Sir Ian Barker found that the highest and best use of the property was for an office, hotel or apartment block or a combination of those uses. The lessee argued that such a development is significantly restricted while the facades of the existing building remain protected by the heritage listing and that a resource consent to a proposal which would involve complete demolition of the old hotel may well be refused. It was claimed that this adverse factor would influence the mind of a notional prudent lessee in determining what rental to offer for the renewed term and so must be taken into account by the arbitrator. Sir Ian did not do so. He recorded the agreed position as follows:
Counsel acknowledged that, as an arbitrator, I am bound by the unreported decision of Williams J in Auckland City Council v Seg Holdings Ltd, (7 May 1996, CP 435/95, Auckland Registry). In that case, Williams J reviewed the decision of a legal arbitrator who had held that the heritage listing of a building should be taken into account when assessing the rent payable under a Glasgow lease. The Judge held that the arbitrator was wrong to say that the prudent lessee assessing the appropriate ground rent for the land could take the heritage listing into account.
Counsel for the Lessee submits that this judgment is incorrect. The parties therefore reserved a right of appeal from my award, even though I heard no argument on the correctness or otherwise of
Williams J’s judgment. Suffice it to say that, in making my award, I have accepted that the Seg Holdings case correctly states the law. If, subsequently, it turns out that that view is incorrect, then counsel are content that the matter be referred back to me for reassessment in the light of any ruling of the High Court or the Court of Appeal.
[46] The lessee then brought an appeal in the High Court in accordance with cl.5 of the Second Schedule to the Arbitration Act 1996 seeking a determination of the following question of law:
Whether clause 12 of the lease dated 30 July 1979, under which the respondent is now lessor and the appellant is now lessee, precludes a valuation of the ground rental payable under the lease from taking into account the impact of the heritage protections relating to the improvements on the land (here being the listing of the Waterloo Hotel building as a Heritage Building in the Wellington City Council’s Proposed District Scheme, and the registration of the building as a category II building by the New Zealand Historic Places Trust).
[47] By consent, the High Court ordered that the appeal be transferred to this Court as the question of law is effectively indistinguishable from the question decided by Williams J in Auckland City Council v Seg Holdings Ltd (High Court, Auckland, 7 May 1996, CP 435/95).
The Seg Holdings case
[48] Seg Holdings related to a property subject to a Glasgow lease on the Auckland waterfront. Had it been vacant, the lessee would have been able to erect a four-storey building on the land. But the site was occupied by the Old Wharf Police Station which was listed as Category 1 under the Historic Places Act 1980. It was thus protected against alteration or demolition. The lease had been granted under the Public Bodies Leases Act 1969 and provided that in making valuations for fixing rent on a renewal “no account should be taken of the value of any improvements now or hereafter erected or made on the land”.
[49] After reviewing numerous authorities, Williams J concluded that he was obliged to follow the formula stated by this Court in Drapery and General Importing
Company of New Zealand (Limited) v The Mayor, Etc., of Wellington (1912) 31 NZLR 598 at 605:
...the true basis on which the valuers must proceed is that there are no buildings or improvements on the land. They must ascertain what a prudent lessee would give for the ground-rent of the land for the term, and on the conditions as to renewal and other terms, etc, mentioned in the lease. They must put out of consideration the fact – if it be a fact – that there are buildings or improvements on the land.
[50] The learned Judge made the following observation:
...landlords which lease land by way of a ground lease do so expecting a lower return than if they leased both land and improvements but their risk is correspondingly lower. Land-owners who take the economic risk of effecting improvements to their land and then letting it out obtain a higher return in consequence. But amongst the risk for those who effect improvements to land is that as the improvements age and economic circumstances change, the chance increases that the improvements may become subject to increasingly onerous limitations on alteration, demolition or usage. Those may arise out of such factors as the imposition of a heritage listing, resource management limitations and increasing standards of access, egress and safety which the aging improvements may be incapable of meeting.
[51] The Judge concluded that the land must be valued as if it were bare, disregarding the buildings or improvements on it, and subject only to the terms of the lease:
What cannot be taken into account is the valuation of the improvements effected on that land and any limitations on usage of them. What must be valued is what a prudent lessee would offer for the land as so defined excluding the improvements but subject to the terms of the lease even though...that may bear little relation to the value of the land.
[52] Williams J therefore held that the arbitrator had been wrong to say that a prudent lessee in assessing the appropriate ground rent for the land on which the Old Wharf Police Station stood could take the Historic Places listing into account.
The argument for disregarding the heritage listing
[53] In pure theory, a ground rent is simply what it says it is, a rent for the ground. Buildings or improvements on the land and the use to which the land is put by the
lessee are disregarded so that a rent is assessed for the bare land. A hypothetical exercise is undertaken pursuant to which the land is valued at its highest and best use. Very commonly, because of the difficulty identifying comparable rentals, the rent is arrived at as a percentage of the resulting valuation by applying an appropriate rate of interest.
[54] In determining the highest and best use of the land regard is had to any encumbrances affecting the land, the location of the site, the infrastructure, zoning restrictions, the availability of services and utilities, and such other factors as may affect the site. It is as if the valuer for the willing but not eager lessee (or prudent lessee) stood on the opposite side of the road from the subject land and envisaged it devoid of buildings and improvements while everything around it and relating to it remained intact.
[55] On this basis, the heritage listing cannot affect the value of the land. It relates to the building and must be disregarded along with the building itself. Zoning provisions which relate to the land, as distinct from any designation relating to the building and improvements, are properly to be taken into account, such as, for example, a height restriction unrelated to a particular building. The highest and best use of the land is necessarily subject to such restrictions.
[56] As a matter of theory, it is argued, it is not to be assumed that the lessee must have the ability to carry out a development to the highest and best use. Reference to the highest and best use is part of a hypothetical exercise which is undertaken in order to arrive at the valuation of the bare land. It is therefore a fallacy, it is argued, to introduce into what is essentially a hypothetical exercise a legal impediment relating to the lessee’s ability to demolish or alter the building actually erected on the land.
[57] It is accepted, of course, that the ground rent must be valued having regard to the terms of the lease in order to give effect to the intention of the parties. In this instance, the lessor leased “all the ... land” (preamble to the lease). A valuation is to be made of the “fair annual rent of the land” (clause 11). In making that valuation no account is to be taken “of any buildings or improvements” on the land, but “the full
ground rental” that ought to be payable during the term of the lease is to be “fairly valued” (clause 12). In contrast, other clauses of the lease, such as clause 5 which confirms that the lessee is responsible for the design and erection of any building on the land, clause 6 which requires the lessee to erect the building in strict accordance with the bylaws and regulations of the local authority, and clause 7 which makes the lessee responsible for the maintenance of the building, confirm that the lessee is responsible for the buildings and improvements on the land.
[58] The lessee’s responsibility for buildings and improvements on the land provides justification for continuing to adopt the conventional approach. It is the lessee who chooses the design of the building and who is responsible for its erection and maintenance. The lessee obtains the rent from the building. Obtaining the benefit of the building, the lessee must take the risk relating to the building or the use of the building. It cannot have been the intention of the parties to the lease that the ground rent would be reduced or increased because the lessee’s design or the character, age, or use of the building has attracted a heritage listing. Nor can it have been intended that the rent would be affected if a heritage listing were to be imposed as a result of the building having been occupied by a person of historical significance or having been the venue of a notable historical event. Such a listing is of the same nature as a notice to demolish the building or a notice to strengthen the building to meet earthquake standards. Impediments of this kind may affect, but are not a consequence of, the value of the land.
[59] This approach accords with authority. In the DIC case, supra, this Court decided that, in valuing the ground rent, valuers are to proceed on the basis that there are no buildings or improvements on the land. They are to put out of consideration the fact, if it be a fact, that there are buildings or improvements on the land (at 605). The decision has been followed in a long line of cases. (See, e.g., in this Court In re Brechin and Drapery Importing Co Ltd [1928] NZGazLawRp 32; [1928] NZLR 241; Wellington City v National Bank of New Zealand Properties Ltd [1970] NZLR 660; Sextant Holdings Ltd v NZ Railways Corporation (1993) 2 NZ ConvC 191, 556; and Granadilla Ltd v Berben (CA 191/98, 10 March 1999)). Valuation practice has adhered to this prescription ever since. See Rodney L Jeffries, Vol 1, Urban Valuation in New
Zealand (2nd Ed – 1991) at 1-3. There is no justification for departing from this longstanding precedent and ensuing valuation practice.
The argument for having regard to the heritage listing
[60] The argument in favour of taking into account the heritage listing is pragmatically focused on the consequences of not doing so. If regard is not had to the listing the resulting ground rent is unrealistic, being beyond whatever a prudent lessee would pay.
[61] Critical to this argument is the proposition that the heritage status prevents the land being developed to its highest and best use in that the building cannot be demolished or altered. This proposition is based on the not unreasonable assumption that it should be open to the lessee to develop the land to that highest and best use, particularly as the ground rent is based on that use. Thus, any truly prudent lessee will necessarily have regard to the fact that there is a building on the land which is subject to a heritage listing. Market forces will require the lessee to do so.
[62] Such an approach, it is contended, is in accordance with the terms of the lease. The ground rent is to be a “fair” annual rent (clause 11). While no account is to be taken of the value of the buildings and improvements on the land, the ground rental is to be “fairly valued” (clause 12). A ground rent which ignores what can actually be done with the land is not a “fair” rent or a rent “fairly valued”. Moreover, what is to be disregarded by the terms of clause 12 is the “value” of any buildings or improvements. Consequently, the presence of the building with its heritage status is not to be ignored.
[63] On this argument, the heritage listing is to be taken to be a restriction on the land. Because of the listing, the land will never become vacant land unless the listing is reviewed or removed or the building is somehow demolished or destroyed. The listing therefore has the same significance and effect as a zoning provision. It also provides a restriction on what can be done with the land. Support for this argument is to be found in the provisions of the Historic Places Act 1993. Under s 5 of that Act a heritage order may relate to any historic place, including any “area of
land” surrounding the historic place necessary to ensure the protection and reasonable enjoyment of it. Section 6 provides that a heritage covenant to provide for the protection, conservation, and maintenance of a place, area or wahi tapu may be negotiated by the New Zealand Historic Places Trust. Subsection 7(b) defines “land” to mean the land to which the heritage covenant relates and includes the land on which a heritage building or structure is located. Under s 8 the covenant is deemed to be an instrument creating an interest in the land and may be registered on the title accordingly. The covenant then runs with the land. In such cases the restriction is registered against the land and it is then artificial to seek to maintain the difference between zoning provisions pertaining to the land and a heritage listing purportedly pertaining to the building. The fact that the listing may not have been registered against the land in the present case does not diminish the force of this point.
[64] It is accepted that the impact of the heritage constraint is a matter of fact to be determined by the arbitrator on the basis of the available evidence. Thus, the prospect of the heritage listing being removed or modified, or the building being demolished for reasons of health or safety, or being destroyed by a disaster, may require the figure which would otherwise represent the ground rent to be adjusted.
[65] While it is to be acknowledged that a measure of uncertainty and unpredictability would be introduced in this area, it is said that, if the Court were to depart from the formula laid down in the DIC case, the issue would arise in only a very few cases. Furthermore, the Court in the DIC case did not address the issue now before this Court. It is urged that the resulting lack of reality, by adhering to the formula in the DIC case, outweighs the value of that case as a precedent.
The preferable answer
[66] No compromise appears possible between the conflicting points of view. Either the valuer must have regard to the heritage listing or not. If regard is had to a heritage listing, cases will no doubt arise where the resulting ground rent represents a substantially reduced and, perhaps, even minimal return to the owner of the land, brought about through no fault of the lessor. Yet, if regard is not had to the listing,
the lessee may face an uneconomic rent but be unable to demolish the existing building and build to the highest and best use – or, at least, a higher and better use. Such a lessee may have no option but to decline to take up a renewal of the lease and so be forced to abandon the buildings and improvements without compensation.
[67] We have concluded, however, that the position advocated by the lessor must prevail. Valuation practice must certainly have regard to the practicalities of the situation under review, but it must also be anchored in sound valuation or economic theory if it is to survive as a discipline serving the ends of the commercial community. In a case such as the present, the theory can do this by providing the underlying rationale for a Glasgow lease. An analysis of that rationale points to the parties’ intention that the ground rent will be a rent fixed for the bare land without regard to the buildings or improvements. Lessees who as a result face an uneconomic situation must look to the general law of contract or to equity for such relief, if any, as may be their due.
[68] We propose to examine in turn the main issues which have emerged. We are led inexorably to the conclusion that the development and use of the land is to be at the risk of the lessee. The reasons accord with valuation theory, but are also essentially pragmatic. They provide the most practical solution for what is undoubtedly a difficult problem.
(1) The “ground rent”
[69] It is instructive to begin with the commonly accepted meaning of “ground rent”. The meaning ascribed to the concept in case law, judicial dictionaries and enactments of Parliament is wholly consistent with the exclusion of buildings from the calculation of the ground rent.
[70] In Bartlett v Salmon (1855) 1 Jur NR 277; [1855] EngR 763; 43 ER 1142, the Lord Chancellor, Lord Cranworth, stated: “The term ground rent is well understood and has a definite meaning: it is the sum paid by the owner or builder of houses for the use of land to be built on, and is therefore much under what it lets for when it has been built on.” [Emphasis added]. This definition is adopted in 27(1) Halsburys Laws of England
(4th Ed, 1994) para 212, p 202, ft 1. See also Hill & Redman’s, Law of Landlord and Tenant (18th Ed ) para E82. To the same effect is the definition of ground rent in Strouds Judicial Dictionary (5th Ed, 1986): “By the expression ‘ground rent’, if unexplained, is to be understood a rent less than the rack-rent of the premises; its proper meaning is the rent at which the land is let for the purpose of improvement by building.” [Emphasis added]. The same meaning has often been adopted when the expression has been used in statutes. For example, clause 1 of the Second Schedule of the Public Bodies Leases Act 1969 refers to the “... valuation of the fair annual ground rent of the said land, without the buildings or improvements so to be valued
...”. (See also clause 11). [Emphasis added]. Similarly in s 24 of the Landlord and Tenant (War Damage) Act 1939, (UK), a “ground lease” is; “a lease at a rent ... which does not substantially exceed the rent which a tenant might reasonably have been expected, at the commencement of the term created by the lease, to pay for the land comprised in the lease, excluding any buildings, for a term equal to the term created by the lease.” [Emphasis added]. While these references may not be conclusive as to the meaning of the phrase “ground rent” in the context of a particular lease, they ineluctably point to a commonly accepted meaning which has remained durable for over a century.
(2) The terms of the lease
[71] It is common ground, and beyond dispute, that a valuation of the ground rent is to be arrived at having regard to the terms of the lease. It is the primary method by which the intention of the parties is ascertained in respect of the valuation.
[72] Reading the particular provisions in issue in the context of the lease as a whole, we are left with the clear view that the parties intended the ground rent to be fixed without regard to the buildings and improvements. Initially, when it is first leased, the land is in its unimproved state and the parties clearly intend the ground rent to be the rent for the unimproved land. The lessor receives a return on the capital asset while the lessee obtains the benefit of an interest in the land renewable in perpetuity. That interest entitles the lessee to develop and use the land for its profit without being liable for an increase in the ground rent unrelated to the value of the land. We cannot see any sound reason to depart from that meaning, or why the
original intention should be regarded as having changed when buildings and improvements have been erected on the land and the lease falls due for renewal.
[73] Having obtained the leasehold interest, the lessee is able to develop the land as he or she sees fit. As the entrepreneur, the lessee obtains the benefit of the development or suffers the loss, if a loss accrues. This fundamental division between the owner’s reversionary interest and the lessee’s leasehold interest is reflected in the specific terms of the lease.
[74] Possibly too little attention was paid in argument to the fact that the lease in question is a lease in perpetuity. The owner of the land has parted with possession of the land for what is in reality an indefinite period. The rent fixed for the land at the time of the initial demise does not then fall due for review until the expiry of 21 years, and then every subsequent 21 years. The leasehold interest which is conferred on the lessee is in practical effect the maximum interest or tenure which, short of a transfer of the fee simple, could be conferred in respect of the land. Save for the provisions in the lease which are required to protect the owner’s reversionary interest, the lessee has the fullest possible use and enjoyment of that land. During the course of the tenure buildings may come and go and the use to which the land is put may change from time to time. None of these changes are able to be controlled by the owner who has reserved, in perpetuity, no more than a return in the nature of interest on a capital asset - the land. Consequently, the notion that at some stage in the development of the land, the owner or lessor should be affected by the impact of legal requirements relating to the particular buildings erected on the land by the lessee or the use to which those buildings are put is inconsistent with the basic concept of a lease in perpetuity. The owner’s reversionary interest in the land should not be devalued by the fate of the lessee’s buildings, whether they are subject to a demolition order, an order requiring them to be upgraded for health or safety reasons or, as in this instance, a heritage listing. Nor, of course, should the value of that interest be increased by the particular building which the lessee has erected.
[75] No significant weight can be attached to the argument that, before erecting any building the lessee is required to submit the plans of the building to the lessor for approval. The requirement that the lessee obtain the lessor’s approval to the building
is to be expected. In the first place, the bare residual freehold interest may attract statutory obligations to the lessor in respect of the use of the land. Secondly, the lessor has a direct interest in maintaining the value of the reversion should the lessee surrender the lease, or default in complying with its terms, thus permitting the lessor to re-enter. Thirdly, many, if not most, landowners who grant Glasgow leases own substantial blocks of land and have a direct interest in maintaining the value of their land as a whole. Consequently, the use of the subject land for a building may influence the value of the adjoining or surrounding land. If the value of that land increases, the increased value will in turn enhance the value of the subject land. See Tetzner v Colonial Sugar Refining Co Ltd [1958] AC 50. For these reasons we are satisfied that the requirement that the lessee obtain the lessor’s approval before erecting any building does not impinge upon the parties’ self-imposed demarcation between the land in its unimproved state and the lessee’s leasehold interest in that land. In any event, of course, the lessor could never reasonably have refused consent to the erection of the Waterloo Hotel.
[76] For the same reasons we are satisfied that it is not possible to read any significance into clause 24 which stipulates that, in the event a lease is not renewed, the land together with buildings and improvements is to revert to the lessor. In the circumstances, the lessor cannot be expected to pay for the building or improvements. Nor does the fact that the lessor cannot then demolish the building because of the heritage listing affect the concept of a ground rent. Rather, the lessor is placed in a situation of having to renegotiate a new lease or lease both the land and the listed building, subject no doubt to special conditions in the event that the listing is removed.
(3) Comparison with zoning
[77] A heritage listing can be properly distinguished from a zoning (or land-use) restriction. Shortly stated, the former pertains to the building, the latter to the land. Zoning restrictions affecting the land will define or limit the highest and best use of the land. A restriction on the building, as distinct from the land, does not affect the highest and best use of that land. Rather, it inhibits what the lessee can do with the particular building. In the case of a heritage listing, and in the absence of consent, it
prevents the lessee from demolishing or altering the building so as to develop the land to its highest and best use, but there is nothing relating to the land as such which has that effect. This point can be demonstrated by supposing that the building burns down or is otherwise destroyed. The restriction will no longer be applicable.
[78] Nor do we consider that the fact a heritage listing may affect an area of land and that a covenant negotiated with the Historic Places Trust may be registered on the title and run with the land should influence the position. By virtue of s 6(5) of the 1993 Act, a heritage covenant cannot be negotiated by the Trust, and therefore cannot be registered against the land, without the consent of the owner of the land. The owner’s position as lessor or licensor has been expressly protected by the legislature. This provision negates any inference which might otherwise be drawn from the fact that a heritage covenant is a registrable instrument. A heritage listing can never be registered without the consent of the lessor.
[79] A comparison of a heritage listing and land-use restrictions confirms the point emphasised by Mr Marshall and Ms Johnston, who appeared for the lessor, to the effect that the lessee is responsible for the building and has control over the design, style, character, maintenance, use and occupation of the building. It is the lessee who erects the building to a particular design, or determines who occupies it, and it is those features, or one of them, which attract the heritage listing, whether that listing is foreseen by the lessee or not.
[80] Moreover, any concession that the valuer could take the heritage listing into account would need to be qualified so as to except the situation where the lessee for its own purposes initiated or assented to the listing or, possibly, did not sufficiently oppose the listing when it was proposed. The valuation of the fair annual rent should not be burdened with considerations of this kind. Such questions require, or are likely to require, an adjudication inter partes which is beyond the scope of a valuation.
(4) The “presence” of the building
[81] We have little difficulty in rejecting the idea which permeated Mr Hodder’s submissions for the lessee to the effect that it is possible to have regard to the “presence” of the building without contravening clause 12. It is artificial to argue, as Mr Hodder sought to do, that the wording of clause 12 of the lease requires only the “value” of the building to be disregarded and allows the presence of the building and its impact on the ground rent to be taken into account. In the first place, the overall structure of the lease indicates that the parties are excluding from consideration the buildings and improvements and not just their “value”. If only the “value” were to be excluded, the presence of buildings which are not subject to any heritage restriction would be relevant to the valuation. This cannot be. The ground rent of a row of adjacent lots would vary depending on the differing costs of demolishing the various existing buildings on those lots. Secondly, the lease in issue was entered into following this Court’s decision in the DIC case. It is inconceivable that the parties entered into the lease without having regard to that authority and the fact it had been followed in many subsequent cases and applied regularly in practice. If it had been intended to vary the formula laid down in the DIC case the language of clause 12 would necessarily have been more explicit. Thirdly, there is something to be said for Mr Marshall’s argument to the effect that, in taking into account the heritage listing, the valuer would be impermissibly making an adjustment for the value of the building to which it attaches. The value of a building depends on the net rental which can be derived from it. If a heritage listing affects the rent, he argued, then it affects the value of the building. The listing may enhance the attractiveness of the building, or it may prevent alterations being made or make those alterations more costly, but in either case the value of the building is affected one way or the other.
[82] The significance and consequences of accepting Mr Hodder’s submission that it is permissible for valuers to take into account the “presence” of the building, but not its value may be emphasised. Once the presence of a building is relevant because of a heritage listing, there could be no logical reason why its presence should not be taken into account in other ways. Mr Hodder’s notional prudent lessee will be equally concerned to know whether a building is subject to a demolition or other order. That lessee would also be concerned with the cost of demolishing an existing building in order to develop the site. The higher the costs of demolition the
less valuable the site will be for development purposes. Not only would the notion of having regard to the presence of an existing building on the land lead to unacceptable discrepancies in the ground rent as between adjacent lots, but it would mean that a lessee who erected a substantial building on the land (assuming it still fell short of the highest and best use) would pay a lesser ground rent simply because of the higher demolition costs involved in a notional redevelopment.
(5) The market
[83] Throughout his submission Mr Hodder stressed that market forces are relevant to the question whether the heritage listing should be taken into account. He acknowledged that the erection of improvements is undertaken at the lessee’s risk. If a development is unattractive to the market, the hypothetical highest and best use exercise protects the lessor from the lessee’s difficulties. But if, he argued, the highest and best use is itself limited by the legal constraints, such constraints must adversely impact on the ground rent which the lessor can expect to receive. The same logic applies to height restrictions.
[84] We agree that in construing a rent review clause the valuer must bear in mind the normal commercial purpose of such a clause. See Basingstoke and Dean Borough Council v Host Group Ltd [1988] 1 All ER 824, at 828. But we do not agree that the commercial purpose of the clause emerges from Mr Hodder’s analysis. Indeed, his analysis begs the question. If it is intended that the land will be valued without regard to the buildings and improvements on it, then the market forces which are relevant are those which pertain to the vacant land. If, on the other hand, account is to be taken of the presence of the heritage listing in valuing the land, the market will be defined accordingly. Neither possibility points to the true meaning of clause 12 or the objective intention of the parties. A market exists for vacant land as well as for land subject to a restraint.
[85] The flaw in Mr Hodder’s argument appears from his ultimate claim that the same logic applies to heritage constraints as applies to height restrictions. Height restrictions are part of the zoning of the land and directly affect what can be done with the land to achieve its highest and best use. As already pointed out, a heritage
listing prevents the lessee from demolishing or altering the building so as to be able to build to the highest and best use, but it does not affect the highest and best use of the land.
(6) The use of the land
[86] A critical distinction exists between the land and the use of the land. It is this difference which points to the commercial purpose of rent review provisions in Glasgow leases. The Divisional Court of Ontario in Revenue Properties Co v Victoria University [1993] 101 DLR (4th) 172, pointed out that the lease in that case was a “net lease” in that the lessee assumed all obligations relating to the land and buildings, that is, it paid taxes and other expenses in connection with the property. The same is true of the lease in this case. The lessee is liable for all “rates, taxes, charges, assessments, impositions and outgoings whatsoever” (clause 2). Being a net lease, the obligation to pay rental is not dependent on the lessee’s ability to generate income. The lessor is immune from the fluctuations which may attach to the use of the subject property.
[87] This point is, perhaps, another way of saying that the parties intended that the risk associated with the development and use of the land is to be borne by the lessee. The land is leased to the lessee who then accepts what we would term the entrepreneurial risks associated with its development and use. The Divisional Court of Ontario in the Revenue Properties case quoted with approval the statement of an arbitrator pointing out that the fixing of rent for long term leases as a percentage of the market value of the land is a formula by which a conservative investor expects to receive, in return for accepting a “modest” return on his investment, a maximum of certainty and a minimum of risk. It was emphasised that nothing in the lease with which that arbitrator was concerned would benefit the landlord in any way, other than the rent, from the success, no matter how great, of the business ventures of the lessee (at 180). The lessee who obtains the rewards must also accept the risks inherent in his or her entrepreneurial activity on the site.
[88] The Court also said, and we agree, that it was the lessee who took the risk, either to its advantage or disadvantage, of future legislation relating to the building (at 184). Adams J in a concurring judgment added (at 187-188):
A landlord should not be benefited or burdened by development decisions independently made and paid for by a tenant lacking specific language [in the lease] demanding this result. Laws applicable because of the structures or developments erected upon the land are not to be taken into account in assessing fair market value unless the landlord, in leasing the land, required or made those specific development choices.
[89] This construction of a long term lease is to be preferred. The owner of the fee simple, as lessor, leases the vacant land and accepts a return which is equivalent to an interest rate on his or her capital asset. The rate is reviewed periodically to ensure that it remains a reasonable return on that capital asset. It is not affected by the use of the land, including such matters as whether the lessee’s income from the development of the land is great or small, or whether the lessee makes a loss. The risk accepted by the owner, as lessor, is limited accordingly. Conversely, the lessee accepts the entrepreneurial risk which follows from its decisions relating to the development and use of the land. This risk is accepted whether the lessee undertook the development, or decided on the use of the land, or the development and use was undertaken by a predecessor from whom the lessee has taken an assignment and paid for the improvements. Matters pertaining to the development and use, such as a heritage listing, fall within the scope of the entrepreneurial risk which the parties intended the lessee to bear.
(7) Finally, the DIC case
[90] Our conclusion is supported by the fact that the DIC case has stood as an authority since 1912. The formula laid down in that case was applied by the Court to a lease containing a provision very similar to that found in clause 12 of the present lease. It has been followed and applied in many cases since that time, and it has been acted and relied upon by lessors and lessees, and their valuers, in the intervening years on countless occasions. It is undoubtedly a precedent for the proposition that buildings and improvements on the subject land are to be ignored and that the valuation is to determine the value of the land in order to obtain the
ground rent. Notwithstanding the precedential force of this case, Mr Hodder urged the Court to depart from it. For the Court to do as he bids, we fear, would turn the doctrine of precedent on its ear.
[91] Mr Hodder acknowledged that, if his argument were to be accepted, it would create some uncertainty in the law. Nor could it be predicted what other circumstances might arise which would attract the same argument. We agree that this concession is fairly made by Mr Hodder. Notwithstanding his forceful argument to the contrary, the law and valuation practice has been settled and acted upon for far too long to be lightly turned aside. It is no answer, or no complete answer, to say that the uncertainty or lack of predictability would be limited to a relatively few cases when it cannot be readily foreseen where the inroad into the basic principle in question will lead. While not decisive, simply because it did not deal with the precise issue in this case, the DIC case must be regarded as a valid consideration in this case. It is one which favours the construction of the lease contended for by the lessor.
Result
[92] For these reasons we would dismiss the appeal.
TIPPING J
[93] In my view the issue in this appeal turns on a proper understanding and application of the concept of ground rental. The rent review provisions in this case have as their ultimate objective an assessment of what is the full ground rental for the demised premises. The earlier reference to fair annual rental must by dint of what follows be a reference to fair annual ground rental. In combination the concept with which the rent reviews are concerned is the full and fair annual ground rental. Ground rental is what is paid for the use of land for building purposes. Rental of land for building purposes has been the generally understood meaning of ground rental for well over 100 years.
[94] In Bartlett v Salmon [1855] EngR 849; (1855) 6 DE GM&G; 43 ER 1142, Lord Cranworth LC said:
The term ground rent is well understood and has a definite meaning: it is the sum paid by the owner or builder of houses for the use of land to build on, and it is therefore much under what it lets for when it has been built on.
[95] This meaning is confirmed in 4 Halsbury's Laws of England Vol 27(1) at 202, para 212. To the same effect are the definitions in Stroud's Judicial Dictionary (5th ed: 1986) Vol 2 at 1128 "rent at which land is let for the purpose of improvement by building" and in Words and Phrases legally defined (3rd ed, 1989) Vol 3 at 29 in reference to the term ground lease "rent ... for the land comprised in the lease, excluding any buildings ...".
[96] As the intended use of the land is for building purposes, ex hypothesi there are no buildings on the land. The same must be taken to be the position at each renewal because otherwise what is being assessed is not ground rental. Thus at each renewal the rental assessment must be approached on the basis of the highest and best use of the land, in terms of the lease, without any buildings on it. All factors relevant to the use of the land as land for building purposes must be brought to account. Obvious examples are zoning and height restrictions. They apply to the land as such.
[97] Restrictions which apply only by dint of there being buildings now on the land must be ignored; this is because for the purpose of assessing the ground rental the buildings are deemed not to be there. While the rent review provisions direct that the value of any buildings on the land must be ignored, it is necessarily implicit that the presence of the buildings must also be ignored. The specific reference to value is clearly for the avoidance of doubt. It lays no foundation for the view that while the value of the buildings must be ignored, their presence is a relevant factor in assessing the ground rental. So to hold would be inconsistent with the concept of assessing a ground rental. The appellants placed reliance on remarks of mine about the difference between presence and value of buildings in Sextant Holdings Ltd v NZ Railways Corp (1993) 2 NZ Conv. C 191, 556, 191, 568 CA. That case did not however involve ground rental.
[98] It follows that the heritage listing on the building in the present case can have no relevance to the rent review. The listing pertains only to the building. If the building were not there the heritage listing would itself not exist. The difference for present purposes between a heritage listing on a building and a zoning limitation affecting the use of the land as bare land leased for building purposes, is now apparent.
[99] The heritage listing does not exist for the purpose of assessing the ground rental, whereas the zoning does. This is clearly the basis upon which this Court proceeded in the DIC case (1912) 31 NZLR 598. Hence no material difference was seen in that case between the first and second clauses on the one hand, and the third on the other. Both principle and precedent support this approach to the concept of ground rental. The fundamental flaw in the appellant's argument lies in its failure to recognise that it is of the essence of assessing ground rental on a rent review that the presence of any buildings then on the land must be ignored. Any other interpretation of the concept of ground rental and the rent review provisions in this case, would undermine the basis upon which numerous leases such as the present must have been entered into over many years. Contractual expectations would thereby be defeated and much harm done to the stability of the law. I would dismiss the appeal.
Solicitors
Chapman Tripp Sheffield Young, Wellington, for Appellant Buddle Findlay, Wellington, for Respondent
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