Dawson & Maudsley Limited v McClune HC Rotorua CIV-2011-463-000145 [2011] NZHC 773 (12 July 2011)

Last Updated: 2 August 2011

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

_{CIV-2011-463-000145}

BETWEEN DAWSON & MAUDSLEY LIMITED Appellant

AND JOAN PATSY MCCLUNE, TERENCE JAMES HIBBITT, JOHN ROBERT MCCLUNE AND WALTER HOLLAND MILICICH AS TRUSTEES OF THE MCCLUNE PROPERTIES TRUST Respondents

Hearing: 11 July 2011

Appearances: J H Olphert for Appellant

B P Rooney for Respondents

Judgment: 12 July 2011

_{JUDGMENT OF WHATA J}

This judgment was delivered by Justice Whata on

12 July 2011 at 4.00 p.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

Olphert & Associates Ltd, PO Box 1717, Rotorua 3040

Neumegen & Co., PO Box 99 680, Newmarket, Auckland

Copy to:

B P Rooney, PO Box 3320, Shortland Street, Auckland

DAWSON & MAUDSLEY LIMITED V MCCLUNE AS TRUSTEES OF THE MCCLUNE PROPERTIES TRUST HC ROT CIV-2011-463-000145 12 July 2011

[1] This is an appeal from a decision of the District Court concerning the interpretation of a lease and the interpretation of a letter purporting to notify a lessee of a rent review.

[2] The appellant in this case contends that the respondent lessor (“the Trust”) did not issue a proper notice of rent review. It contends that the letter puporting to give notice was in fact a unilateral demand to vary the lease terms by seeking to impose a separate rent for the car parks only.

[3] The Trust responds that the letter was plainly a notice of rent review – it says as much, and specifies the proposed increase and why.

[4] The District Court agreed. The Judge reasoned that objectively the letter on its face was notice of a rent review; the reference to car parks endeavoured to explain how the proposed increase was arrived at; this interpretation was supported by the appellant’s correspondence and the appellant director’s evidence under cross- examination.

[5] The appellant appeals on the basis that the District Court Judge erred in law, and that the letter was notice of a unilateral variation to the terms of the lease. It says that the Trust proceeded on the erroneous basis that the car parks were not part of the lease and could be levied separately. The appellant thus contends:

... any purported right to charge for car parks separately would have to be noted in the lease document.

Facts

[6] Under the lease:

THE LANDLORD leases to the Tenant and the Tenant takes on lease the

premises and the carparks (if any) described in the First Schedule ...

[7] The First Schedule refers:

PREMISES: All that the retail premises located at 21

Horomatangi Street, Taupo

CARPARKS: 4 carparks

[8] The subject lease then provides:

2.1 THE annual rent payable as from each rent review date shall be determined as follows:

(a) Either party may not earlier than 3 months prior to a rent review date and not later than the next rent review date give written notice to the other party specifying the annual rent proposed as the current market rent as at the relevant rent review date.

(b) If the party receiving the notice (“the Recipient”) gives written notice to the party giving the notice (“the Initiator”) within 1 month after receipt of the Initiator’s notice disputing the annual rent proposed and specifying the annual rent proposed by the Recipient as the current market rent, then the new rent shall be determined in accordance with clause 2.2.

[9] The lease also states:

2.2 IMMEDIATELY following receipt by the Initiator of the Recipient’s notice the parties shall endeavour to agree upon the current market rent, but if agreement is not reached within 14 days then the new rent may be determined either:

(a) By one party giving written notice to the other requiring the new rent to be determined by arbitration, or

(b) If the parties so agree by registered valuers acting as experts and not as arbitrators as follows:

(a) Each party shall appoint a valuer and give written notice of the appointment to the other party within 14 days of the parties agreeing to so determine the new rent ...

[10] On 3 September 2004, within the requisite timeframe, the Trust wrote to the appellant in the following terms:

There is a rent review due on 3 September 2004 and our client now seeks a rental increase at the rate of $12.00 per week plus GST in respect of each of the car parks.

You currently have four car parks which will mean an increase of $2,496.00 per annum plus GST of $312.00 per annum making a total of $2,808.00 per annum.

This amounts to an increase of $234.00 per month. This is due as from 3

September. Could you please forward direct to our client for the increase in rental for the month of September and arrange for your automatic payments

to be increased from 3 October.

[11] The appellant responded:

We refer to your letter of 3 September 2004 to our above-mentioned client received by our client on 17 September 2004.

The car parks are not leased separately. Accordingly, your letter is taken as notice that your client requires an increase in the total annual rental for the premises, including the car parks.

Please note that our client does not believe that market conditions justify an increase in rental. Accordingly, please take this as our client’s notice of objection pursuant to clause 2.1(b) of the lease. We look forward to hearing from you in this regard.

[12] It is unclear whether the Trust actually received this letter, but Mr Rooney properly accepted the appellant’s previous solicitor’s representation that it was sent on 30 September. This meant that the letter was deemed to be received within the requisite timeframe under the lease.

[13] The wider backdrop to this is that the Trust refused to consent to an assignment of the lease without payment of the increased rentals and other outgoings. The appellant also sought damages for losses arising from that refusal, as the assignment did not proceed.

[14] There were various other matters raised in the District Court. No appeal has been lodged against them and, save in respect of the interpretation of the appellant’s response to the letter of rent review, they are not germaine to the central issue.

The issue

[15] The appellant framed the central issue in this case in the following terms:

Simply put, did the letter of 3 September 2004 give notice of a value rent review or was it an attempt by the respondents to unilaterally vary the terms of the lease.

[16] Both parties have usefully cited authorities dealing with the interpretation of leases and correspondence purporting to give notice of rent reviews.

[17] I am most attracted to the approach taken by Fisher J in Trace Investments Ltd v Prince’s Wharf Property Fund Ltd.[1] That involved a letter that did not specify the rent considered by the landlord to be the current market rent as at the review date. It did state a proposed rental of $53,000 per annum plus GST. In finding that this was sufficient, Fisher J usefully stated:

[13] In a similar context Barker J said in Attorney-General v Davis

(Auckland, CL 13/95, 6 June 1995) at p 7:

The trigger letter is to be read objectively; an assessment has to be made whether a lessee receiving the letter would necessarily and reasonably have inferred that it was an effective trigger notice for the purposes of the lease.

I respectfully agree. The letter is to be looked at objectively. The reactions of Trace Investments are not of legal consequence. One is to assume an ordinary sensible commercial reader looking at the document as a whole. We are not concerned with the reactions of a legal pedant or frustrated English teacher. I have no doubt at all that this letter conveyed to Trace Investments the view of Prince’s Wharf that the current market rental was $53,000 per annum plus GST and that was intended to trigger a review in terms of cl 2.1.

[18] Returning to the present facts, the letter records:

There is a rent review due on 3 September and our client now seeks a rental increase at the rate of $12 per week plus GST in respect of each of the car parks.

[19] It also says:

You currently have four car parks which will mean an increase of $2,496.00 per annum plus GST of $312.00 per annum making a total of $2,808.00 per annum.

[20] It concludes on this point:

This amounts to an increase of $234.00 per month. This is due from 3

September. Could you please forward direct to our client for the increase in rental for the month of September and arrange for your automatic payments

to be increased from 3 October.

[21] I agree with the Trust and the Judge that an ordinary sensible commercial reader looking at the document as a whole would treat this as a notice of rent review.

It transpires that that is exactly what the appellant did. Apparently, the director of the appellant said as much under cross-examination:

Q ... that’s what (the respondents’) letter did, you accept that, don’t you? The landlord gave you notice of a proposed increase in the rent.

A. ... yes of the proposed and we made an objection.

[22] The appellant nevertheless says that by separating out the car parks the Trust was in effect seeking to vary the lease so as to separately levy them. The appellant says that cannot be right, because they already form part of the leasehold. It follows that any attempt to treat them separately was outside the strict rent review process contemplated by the lease.

[23] I consider that the appellant confuses two things, namely notice to vary the terms to separately levy car parks, with notice to increase the rental repayment in respect of the car parks. The Trust’s letter falls squarely into the second category.

[24] This, however, begs a different question. Was the letter valid insofar as it purported to increase the rental in respect of the car parks only? I consider that it was not. As the appellant and respondent correctly say, correspondence dealing with rent reviews must be precise and strictly accord with the rent review provisions. The rent applies to both the premises and the car parks. It does not treat them separately for the purpose of annual rent reviews.

[25] Returning to the 3 September rent review letter, and assuming an ordinary sensible commercial reader looking at the document as a whole, it plainly purports to increase the rent in respect of the car parks only. It breaks the rental increase down to a per car park, per week, per month and per annum basis. No mention is made of the premises.

[26] How then should the Court treat this letter? As Associate Judge Faire said in the Freehold Properties[2] case, the notice provisions must strictly accord with the

requirements of the lease. Here, the Trust was required to “specify the annual rent proposed as the current market rent as at the relevant date ...”.

[27] What the landlord in fact did was specify the increased rent for the car parks. The letter left unsaid what the market rent for the premises as a whole might be. We are left to assume that it did not change. But that is not a proper basis for triggering a rent review. The point was made by Robertson J in Stiassney & Stiassney v ANZ Banking Group (NZ) Ltd[3] (a case cited properly, by the respondent). The case involved a notice letter on remarkably similar terms to the present, namely:

“I would also like to take the opportunity to inform you that your lease was up for rental review on 19 June 1994. I obtained a valuation from Hardy Shalders Restall Ltd (copy of which is enclosed). This valuation shows an increase for the ground floor banking area. Your previous rental for the ground floor area was only $70,473.00 per annum plus GST and now the valuation suggests for the ground floor area, the rental should be $85,890.00 plus GST.

Please make arrangements to alter your direct payment to $14,791.22 per month including GST from 19 September 1994 and in the meantime please send us a cheque for the difference for the period until 19 September 1994 which is $4,336.05.”

[28] Robertson J then concluded in respect of that letter:

When the legal jargon is stripped away, the essential requirement of the lessor’s notice under clause 3.04(a) is that it specify the new annual rental proposed for the whole of the premises. Such a sum must be what the lessor considers to be the current market rental of the total premises. The notice does not need to expressly state that the sum proposed is, in the lessor’s opinion, the current market rental.

[29] I note for completeness that the lease condition in that case referred to “specify the new annual rental proposed by the lessor which the lessor considers is or will be the current market rent of the premises as at the date of the review specified in the notice”.

[30] It might be said that the specific reference to the “premises” in that clause is a

_{point of distinction. However, in the present case, the annual rent can only relate to}

the premises and the car parks. There is no provision, as I have said, for separate reviews in respect of them. I do not consider any distinction therefore to be material.

[31] By parity of reasoning therefore, the Trust was obliged to specify the new annual rent for the premises and the car parks as a whole. It could not by way of notice of rent review isolate one part of the rental property only.

[32] It might be said that this is an unduly legalistic approach of the interpretation. But it was the exact same approach adopted by the Trust to defeat the appellant’s notice of objection. As recorded in the judgment of Judge Spiller at [13]:

... However, the plaintiff’s letter of 30 September 2004 only disputed the annual rent proposed, and did not specify the annual rent proposed by the recipient as the current market rent (clause 2.1, paragraph (b)). The plaintiff’s failure to specify an alternative rent meant that the plaintiff did not comply with the requirements of the notice in response to the proposed rent review.

[33] With that in mind, the following observation of Robertson J resonates in this context as well:

When one views the attitude and approach which the lessor’s advisers took to the lessee’s letter in response, one can well understand why a strict approach was called for. The lessor cannot have it both ways. Either it will act with formality, precision, and exactitude itself and require the same of others, or sensible pragmatism will prevail across the board.

[34] I note for completeness that it is not clear to me that this observation was put to Judge Spiller.

[35] Accordingly, in my view the notice of rent review was defective insofar as it purported to give notice of rent review in relation to the car parks only. While this did not amount to a purported variation of the lease terms, it was defective for the purposes of giving notice under clause 2.1(a). It should have expressly dealt with the premises at the same time.

Relief

[36] I am reluctant to refer this matter back to the District Court for a determination as to any residual liability, either on the part of the appellant or on the part of the respondents, without first hearing from counsel. My reluctance drives from the fact that I have resolved this matter only indirectly in response to the appeal notice. While I am comfortable that that resolution falls broadly within the frame of the appeal notice and addressed in argument, the question of the appropriate relief was not fully ventilated with counsel. In this regard, I tend to accepting the point made by the respondent that refusing consent to the assignment (which is the underlying dispute), was justified by reference to liability for outgoings and other such costs. The District Court found in the Trust’s favour on those outgoings and costs. That finding has not been appealed and therefore the District Court would have very limited, if any, jurisdiction to explore the question of damages on the refusal to assign. Given this, I prefer to afford the parties opportunity to agree relief and failing that to file submissions on relief within 14 days of this judgment.

Costs

_{[37] I reserve costs pending resolution on the question of relief.}

Whata J

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[1] Trace Investments Ltd v Prince’s Wharf Property Fund Ltd HC Auckland CL 13/02, 5 July 2002

[2] Freehold Properties (Investments) LLP v Bridgeway Projects Ltd (HC Auckland CIV-2009-404-

7660, 6 May 2010).

[3] Stiassney & Stiassney v ANZ Banking Group (NZ) Ltd HC Auckland M 1132/95, 26 February 1996.