Tinline Properties (Canterbury) Ltd v Westfield Holdings Ltd [2012] NZHC 1067; [2012] ANZ ConvR 12-011 (17 May 2012)

Last Updated: 23 May 2012

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2010-409-2726 [2012] NZHC 1067

BETWEEN TINLINE PROPERTIES (CANTERBURY) LIMITED Plaintiff

AND WESTFIELD HOLDINGS LIMITED First Defendant

AND ALAN JOHN ROBERTS Second Defendant

Hearing: 7 May 2012

Counsel: M J Logan for Plaintiff

J Shingleton for Defendants

Judgment: 17 May 2012

_{JUDGMENT OF MILLER J}

Introduction

[1] A landlord sues its former tenant for rent accrued since the lease expired, claiming that the tenant held over or remained in occupation by allowing a subtenant to remain.

[2] Before the lease expired the tenant, Westfield, sold its business, a tavern, to Barrington Trading Ltd, which became a subtenant with the approval of the landlord, Tinline, and left the premises. On expiry Westfield elected not to renew the lease, but Barrington Trading remained in occupation. Barrington Trading agreed to pay rent direct to Tinline, but it never negotiated a new lease, and it vacated the premises

_{more than a year later, leaving a substantial shortfall in rent payments.}

TINLINE PROPERTIES (CANTERBURY) LIMITED V WESTFIELD HOLDINGS LIMITED HC CHCH CIV-

2010-409-2726 [17 May 2012]

[3] Tinline claims that on expiry Westfield still occupied the premises via its subtenant, so remains contractually liable for rent under a holding-over provision in the standard BOMA lease. Westfield denies that, and says that Tinline accepted Barrington Trading as its tenant. Those are the issues I must decide. The second defendant, Alan Roberts, Westfield’s director and guarantor of its obligations under the lease, accepts that if Westfield is liable so too is he.

The narrative

[4] The premises comprised a tavern called Robbie's Bar located in shops 40, 41 and 42 at the Barrington's shopping centre in Christchurch. Tinline has owned the premises at all material times. It engaged Colliers International Ltd to manage the centre. The tavern was one of several Robbie’s Bars developed by Westfield, which owned the fitout.

[5] The Westfield lease fixed a term of 10 years from 8 March 1999, specifying that the lease would expire at midnight on the expiry date, and granted one right of renewal for a further six years. It also provided in cl 2.2 that Westfield would remain liable to pay rent under a monthly tenancy should Tinline permit it to “continue to occupy” the premises beyond the expiry date:

If the Lessor permits the Lessee to continue to occupy the Premises beyond the Expiry Date the Lessee shall do so as a monthly tenant only at a rental payable monthly in advance, the first such payment to be made on the day following the Expiry Date and being equal to the total monthly payment payable to the Lessor in the period immediately preceding the Expiry Date. Such tenancy shall be determinable at any time by either party by one (1) month’s notice I writing but otherwise the tenancy shall continue on the same terms and conditions (so far as applicable to a monthly tenancy) as are herein contained.

[6] Around November 2008 Westfield sold the tavern, including the tenant’s fitout, to Barrington Trading. Westfield financed the purchase by lending Barrington Trading $490,000. This loan was to be serviced by monthly payments of $10,000 from pokie machines necessarily situated in the tavern for regulatory reasons and owned by a gaming trust.

[7] Tinline agreed to vary the lease to permit the sublease to Barrington Trading, and the three parties executed a deed of sublease about November 2008. It provided that the sublease would expire one day before the current term of the head lease, but contemplated that the sublease would be renewed with the head lease, ultimately expiring on 7 March 2015. Under the sublease Barrington Trading paid the rent to Westfield, which remained liable for rent and all other obligations under the head lease.

[8] Tinline’s consent was conditional on Westfield bringing rent payments, which were in arrears, up to date. That was done, but Westfield immediately fell into arrears again. Colliers approached Barrington Trading’s principal, Craig Saville, on 22 January 2009, inquiring when payment might be expected. The arrears were then $30,835. Mr Saville explained that he had paid rent to Westfield. He asked Colliers how much the rental and operating expenses were per month. Colliers suggested that the rent be paid direct to them, but in response Mr Saville simply referred them to Mr Roberts.

[9] On 6 March 2009 Tinline gave both Westfield and Barrington Trading notice that it intended to cancel the lease for nonpayment of rent. The lease was about to expire on 8 March. Tinline's principal, Steven Baigent, explained in evidence that he had the notice issued at that time to ensure the arrears were paid. It seems clear that Tinline was not in a particularly strong position, perhaps because it considered the tavern a valuable feature of the shopping centre. Certainly Mr Baigent wished to keep the tavern operating, with its pokie machines, and he was willing to negotiate a new lease with Barrington Trading or Westfield or anyone else who may have bought the business, although I also accept his evidence that he would have demanded commercial terms, including in Barrington Trading’s case a guarantee from Mr Saville.

[10] Mr Roberts e-mailed Colliers on the same day, 6 March, advising that:

I understand the lease between Westfield and Barrington Mall on Robbie’s

Bar and Bistro expires this month.

I do not wish to renew the lease, but I understand the new owner

Craig Saville will take up a new lease. I know the rent is currently in

arrears, but I am working on getting these paid, but things have been difficult recently.

Please advise actual expiry date so I can apportion the rent with Craig.

[11] Tim Raateland of Colliers responded by email, recommending that “this matter” be dealt with through solicitors as there were “several matters” that needed to be resolved.

[12] Mr Roberts wrote on 9 March to Tinline's solicitors, Pitt and Moore, responding to Tinline’s 6 March notice of intention to terminate. He advised:

I had sent an email to [Colliers] stating I would not renew the lease anyway which you will note on the fax expired on the 8th March 2009. I understand the current sub-tenant wishes to take up a renewal of the lease or a new lease. The current arrears of rent are not his doing it is entirely my problem. He also informs me the business is going ok and is involved in considerable upgrade work. I ask that he not be penalized over the current situation.

I actually have made some payments to the account. I have never defaulted

on any obligation in my life and will not do so this time. I can’t settle this in

10 days, but if you can allow me 30 days I will clear the lot and finish with my obligations of course I will also pay overdue interest.

[13] By letter of 31 March to Pitt and Moore Mr Roberts promised to pay the arrears of rent from the sale of a different Robbies Bar business, stating:

I refer to your notice of the 5 March 2009, as regards $39,000 owing in rent,

opex and costs from Robbie’s Barrington mall.

Please find enclosed a copy of a confirmed contract for the sale of Robbie’s Bar and Bistro, Cranford Street, which is to settle on the 20th April 2009. We will pay all arrears owing including the March rental and opex on settlement or within a day or so. Note we had been paying some payments not shown on your statement so we will need an update from [Colliers].

It is my understanding a new lease is being put in place with the new owner of Robbie’s Barrington and it will be his responsibility to pay all rent opex etc, from the 1st April 2009 and our obligation will cease from that point.

[14] Westfield did pay rent and operating expenses to 31 March 2009. Mr Roberts' undisputed evidence was that he paid until the end of the month, rather than the expiry date of the lease, by mistake.

[15] By e-mail dated 2 April the manager of the Barrington's shopping centre, a

Colliers employee, advised Colliers management that Barrington Trading would pay

the tavern rent from 1 April 2009 and requested an automatic payment authority for presentation to Barrington Trading. The automatic payment authority was forwarded to Barrington Trading by e-mail dated 19 April. Mr Saville asked whether it could pay the rent weekly, and Colliers agreed provided the payments were on an automatic payment basis. Mr Saville was asked to urgently make the April payment, which was invoiced to Barrington Trading, and to lodge the amended automatic payment authority with his bank. These arrangements did not involve Westfield.

[16] Mr Baigent appeared to suggest in evidence that Colliers lacked authority to arrange payment from Barrington Trading, since it amounted to selecting a new tenant, but I do not accept that. I think that Mr Baigent was debating the consequences in law of action that must have lain within Colliers’ authority as manager of the centre. Colliers conducted all routine dealings with tenants. I was not shown the terms of the agency, but it is a strange arrangement if it does not extend to getting the money in. I add that it was not suggested that anyone dealing with Colliers ought to have realised that its authority was so restricted.

[17] In the meantime, on 16 April 2009 Pitt and Moore had responded to Mr Roberts, advising that they had sought instructions and reserving Tinline’s position regarding a new lease with Barrington Trading:

We refer to your letter of 31 March 2009 received 6 April 2009. We have forwarded your letter to our client for instructions.

In the meantime, we note you state that it is your understanding that a new lease is being put in place with the new owner of Robbies, Barrringtons Shopping Centre. We are unsure about how you may have arrived at that understanding. Suffice to say, that we are not aware that any steps have been taken in respect of such a lease and we expressly reserve our client’s position in this regard.

[18] Neither Barrington Trading nor Tinline ever took any steps to negotiate a lease. Nor did Tinline seek vacant possession. Rather, it allowed Barrington Trading to remain in occupation. I record my findings that Mr Roberts had insisted the lease would not be renewed, notwithstanding Westfield’s continued economic interest in the pokie machines and the earlier understanding that it would be renewed, and that Tinline understood the lease had ended.

[19] Barrington Trading did not immediately honour its promise to pay rent, but Westfield was not told of this. Mr Roberts assumed that rent was being paid and Tinline had accepted Barrington Trading as the new tenant. To his surprise, Pitt and Moore wrote to him on 22 July 2009, asserting that Westfield was holding over, having failed to deliver vacant possession when the lease expired. Pitt and Moore explained that rent was in arrears and demanded payment.

[20] On 27 July 2009 Mr Roberts responded, stating that if Tinline would not enter a new lease and maintained that the existing lease continued then Westfield would exercise its right to assign the lease to Mr Saville or his company. He reiterated that Barrington Trading was to pay Tinline direct from the end of March. I accept that Mr Roberts was not here accepting that the lease remained on foot, or that Westfield was liable for rent.

[21] On 29 July 2009 Barrington Trading made its first rent payment into the account that Colliers had nominated. Thereafter it paid sporadically, but the arrears grew to more than $85,000 net of adjustments for operating expenses. Tinline has accounted for Barrington Trading’s payments by crediting them against Westfield’s liability.

[22] Until about November 2009 Westfield received regular payments under its vendor finance loan to Barrington Trading. At about that time Barrington Trading got into difficulty with the pokie machines. It was accused of failing to pay all the gross receipts to the gaming trust that owned the machines and distributed the proceeds, including Westfield’s share. So that he might deal with the regulator, the Department of Internal Affairs, Mr Roberts had Mr Saville appoint him a director of Barrington Trading for a time. His undisputed evidence, however, was that he had no interest in Barrington Trading and had not until then been in business with Mr Saville.

[23] By notice dated 4 June 2010 Colliers gave Barrington Trading one month’s notice terminating “your monthly tenancy”, although the notice also claimed that the tenancy had “continued on a holding over basis”. The notice, which Colliers copied to Westfield, required that the tavern fitout be removed and the premises made good.

Barrington Trading promptly vacated the premises, which Tinline has since redeveloped as, among other things, an off-licence.

The claim

[24] Tinline pleads that the lease term ended on 7 February 2009 but Westfield remained in occupation through its subtenant and so was liable for rent under cl 2.2 until Tinline terminated the monthly tenancy on 4 July 2010. I note for completeness that Tinline did not invoke ss 210 of the Property Law Act 2007, which provides that where a lessee remains in possession after expiry with the lessor’s consent, the lease is terminable at will on 20 working days’ notice, presumably because that section applies absent some other agreement and only if the tenant remains in possession. The amounts claimed are rent of $85,750.73 plus interest and solicitor-client costs of $53,671.28, which are payable under the lease.

[25] The defendants say that Westfield did not occupy the premises after the lease expired, so cl 2.2 does not apply. Westfield might be liable in damages for failing to yield vacant possession, but the case is not so framed and anyway Tinline accepted Barrington Trading as its tenant, so supplying Westfield with a defence to any such claim.

Did Westfield hold over?

Submissions

[26] Clause 2.2 provides that rent is payable “if the lessor permits the lessee to continue to occupy the premises beyond the expiry of the term....” Mr Shingleton cited the judgment of Gallen J in Cigna Life Insurance Ltd v the New Zealand Counties Investment Company Ltd,[1] which concerned an identical clause in a BOMA

_{lease, for the proposition that cl 2.2 contemplates physical enjoyment by the tenant,}

not the subtenant. He argued that the clause also envisages that continued occupation will be consensual, the tenant intending to remain and the landlord concurring. The landlord’s failure to object to the tenant remaining will not suffice. On the facts, Westfield was not in occupation and had no intention of resuming it.

[27] Mr Logan acknowledged that he must confront Cigna, but he argued that the judgment establishes only that a tenant does not necessarily hold over where its undertenant still occupies the premises when the head lease expires. The judgment is wrong if it holds that occupation requires physical possession; the term needs a broad interpretation, since a lease confers an interest in land and the landlord, who did not introduce the undertenant, is invariably the wronged party. Further, Gallen J recognised that holding over is a question of fact and Cigna is distinguishable on the facts.

A tenant’s liability for failing to deliver possession free of a subtenancy

[28] The authorities are few in number but seemingly settled in effect. They begin with Harding v Crethorn.[2] Premises had been sublet to an undertenant who remained in occupation when the head lease expired in June 1792. Lord Kenyon held that a tenant’s responsibility does not end on expiry, for the landlord is entitled to vacant possession and need not accept the undertenant. The issue was whether the landlord had accepted the undertenant as his tenant on expiry. Lord Kenyon held

that if he did so, by taking rent from the undertenant or some act tantamount to that, then the original tenant escaped liability. On the facts, the landlord had accepted the undertenant by witnessing a notice from the tenant ordering the undertenant to pay rent to him.

[29] Harding v Crethorn was an action in assumpsit for use and occupation. It did not establish on what footing the original tenant would have remained liable but for the landlord accepting the subtenant. That question arose in Henderson v Squire,

_{which concerned the lease of a house and outbuildings.}[3] _{When the lease expired an}

undertenant, Turner, occupied the ground floor. Evidently finding it congenial, he refused to leave. The tenant himself had retained a key for four weeks but paid money into court for that holding over, so the question was whether he remained liable for Turner’s continued occupation thereafter. The landlord sued for ejectment and for damages for failing to deliver vacant possession. At trial he secured ejectment but the Judge directed a verdict for the tenant on the damages claim.

[30] On appeal, the tenant asserted that Turner was not his agent but a mere wrongdoer. Rejecting that argument, Cockburn CJ cited Harding v Crethorn for the proposition that the tenant, having let the undertenant into possession, remained liable to deliver vacant possession to the landlord. Blackburn J appears to have accepted that liability rested on the tenant remaining in occupation, for he discerned in Harding v Crethorn the “artificial rule, that the lessee would be liable for rent not on an actual but constructive occupation by the undertenant holding over.” But the other members of the Court characterised the case as the breach of a contractual obligation to deliver vacant possession, for which the landlord should have damages, being a sum equivalent to the rent he had lost and the costs of ejectment.

[31] Harding v Crethorn has been invoked in three New Zealand cases for the proposition that on a lease expiring the tenant must deliver vacant possession, free of any subtenancy.[4] Of these cases only Cigna offers much assistance here. It concerned commercial premises which the tenant had vacated during the term, letting a small part to a subtenant, Mr Crawford, and leaving its fitout in place in the hope that it might assign the lease before the term ended. All concerned understood that the lease would expire with the term. The landlord and Mr Crawford held negotiations and agreed a draft lease, but the landlord refused to sign it until the head

lease expired. On expiry, Mr Crawford remained and the tenant’s fitout had not yet been removed. The tenant retained keys so its contractors could make good. Some time after that work was done the tenant realised that it had not cancelled its automatic payments for rent, and sued for the overpayment. The landlord

_{counterclaimed to retain it, alleging a monthly tenancy under cl 2.2 of the BOMA}

lease or s 105 of the Property Law Act 1952 (the predecessor to s 210 of the 2007

Act).

[32] Gallen J examined the authorities and held that an undertenant’s holding over may expose the tenant to damages for withholding possession, but it does not follow that the tenant itself remains in occupation so as to attract contractual liability for rent.

[33] One of several reasons that Gallen J gave for that conclusion was that cl 2.02 of the BOMA lease contemplates “a consensual continuation where there is on the one part a permission to remain and on the other, an intention to remain.” On the facts the tenant had not sought to remain, nor had the landlord positively consented. Gallen J also held that the undertenant’s continued occupation might sound in damages without necessarily evidencing an intention to extend the term of the head lease. Mr Crawford and the landlord had seen fit to negotiate their own arrangements and the tenant had insisted that it accepted no responsibility for him. If the landlord was unhappy about that, it ought to have said so.

[34] This case differs from Cigna. I find that Westfield explicitly sought permission for Barrington Trading to remain in occupation and Tinline implicitly granted it. The question is whether Barrington Trading’s occupation amounted in law to occupation by Westfield.

Does a tenant “occupy” premises through a subtenant holding over?

[35] Newcastle City Council v Royal Newcastle Hospital concerned 291 acres of virgin bush surrounding the grounds of an Australian public hospital serving tuberculosis patients.[5] The hospital, which owned the 291 acres, claimed an exemption from rates for land that it “used or occupied” for its purposes. The Privy Council found without difficulty that the hospital used the land, from which it purposely got fresh air, peace and quiet. Their Lordships offered observations about

_{occupation, stating that the hospital undoubtedly held legal possession, which}

follows title where no one else has possession, but legal possession is not synonymous with occupation, which is a question of fact. Their Lordships cited Pollock and Wright for the proposition that occupation exists only where as a factual matter the occupier has sufficient measure of control to exclude strangers, and only if something is actually done on the land. That text treated physical possession as synonymous with occupation, characterising it as a factual relation between a person and a thing. Occupation was contrasted with legal possession, which is substantially a question of law. Occupation may be precarious, vulnerable to being lost in various

ways, but it is nonetheless real while it lasts.[6]

[36] Newcastle City Council was not a tenancy case, but Martin Estates v Watt was.[7] It concerned barracks leased for police purposes to a receiver for the Royal Ulster Constabulary. On expiry the landlord moved for possession. The tenant resisted, citing legislation enacted to protect tenants of houses from disturbance in their occupation. He claimed to enjoy possession or occupation of the barracks. In the Court of Appeal Moore LJ, with whom Andrews LJ agreed, held that occupation means actual physical enjoyment:

Now “possession” as enjoyed by the owner of a house property or estate may mean either the user of it by some one else who is a sub-tenant, the rents and profits being received by the owner; or it may equally mean that the user may be exercised by the owner in whole or in part and in lieu of or in addition to mere receipt of profits. “Occupation” means that the owner is in actual physical enjoyment of the house, property or estate by himself, his agents or servants. Strictly speaking, “occupation” by the owner cannot include the case of sub-tenants for the actual occupation is in them.

[37] The Court concluded that the tenant, Mr Watt, was not in occupation by himself, nor was he in possession by his servants and agents, for the police who did occupy the barracks were not his servants. Further, the barracks was not a house for purposes of the legislation, although some police might live there.

[38] In Cigna Gallen J held that possession that may arise by operation of law is not synonymous with occupation, citing Newcastle City Council. Occupation is a

_{question of fact, and on the facts the tenant was not in occupation. Its failure to}

remove the fitout before expiry was not holding over but a breach of the obligation to make good. Nor, for the reasons given at [33] above, did it hold over through Mr Crawford’s continued occupation.

[39] I decline Mr Logan’s invitation to give “occupy” a more extensive meaning than the authorities require. Of course a tenant must ordinarily take responsibility for the subtenant which it put into possession, but the law achieves that by granting the landlord a remedy in damages for the tenant not delivering vacant possession. Clause 2.2 does not require departure from the customary meaning either. I respectfully agree with Gallen J that the clause addresses the case in which the tenant itself remains in occupation; it sets up a monthly tenancy and prescribes how that tenancy may be determined.

[40] Although counsel did not take this point, it also seems arguable that by accepting rent from Barrington Trading Tinline created a periodic tenancy between them. Such tenancy would seem incompatible with Westfield holding over through Barrington Trading, to which Tinline itself would have granted occupation of the premises.

Occupation on the facts of this case

[41] Did Westfield continue to occupy the premises in the sense used in the authorities? I conclude that it did not. It was not physically in occupation, while Barrington Trading was. It enjoyed no control over the premises, and it conducted no activity there itself. It had sold its fitout to Barrington Trading with the rest of the business, and its only remaining interest was that of an assignee of gaming proceeds associated with the premises.

Did Tinline accept Barrington Trading as its tenant?

[42] As noted above, Tinline framed its claim as an action for rent under cl 2.2, not as an action for damages for failing to yield vacant possesssion, but the issue was argued and I record my findings about it.

[43] Mr Shingleton recognised that, having left a subtenant in possession, Westfield would breach its obligation to give vacant possession on expiry unless Tinline accepted Barrington Trading as its tenant. Acceptance might be evidenced by some affirmative step such as taking rent from the new tenant. Leitch v NZ Transport Systems (1992) Ltd provides an example; in that case the landlord not only made it clear that the lease would not be renewed but made no demand for vacant possession and encouraged the subtenant to negotiate a new lease, reverting to the

tenant for rent only when the negotiations failed.[8]

[44] On the facts, Westfield invited Tinline to accept Barrington Trading as its tenant. Pitt and Moore were noncommittal in response, but Tinline accepted that the lease had come to an end, allowed Barrington Trading to remain in occupation, made no request for vacant possession, and did nothing to warn Westfield that Tinline considered it was holding over. Tinline behaved in that way because it wanted to retain the tavern in the shopping centre. Its agent Colliers arranged for Barrington Trading to pay the rent. But for that arrangement Tinline, which was by no means indifferent to unpaid rent, would have forced Westfield’s hand as it had earlier done by issuing the notice of termination on 6 March 2009. It matters not that Tinline subsequently did nothing to negotiate a lease with Barrington Trading. Only when Barrington Trading failed to pay did Tinline claim the rent from Westfield, four months later. Tinline thereafter accepted rent from Barrington Trading, prima facie

evidencing an intention to create a tenancy between them.[9] I find that Tinline

accepted Barrington Trading as tenant.

[45] It follows that Westfield would not be liable to Tinline in damages for failing to deliver vacant possession on termination.

Decision

[46] The defendants will have judgment with one set of costs, calculated on a 2B basis. Counsel must seek agreement. If that proves impossible, memoranda may be filed, Mr Shingleton’s within 6 weeks and Mr Logan’s within a further two.

Miller J

Solicitors:

Pitt & Moore, Nelson for Plaintiff

Malley & Co, Christchurch for Defendants

---

[1] Cigna Life Insurance New Zealand Ltd v New Zealand Counties Investment Company Ltd (1997)

3 NZ ConvC 193540 (HC).
[2] _{Harding v Crethorn (1973) 1 Esp 57, 170 ER 278.}
[3] Henderson v Squire LR 4 QB 170.

[4] Keats v Thompson [1939] NZLR 30; Cigna Life Insurance New Zealand Limited v New Zealand Counties Investment Company Ltd (1997) 3 NZ ConvC 192, 540 (HC); and Leitch v New Zealand Transport Systems (1992) Ltd [2003] DCR 138.

[5] Newcastle City Council v Royal Newcastle Hospital [1959] UKPCHCA 1; (1959) 100 CLR 1.
[6] _{Pollock and Wright Possession in the Common Law (Clarendon Press, Oxford, 1888).}
[7] The Martin Estates Company Ltd v Watt and Hunter 1925 NI LR 79.
[8] _{Leitch v New Zealand Transport Systems (1992) Ltd [2003] DCR 138.}

[9] Samson Trading Company Ltd v Did-Dell [1955] NZLR 970.