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Brian Green Properties (1971) Limited v Bindon Holdings Limited [2017] NZCA 284 (6 July 2017)

Last Updated: 25 July 2017

IN THE COURT OF APPEAL OF NEW ZEALAND
BETWEEN
 Appellant
AND
 Respondent
Hearing:
9 May 2017
Court:
French, Miller and Clifford JJ
Counsel:
J W Maassen, M W G Riordan and R E Riddle for Appellant P B Churchman QC and J M Moran for Respondent
Judgment:


JUDGMENT OF THE COURT


A The application for leave to adduce further evidence is declined.
B The appeal is allowed.

  1. The matter is remitted to the High Court for further consideration on the basis set out in the judgment.
  1. The respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Clifford J)

Introduction

[1] Brian Green Properties (1971) Ltd leases land from Bindon Holdings Ltd in Dunedin, adjacent to that city’s new stadium (the Land). Bindon and Brian Green entered into that lease (the Lease) on 27 April 2009. In 2015 Bindon gave Brian Green notice of breach of a covenant in the Lease for maintenance and repair. Brian Green subsequently applied to the High Court for relief against forfeiture.
[2] The High Court granted Brian Green such relief, on condition that Brian Green undertake, by reference to what the Court saw as Brian Green’s obligations under the Lease, certain repairs to a building on the Land (the Building).[1]
[3] Brian Green says those repairs are not required of it under the Lease and therefore appeals that condition. At issue is the significance in these circumstances of s 223 of the Property Law Act 2007 (the 2007 Act).

Facts

[4] The Lease is a Glasgow lease. The Building is a warehouse. In the High Court, Dunningham J summarised the history of the Lease in the following helpful terms:

[5] The property is subject to a Glasgow lease. A description of such leases was given in Mandic v Cornwall Park Trustboard Inc as follows:

[25] Long-term ground leases (usually of 14 or 21 years) renewable in perpetuity with rent calculated either by an assessment of fair or market rent (or some similar concept) or, as in this case, as a percentage of a sum established pursuant to stipulated valuation exercises, are referred to as Glasgow leases. They were mainly put in place in the 19th and early 20th centuries. A Glasgow lease is, in economic substance, a bond which is revalorised every 14 or 21 years and secured against the demised land...

[26] Glasgow leases proceed on the basis that:

(a) increases in the value of the land due to extrinsic factors are for the lessor’s benefit; but

(b) the rent should not be fixed in relation to value due to improvements made by the lessee.

[6] The original lessor of this property was the Otago Harbour Board, and the Court was provided with the copies of the three leases which preceded the current lease and which commenced on 1 October 1945, 1 October 1966 and 1 October 1987 respectively. They all name the Otago Harbour Board as lessor. The last of these leases was signed on 14 March 1988 when the land was leased from the Otago Harbour Board to Smart Group Khyber Pass Properties Limited. This lease was for a term of 21 years from 1 October 1987, and expiring on 30 September 2008.

[7] In 1990, Smart Group Khyber Pass Properties Limited assigned the lease to Volumex Investment No. Nine Limited (Volumex). Mr Brian Green, the director of [Brian Green], was also the sole director of Volumex.

[8] Bindon purchased this, and other ground leases in the area, from the then lessor (being Chalmers Properties Limited, a subsidiary of Port Otago), in 2001. Shortly afterwards, Bindon’s consent was sought to the transfer of the lease from Volumex to [Brian Green]. The assignment of the lease to [Brian Green] was registered on 23 August 2001. It was at that point that the parties to these proceedings became the relevant lessor and lessee.

(Footnote omitted.)

[5] In February 2008 Brian Green gave notice of its wish to renew the then current lease. In April 2009 Bindon and Brian Green executed the Lease. As had been the case with all the prior leases, the Lease contained in cl 4 the following covenant of maintenance and repair:

That the lessee will during the said term keep and maintain in good and tenantable condition and repair all buildings, fences, erections and drains now or hereafter erected or laid upon or under the said land.

[6] In April 2015, having received an engineer’s report on the state of the Building, Bindon gave two notices of breach of Brian Green’s cl 4 obligations. One notice related to the condition of the roof, and gave Brian Green until 15 January 2016 to remove and replace the roof. The other notice addressed issues relating to the rest of the Building, and required a variety of repairs to be made by 16 November 2015.
[7] The service of those breach notices occasioned discussions between the parties as to whether one of them might purchase the other’s interest in the Land. At the same time, Brian Green disputed its liability to carry out the repairs required by Bindon.
[8] On 13 November 2015, three days before it was required to complete the general repairs to the Building, Brian Green applied to the High Court by way of originating application for relief against forfeiture. It did so on the basis that the timeframe within which Bindon required that work to be done was unreasonable. That was because, amongst other things, it owned the Building (the Lease being for ground rent only), there was a rent review in train and it was ready to carry out those repairs once the rent review had been completed. That is, Brian Green did not assert it had not breached the maintenance and repair covenant at all. Rather, and as the Judge put it, Brian Green acknowledged that the Building needed repair.[2] But, from its perspective, commercial reality dictated that any repair work be done after a new tenant had been signed up. Brian Green supported its application with an undertaking as to damages.
[9] On 17 November 2015 Bindon advised Brian Green of its intention to cancel the Lease. It said notice of cancellation would be served shortly. It would not look to unilaterally re-enter the premises, but would apply to the Court for orders for possession. Brian Green’s application for relief against forfeiture could be dealt with at the same time.
[10] Bindon filed its response to Brian Green’s originating application on 3 February 2016. By that time, the date for replacement of the roof had also passed. Bindon opposed the grant of relief on the basis that Brian Green was in breach of both notices to maintain and repair and had been given ample opportunity to remedy those breaches. The next day, by way of a separate originating application, Bindon applied to the High Court for formal orders for cancellation of the Lease and for vacant possession. Anticipating that both its opposition to relief against forfeiture and its applications for cancellation and vacant possession might not prevail, Bindon in the alternative sought orders requiring Brian Green to remedy the breaches, pay rent and provide security against the risk of it failing to remedy the breaches.
[11] The hearing before Dunningham J was conducted on the basis of affidavit evidence. The important aspects of that evidence for our purposes are:

The Judge’s decision

[12] The Judge identified three issues requiring resolution:[3]
[13] The Judge said the question of whether there had been a breach of the maintenance and repair covenant depended on whether the obligations under the covenant were referenced to the condition of the Building on 1 October 2008 (the commencement date of the Lease)[4] as Brian Green maintained, or whether those obligations should be referenced to an earlier time (for example 1990, when Mr Green’s company Volumex first leased the land) as Bindon maintained.[5]
[14] Addressing that issue, the Judge concluded that the Lease was a new lease, rather than a renewal of an existing lease.[6] As that aspect of the Judge’s reasoning is not challenged, we need consider it no further.
[15] On that basis, the question became the significance of s 223 of the 2007 Act, which came into force on 1 January 2008 and applies to all leases entered into after that date.[7] Section 223 provides:

223 Effect of covenant to keep premises in good condition

In a lease, unless the context otherwise requires, a covenant to keep leased premises in good condition (or words to that effect) does not require the lessee to put the premises into good condition if they are not in good condition when the term of the lease begins.

[16] The Judge acknowledged the purpose of s 223 was to negate the effect of the 1847 decision of the English Courts in Payne v Haine.[8] There it was held that an obligation to keep leased premises in good condition may include an obligation to put them in good condition, even if they were not in that condition at the commencement of the lease.[9]
[17] The real issue, the Judge reasoned, was whether s 223 could “stand in light of cl 11 of the lease”.[10] Clause 11 of the Lease provides:

That the covenants and provisions implied in leases by the Land Transfer Act 1952 and the Property Law Act 1952 or any amendment or re-enactment thereof[11] shall be negatived or modified in respect of this lease in so far as the same are or may be inconsistent with the modifications hereby made or the covenants and provisions herein expressed.

[18] Based on the decision of the Supreme Court in Mobil Oil New Zealand Ltd v Development Auckland Ltd,[12] of this Court in Cornwall Park Trust Board Inc v Chen[13] and of the High Court in BP Oil New Zealand Ltd v Ports of Auckland Ltd,[14] the Judge concluded:[15]

... The requirement contained in cl 4 of the lease to keep all improvements on the land in good and tenantable condition and repair would be rendered meaningless if, as here, the premises were not in good and tenantable condition at the time the term of the lease began and would therefore be inconsistent with s 223.

[19] Thus, the obligation in cl 4 was to be construed in accordance with the principles recognised in Cornwall Park. Whilst there was no obligation to put the Building in an “as new” condition, there were clearly deficiencies in the Building which would have to be rectified to put it in “good and tenantable” condition.[16] On that basis, the Judge concluded that a large proportion, if not all, of the repair work identified by Bindon was the obligation of Brian Green.[17]
[20] We can deal with the balance of the Judge’s reasoning more briefly, as it is not challenged in this appeal.
[21] The notices of cancellation were effective. In particular sub-pt 6 of pt 4 of the 2007 Act is a code. The issue raised by s 7(4) of the Contractual Remedies Act 1979 — whether a particular breach is substantial so as to provide a basis for cancellation — is no longer relevant to the question of cancellation. Rather, that issue goes to whether relief against forfeiture should be granted.[18]
[22] The Judge acknowledged relief against forfeiture was usually only granted to a lessee who had made good the breach, and was able and willing to fulfil its obligations in the future.[19] However, recognising the economic and legal significance of the terms of a Glasgow lease, the Judge reasoned that the primary risk to Bindon if Brian Green did not perform the covenant was that, at the conclusion of the Lease, a financial burden (the cost of implementing repairs or demolition) would fall on Bindon.[20] But Brian Green was in a sound financial position and continued to pay its rental.
[23] On that basis, the Judge concluded that it was appropriate to grant relief to Brian Green against forfeiture on one condition.[21] That condition was if the covenant to repair and maintain was not complied with within 24 months of the date of judgment, Brian Green was to provide security to Bindon in the sum of $1,549,000 “or such other sum as the parties agree or as is fixed by the Court”.[22]
[24] The Judge reserved leave to the parties to apply for further directions, particularly as regards the quantum of security to be provided.[23] This reflected the Judge’s reasoning that, if less than the cost of repair, the cost of demolition would be the appropriate measure of the security to be provided.

Respondent’s application to adduce fresh evidence

[25] As noted, part of the Judge’s reasoning in the High Court referenced the fact that Brian Green was both financially sound and continuing to meet its rental obligation in full. Bindon made an application to adduce further evidence in this appeal relating to a dispute between it and Brian Green on that very matter. In an affidavit in support, Ms Hagaman (a director of Bindon) explained that Brian Green was in default of its rental obligation as regards the period 1 October 2015 to 30 June 2016.
[26] Bindon said this additional evidence was both fresh and compelling, because it undercut that important element of the Judge’s reasoning. We do not agree.
[27] The evidence Ms Hagaman sought to introduce showed that Brian Green in fact tendered a cheque in payment for some of that rent (1 October 2015 to 31 December 2015) at the time it applied for relief against forfeiture. Notwithstanding the provisions of s 250 of the 2007 Act,[24] Bindon declined to accept that payment. It was not until 1 September 2016, following the release of Dunningham J’s decision, that Bindon invoiced Brian Green for that rent, and for the rent for the first six months of 2016. A dispute then arose as to the rent properly payable by Brian Green to Bindon during those nine months. In these circumstances, and whatever may be the outcome of the parties’ dispute as regards the rent owed for that period, we do not see it as being relevant to the resolution of this appeal. Accordingly, we decline Bindon’s application to adduce further evidence.

The appeal

[28] Between them, the parties identified a total of 20 issues to be determined. We are satisfied, however, that the principal issue is whether the Judge was right when she found that what would otherwise have been the effect of s 223 of the 2007 Act was excluded by cl 11 of the Lease.
[29] As we explain, we are satisfied the Judge’s conclusion on that point was wrong. We add that, in all other respects, we agree with the Judge’s reasoning and the relief she ordered, albeit on the basis of that error of law. The question then becomes one of the relief we should grant.

Submissions

[30] For Brian Green Mr Maassen argued, more than a little optimistically in our view, that in allowing the appeal we should simply quash the condition upon which relief against forfeiture was granted. Notwithstanding Brian Green’s apparent acceptance at trial that some repairs were required, making its relief subject to the performance of repairs or payment of security was inappropriate. Sub-part 6 of pt 4 of the 2007 Act was designed to provide parties to commercial leases with swift resolution of disputes in relation to cancellation and repossession. A lessor could bring a separate action for breach of contract, and seek appropriate remedies, where relief against forfeiture was granted.
[31] For Bindon, Mr Churchman QC formally supported the approach the Judge had taken to the interpretation of s 223. He placed greater emphasis, however, on his alternative argument — that the condition the Judge had placed on her grant of relief against forfeiture (which grant itself Bindon was not challenging) was nevertheless appropriate. Neither when applying for relief, nor on appeal, had Brian Green contended that it was not in breach of cl 4. The Judge’s condition, particularly when seen through the lens of the alternative of providing security in the lesser amount of the cost of demolition, would continue to be appropriate no matter what the Court might subsequently determine the extent of Brian Green’s maintenance and repair obligations to be.
[32] Both Mr Maassen and Mr Churchman did acknowledge, however, that if we concluded the Judge had erred as regards the application of s 223, our indication that the appropriate relief would be to refer the matter back to the High Court for further consideration was an outcome that had a measure of attraction. We consider that was a realistic acknowledgement, as otherwise fresh proceedings would inevitably be required to determine the proper extent of Brian Green’s current maintenance and repair obligations. Were we to decide upon that course of action both counsel further submitted it would be beneficial if we were to provide some guidance on the implication, in these circumstances, of the words “unless the context otherwise requires” found in s 223.

Analysis and outcome

[33] A covenant requiring a lessee to keep the leased premises in “good and tenantable repair” has since at least the enactment of the Property Law Act 1908, been implied by statute into leases — otherwise than of dwelling houses. At the same time provision has been made for parties to a lease to contract otherwise.
[34] When the Property Law Act 1952 (the 1952 Act) was enacted that implied covenant was referenced to the condition of the premises at the commencement of the lease. Section 106(b) of the 1952 Act provided:

That [the lessee] will, at all times during the continuance of the said lease, keep, and at the termination thereof yield up, the demised premises in good and tenantable repair, having regard to their condition at the commencement of the said lease, accidents and damage from fire, flood, lightning, storm, tempest, earthquake, and fair wear and tear (all without neglect or default of the lessee) excepted ...

[35] Section 68 of the 1952 Act provided for implied terms to be negatived. It read:

68 Implied covenants may be negatived

A covenant or power implied under this or any other Act shall have the same force and effect, and may be enforced in the same manner, as if it had been set out at length in the deed wherein it is implied:

Provided that any such covenant or power may be negatived, varied, or extended in the deed, or by a memorandum in writing endorsed thereon and executed as a deed is required to be executed by the parties to the deed intended to be bound thereby.

[36] Clause 11 of the Lease, set out at [17], effectively imports s 68 into the terms of the Lease itself.
[37] The introduction of the words “having regard to their condition at the commencement of the said lease” by the 1952 Act is generally understood as an attempt to ameliorate the effect of the decision in Payne v Haine.[25] The Law Commission recognised this in its 1991 Preliminary Paper on the 1952 Act when it commented:[26]

An obligation to keep premises in good condition may include an obligation to put them in good condition if they are not in that condition at the beginning of the term ... The requirement to have regard to the condition at the beginning of the term reduces the tenant’s exposure to this rather unfair rule. Where a landlord wants premises to be improved by the tenant there should, we think, be express agreement to that effect. Perhaps the rule [in Payne v Haine] itself should be negated.

(Emphasis added.)

[38] Following the passage of the 1952 Act, express clauses in leases, such as cl 4 of the Lease, were used by lessors to negative or modify that aspect of the s 106(b) implied clause. In Auckland Waterfront Development v Mobil Oil New Zealand Ltd this Court noted that a repair clause requiring the tenant to keep buildings and other improvements “in good and tenantable repair and condition to the reasonable satisfaction of the [lessor]” excluded the s 106(1)(b) covenant that would otherwise have required the demised premises to be kept and yielded up in good and tenantable repair having regard to their condition at the commencement of the lease.[27] A similar conclusion was reached in Cornwall Park.[28] Accordingly, in both those instances a lessee was required to improve the leased premises, relative to their condition at the commencement of the lease.
[39] The Judge’s conclusion that, to similar effect, s 223 was excluded by cl 11 of the Lease depends in the first instance on the implicit conclusion that the effect of s 223 is to imply a covenant into the Lease. That must be the case, given the wording of cl 11. As a matter of general law, and of interpretation of the words of s 223, that is where we differ from the Judge. In our view, s 223 is not a provision which implies a covenant. Rather, it is one which limits the effect of covenants like cl 4 of the Lease. Moreover, it does so here in the manner Brian Green asserts.
[40] That conclusion flows from the express terms of s 223, the broader context provided by the 2007 Act and its purposes and principles, and the relevant legislative history.[29]

The statutory scheme

[41] We start with the provisions implied into the Lease by the 2007 Act. Relevantly, s 219 provides:
  1. Covenant implied in leases (except unregistered short-term leases)

Every lease other than a short-term lease that is not registered contains the covenant set out in Part 3 of Schedule 3 (lessee to keep and yield up premises in existing condition).

[42] That “keep and yield up” covenant is found in cl 13 of sch 3 to the 2007 Act:

13 Lessee to keep and yield up premises in existing condition

(1) The lessee will,—

(a) at all times during the currency of the lease, keep the leased premises in the same condition that they were in when the term of the lease began; and

(b) at the termination of the lease, yield the leased premises in that condition.

[43] As can be seen, cl 13(1) would, more explicitly than was the case with the s 106(b) covenant under the 1952 Act, relieve a lessee from the effects of the decision in Payne v Haine.
[44] Section 217 of the 2007 Act allows parties to modify or vary implied terms by express agreement to the contrary:

217 Application of sections 218 to 220

Sections 218 to 220 apply, as the case requires, unless a contrary intention is expressed (whether in a lease or otherwise) in accordance with section 279(2) (construction and variation, etc, of implied covenants).

[45] Section 279, in turn, provides:

279 Construction and variation, etc, of implied covenants

(1) A covenant implied, by this Act or any other enactment, in an instrument or in a short-term lease not made in writing has the same force and effect, and may be enforced in the same way, as if it had been expressed in that instrument or short-term lease.
(2) However, the covenant may be negatived, varied, or extended—
[46] Clause 4 of the Lease is, fairly obviously, a clause which negatives or varies the implied “keep and yield up” covenant found in sch 3. Remember, cl 4 provides:

That the lessee will during the said term keep and maintain in good and tenantable condition and repair all buildings, fences, erections and drains now or hereafter erected or laid upon the said land.

[47] On its face, cl 4 provides maintenance and repair obligations similar to those interpreted in Payne v Haine as requiring a lessee to improve the leased premises.
[48] Turning now to s 223, it provides:

223 Effect of covenant to keep premises in good condition

In a lease, unless the context otherwise requires, a covenant to keep leased premises in good condition (or words to that effect) does not require the lessee to put the premises into good condition if they are not in good condition when the term of the lease begins.

[49] The words of s 223, and their plain meaning, speak for themselves. Clause 4 is clearly a covenant “to keep leased premises in good condition (or words to that effect)”. Clause 4 is the type of clause which is subject to s 223. Therefore, pursuant to s 223, and notwithstanding the words used, cl 4 does not require Brian Green to put the Building into good condition if it was not in good condition when the Lease began, unless the context otherwise requires.
[50] On that basis, the overall effect of these provisions in the 2007 Act is as follows:
[51] That analysis is supported by the 2007 Act’s legislative history.

The Law Commission report

[52] In the draft Bill the Law Commission prepared to accompany its 1994 final report cl 188 provided:[30]

188 Effect of covenant to keep premises in good condition

In a lease of land coming into operation on or after — 199- [date on which this Act comes into force], a covenant to keep the leased premises in good condition (or words to that effect) does not require the lessee to put the premises into good condition if they are not in good condition when the term of the lease begins.

[53] The commentary in that report on the draft Bill stated:[31]

This new section adopts the proposal in para 408 of NZLC PP16. At present an obligation to keep premises in good condition may include an obligation to put them in good condition if they are not in that condition at the beginning of the term: Payne v Haine [1847] EngR 246; (1847) 16 M & W 541, 153 ER 1304 (Exch). This rule is negated in leases coming into operation after the new Act comes into force. A covenant to keep leased premises in good condition (or words to that effect) will not require the lessee to put the premises into good condition if they are not in good condition when the term of the lease begins. However, this limitation can be overridden by express agreement of the parties concerning the repair work which must be done by the incoming lessee.

(Emphasis added.)

[54] The Law Commission’s intent could not be clearer.

The legislative process

[55] The Property Law Bill 2006 was introduced on 30 October 2006. Clause 222, which became s 223, read:

222 Effect of covenant to keep premises in good condition

In a lease, unless the context otherwise requires, a covenant to keep leased premises in good condition (or words to that effect) does not require the lessee to put the premises into good condition if they are not in good condition when the term of the lease begins.

[56] The explanatory note stated:[32]

Clause 222 provides that, unless otherwise agreed, a covenant to keep leased premises in good condition does not require the lessee to put the premises into good condition if they are not in good condition when the term of the lease begins.

[57] Thereafter, the wording of cl 222 was not changed throughout the legislative process, nor was there any further comment on that clause specifically. As so enacted, s 223 remains the same today.
[58] It would appear that the Law Commission’s overall intention was adopted, because:
[59] That is, cl 222 negates the rule in Payne v Haine, unless — to use the Law Commission’s phrase — “the parties agreed otherwise”, or — as provided in the statute — “the context otherwise requires”. We return to the meaning of the proviso below.
[60] For those reasons, and as indicated, we conclude the Judge was wrong to find that s 223 was excluded by cl 4 of the Lease. We allow Brian Green’s appeal to that extent. Implicit in that conclusion is our view that, by itself, cl 4 is not a provision which represents an “agreement otherwise” or which creates a “context that otherwise requires” in the terms of the proviso to s 223. To hold otherwise would be to rob the section of virtually any effect.

“Unless the context otherwise requires”

[61] We turn then to the significance of the phrase “unless the context otherwise requires” in s 223.
[62] As a matter of first impression, two interpretations of these words would appear to be available. The words “unless the context otherwise requires” appear in the interpretation section of almost every statute. There they typically qualify the introductory words “in this Act”. Thus the reference to “the context” is manifestly a reference to the use of a defined term within the statute, but in such a way, in such a context, that it is clear the specific definition does not apply. An immediate limit on the relevance of that interpretation is that s 223 does not prescribe a specific meaning to words. Rather, and as regards specific words and like words, it negates a common law rule regarding the construction of a lessee’s obligations. Having said that, the use of the common statutory phrase “unless the context otherwise requires”, here qualifying the introductory words “In a lease”, does suggest that the relevant context is provided by the words of the lease itself, rather than any broader, factual context relating to the parties and their dealings with each other.
[63] However, and to quite opposite effect, the phrase “unless the context otherwise requires” might be interpreted as a statutory mandate to look beyond the lease and, in the standard way of interpreting contracts, to have regard to the context provided by the factual matrix.
[64] The meaning to be attributed to this statutory phrase is also to be determined on the basis of the well-established principles of statutory interpretation.[33] Applying those principles, the words “unless the context otherwise requires” are, in our view, best interpreted as requiring there to be an express written agreement to the contrary recorded in the manner provided for in s 279.
[65] As already noted, s 217 provides for the limited range of implied covenants now provided by statute to be negatived, varied or extended by a contrary intention expressed in accordance with s 279(2). Section 279 requires such an agreement to be recorded in the express terms of the lease itself or in a written memorandum executed in the manner a lease is required to be executed. It would therefore be surprising if the express statutory effect of s 223 could be avoided, particularly given the statutory purposes and principles already referred to, by an agreement recorded in a less formal manner or for which the evidence is to be found in the factual matrix, rather than the words of a lease itself or a formal written memorandum.
[66] More generally, s 3 of the 2007 Act records the legislation’s overall purpose:

3 Purpose

The purpose of this Act is to restate, reform, and codify (in part) certain aspects of the law relating to real and personal property.

[67] Aspects of the legislative history enlarge on that purpose. The first point of note is that the 2007 Act was intended to make lessees’ obligations under leases accessible. The Law Commission Report stated:[34]

One of the most important objectives of the new Act is to set forth rules of property law accessibly and in a manner which, allowing for the subject matter, can readily be understood.

...

The purpose of the new Act [is] to make the law relating to real and personal property more accessible.

[68] A key aspect of accessibility was ensuring that the lessees’ obligations were expressly set out in the lease instrument. See, for instance, the comments in the Law Commission’s Preliminary Paper:[35]

Implied covenants may be something of a fall-back for people who have been unwise enough to proceed without any (or with incomplete) documentation. The range of implied covenants must be limited to those which would be appropriate in any circumstances as a means of filling in the gaps left by the parties. For this reason they are not particularly extensive or sophisticated. That must be left to persons drafting leases for particular circumstances and parties.

[69] That goal of accessibility, and also the related goal of certainty, were referred to in Parliament.
[70] During the Bill’s first reading on 14 November 2006 Hon Clayton Cosgrove (the then Associate Minister of Justice) stated:[36]

The Bill is based largely on the recommendations of the Law Commission report. It restates and clarifies the existing Act and includes some rules currently found in the general law or other Acts. There are a large number of small reforms to the rules that collectively will improve the effectiveness of the law. The Bill ensures that law relating to property is clear, accessible, and effective, so that it better meets the present and future needs of people such as property owners, lessees, and mortgagees”. The Bill provides certainty in property dealings ...

(Emphasis added.)

[71] The second reading took place on 11 September 2007. Hon Chris Carter (the then Minister of Conservation) stated that he hoped the Bill would:[37]

Usefully provide clarity in the law and enhance certainty in property dealings.

[72] Accessibility, clarity and certainty are all promoted where the proviso to s 223 is interpreted as requiring express, written, agreement.
[73] Academic commentary generally supports our conclusion.
[74] Tom Bennion’s New Zealand Land Law states:[38]

The lessee is frequently required to “keep” the premises in good repair, which could involve the premises being put into good repair first. Arguments as to whether the lessee was obliged to put the premises into a better state of repair than they were in at the start of the lease in this situation have now been largely rendered nugatory by the clear provision in s 223 Property Law Act 2007; that:

“In a lease, unless the context otherwise requires, a covenant to keep leased premises in good condition (or words to that effect) does not require the lessee to put the premises into good condition if they are not in good condition when the term of the lease begins.”

However, the context and words of the lease may require otherwise. For example, this (apparently) will not be so if the initial disrepair arose from an excepted cause of damage under the lease. If the lessee covenants to “maintain and keep” the premises in good repair, there may be an implication that the lessor has ensured they are in good repair at the outset.

(Footnotes omitted and emphasis added.)

[75] Hinde, McMorland and Sim Land Law in New Zealand states:[39]

The rule that an obligation to keep premises in good repair may include an obligation to put them in good repair if they are not in that condition at the beginning of the term is negated (unless the context otherwise requires) in leases that come into operation on or after 1 January 2008 by s 223 of the Property Law Act 2007.

[76] The authors go on to refer to the decision under appeal as being one where s 223 had been found to be excluded by an express term. We have already found that conclusion to be in error.
[77] Hinde, McMorland and Sim cites the New Zealand Law Commission Report in stating:[40]

It is noteworthy that the provisions of this section can be “overridden by express agreement of the parties concerning the repair work which must be done by the incoming lessee”.

(Footnotes omitted.)

[78] There may, we acknowledge, be circumstances — albeit likely to be rare — in which a context requiring otherwise in terms of the proviso could be provided by evidential material other than a s 279 agreement. The common law method avoids absolute categorisations. Having said that, we do think that it will undoubtedly become best practise for a lessor — who intends a lessee to have an obligation to put premises that are not, at the commencement of the lease, in a good or otherwise specified condition into that condition — to provide an express clause in the lease imposing that obligation. Not only is legal certainty promoted in that way, but that approach also ensures lessees properly understand the economic consequences of the lease contract. Both fairness and efficiency are thus promoted.
[79] We note that, subject to matters which we may not be aware of, the facts as we understand them here seem unlikely to lead to that rare conclusion.

Relief

[80] As indicated, the question then becomes one of relief.
[81] We agree with Dunningham J’s statement that the issue raised by s 7(4) of the Contractual Remedies Act — whether a breach is substantial — is no longer relevant to the question of cancellation (at least, when the lessor is seeking to cancel the lease).[41] Cancellation is no longer available under the Contractual Remedies Act. The question of whether the breach is substantial may be taken into account when the Court exercises its discretion to grant relief against forfeiture. Relief against forfeiture is an equitable remedy. As the Judge recognised, it has long been the case that relief will only be given where a lessee will make good the breach and is able and willing to fulfil his or her obligations in the future.[42] We also agree, therefore, with the structure of the relief the Judge granted Brian Green: that is, as a condition of its relief Brian Green be required to comply with its maintenance and repair obligation, or secure Bindon against its failure to so comply. What is now required is for this matter to be remitted to the High Court for the extent of Brian Green’s maintenance and repair obligations to be determined by reference to the condition the Building was in when the Lease commenced in 2008. Depending on that determination, the alternative relief of posted security, co-extensive with the estimated cost of demolition should the Building be in a more run-down state at the end of the Lease, may continue to be appropriate.

Result

[82] The application for leave to adduce further evidence is declined.
[83] The appeal is allowed.
[84] The matter is remitted to the High Court for further consideration on the basis set out in this judgment.
[85] The respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.






Solicitors:
Cooper Rapley, Palmerston North for Appellant
Meares Williams, Christchurch for Respondent

[1] Brian Green Properties (1971) Ltd v Bindon Holdings Ltd [2016] NZHC 1993, (2016) 17 NZCPR 637 at [90].

[2] At [24].

[3] At [3].

[4] The Lease was signed on 27 April 2009 but had retrospective application.

[5] Brian Green Properties (1971) Ltd v Bindon Holdings Ltd, above n 1, at [31].

[6] At [39].

[7] Property Law Act 2007, s 206(2).

[8] Payne v Haine [1847] EngR 246; (1847) 16 M & W 541, 153 ER 1304 (Exch). Payne v Haine was applied in New Zealand in Puhi Maihi v McLeod [1920] NZGazLawRp 29; [1920] NZLR 372 (SC).

[9] At 545 and 1306.

[10] Brian Green Properties (1971) Ltd v Bindon Holdings Ltd, above n 1, at [44].

[11] The 2007 Act is a re-enactment of the Property Law Act 1952.

[12] Mobil Oil New Zealand Ltd v Development Auckland Ltd [2016] NZSC 89, [2017] 1 NZLR 48.

[13] Cornwall Park Trust Board Inc v Chen [2016] NZCA 65, [2016] 2 NZLR 637.

[14] BP Oil New Zealand Ltd v Ports of Auckland Ltd [2004] 2 NZLR 208 (HC).

[15] Brian Green Properties (1971) Ltd v Bindon Holdings Ltd, above n 1, at [47].

[16] At [50].

[17] At [51].

[18] At [66].

[19] At [68].

[20] At [81].

[21] At [85].

[22] At [90].

[23] At [91].

[24] Section 250 provides that acceptance of rent by the lessor after notice of intention to cancel the lease is given does not operate as a waiver of the lessor’s rights.

[25] Payne v Haine, above n 8.

[26] Law Commission The Property Law Act 1952 (NZLC PP16, 1991) at 137.

[27] Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd [2015] NZCA 390, [2016] 2 NZLR 281 at [33].

[28] Cornwall Park Trust Board Inc v Chen, above n 13.

[29] Ross Carter Burrows and Carter Statute Law in New Zealand (5th ed, LexisNexis, Wellington, 2015) at 439.

[30] Law Commission A New Property Law Act (NZLC, R29, 1994) at 149.

[31] At 359.

[32] Property Law Bill 2006 (89-1) (explanatory note) at 39.

[33] See above at [40].

[34] Law Commission A New Property Law Act, above n 30, at 1 and 253.

[35] Law Commission The Property Law Act 1952, above n 26, at 135.

[36] (14 November 2006) 635 NZPD 6460.

[37] (11 September 2007) 642 NZPD 11763.

[38] Tom Bennion and others New Zealand Land Law (2nd ed, Thomson Reuters, Wellington, 2009) at [8.11.09].

[39] Hinde, McMorland and Sim Land Law in New Zealand (online looseleaf ed, LexisNexis) at [11.117].

[40] At [11.124].

[41] At [12.233].

[42] Brian Green Properties (1971) Ltd v Bindon Holdings Ltd, above n 1, at [68].

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