Wood Bay Enterprises Limited v Wise [2012] NZHC 1136 (24 May 2012)

Last Updated: 5 June 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-002502 [2012] NZHC 1136

IN THE MATTER OF section 253 of the Property Law Act 2007

BETWEEN WOOD BAY ENTERPRISES LIMITED Applicant

AND JOHN CHRISTOPHER WISE AND PAULINE WISE

Respondents

Hearing: 24 May 2012

Appearances: N A Farrands for the Applicant

G Collecutt for the Respondents

Judgment: 24 May 2012

_{ORAL JUDGMENT OF GILBERT J}

Solicitors: Morrison Kent, Auckland : [e-mail]

Simpson Dowsett Mackie, Auckland: [e-mail]

_{Copy: G Collecutt, Auckland: [e-mail]}

WOOD BAY ENTERPRISES LTD V WISE HC AK CIV 2012-404-002502 [24 May 2012]

Introduction

[1] The applicant, Wood Bay Enterprises Limited (Wood Bay) applies for relief against cancellation of a lease of premises from which it operated its store and cafe business in Huia. Wood Bay acknowledges that it failed to pay rent and that the respondent landlords, Mr and Mrs Wise, were entitled to cancel the lease because the rent was not paid following the expiry of a notice served pursuant to s 245 of the Property Law Act 2007 (PLA). However, Wood Bay contends that Mr and Mrs Wise did not validly exercise their right to cancel because they did not re-enter the land peaceably. Alternatively, if there was a valid cancellation, Wood Bay seeks relief against cancellation under s 253 of the PLA.

Background

[2] David Rankin is the sole director of Wood Bay. About 13 years ago he and his wife purchased the property at 1194 Huia Road, Huia. They leased the property to various tenants for about eight years until December 2007. Wood Bay has leased the property from that time until the events giving rise to the present dispute.

[3] In April 2010, Mr and Mrs Rankin sold the property to Mr and Mrs Wise, subject to a lease to Wood Bay. The deed of lease is in the Auckland District Law Society 5th edition 2008 standard form. The initial term of the lease is two years from 1 April 2010 but there are four rights of renewal of two years each, so that the final expiry date is 31 March 2020. The lease provides that written notice to renew the lease should be given at least three calendar months before the end of the term.

No notice was given in this case with the result that the lease expired on 31 March

2012. Thereafter, Wood Bay occupied the property as a monthly tenant.

[4] There is no dispute that Wood Bay has had difficulty meeting its obligations under the lease. Its first default was the short payment of rent on 9 August 2010. Since August 2010 Wood Bay has struggled to meet its commitments under the lease. Payments of rent have generally been made late. This caused difficulty for Mr and Mrs Wise because it left them with insufficient funds to meet their mortgage obligations. They were forced to borrow money from their respective parents to

avoid defaulting on their mortgage. In November 2011 the ANZ withdrew Wood Bay’s overdraft facility and applied EFTPOS receipts from the business towards repayment of the overdraft.

[5] On 1 December 2011, Mr and Mrs Wise served a notice on Wood Bay giving notice of their intention to cancel the lease unless the rental payments due on

1 November 2011 and 1 December 2011 were paid. The November rent was not paid until 19 December 2011 and the rent due on 1 December 2011 was not finally paid until 31 January 2012. By then, the rent due on 1 January 2012 had become due and the rent for February was due the following day.

[6] On or about 29 March 2012 Mr and Mrs Wise served Wood Bay with a notice under s 245 of the Property Law Act of their intention to cancel the lease for non- payment of rent. This notice expired without payment being made.

[7] No payments were made from 20 February 2012 until 9 May 2012, the day after the present proceeding was issued.

[8] By 20 April 2012, the arrears exceeded $13,000 which was equivalent to nearly four months’ rent. Mr and Mrs Wise decided that they would need to take steps to protect their financial position. They needed ongoing cash flow to service their mortgage. They investigated the options of finding an alternative tenant or taking over the business themselves. They wrote to Mr and Mrs Rankin on 20 April

2012 advising that the locks would be changed and asked them to access the premises only by arrangement with the Wises and to remove their belongings within seven days. They arranged for a locksmith to change the pin code for the premises that day. Mr and Mrs Wise state in their affidavits that they re-entered the premises that day.

[9] On 23 April 2012, Wood Bay’s solicitors wrote to the Wises’ solicitors acknowledging that the locks had been changed and the lease purportedly terminated. They sought restoration of their client’s access to the premises. The following day, Wood Bay’s solicitors wrote again to the Wises’ solicitors complaining that the Wises were undertaking activities in the premises that were

inconsistent with their client’s demand for restored access. The Wises responded through their counsel on 26 April that the lease had been cancelled and that all goods, stock and chattels belonging to Wood Bay should be removed by 5.00 pm the following day.

[10] At 4.00 pm on 27 April 2012, Mr Wise arranged to change the lock on the back door of the premises, effectively preventing the Rankins from gaining access to the premises. This prompted a letter from Wood Bay’s solicitors advising that the Rankins would not vacate the premises and that peaceable re-entry would not be permitted. They drew attention to s 91 of the Crimes Act 1961 and advised that proceedings seeking relief against cancellation would follow shortly.

[11] In these circumstances, Mr Wise attended the premises with Police officers at about 7.00 pm that evening and demanded that Mr Rankin vacate. Mr Rankin agreed to do so after being threatened with arrest.

[12] Mrs Wise resigned from her current employment at the end of April 2012 so that she could work in the business. Mr and Mrs Wise agreed to employ a lady by the name of Esmay Scott in the business and have entered into a tenancy agreement with her so that she can live in the upstairs accommodation at the premises. Ms Scott has started moving into the premises and her daughter has relocated to a local school. Mr and Mrs Wise also agreed to employ Mr Wise’s younger sister, Ruth May, in the business. She resigned from her employment in Perth, took her son out of day care, and has booked her flights to come to New Zealand.

[13] On 9 May 2012, Wood Bay paid the outstanding rental arrears, having secured bridging finance attracting an interest rate of 7% per month.

The application

[14] The present application was filed on 8 May 2012. The grounds of the application are:

(a) The re-entry was not peaceable and is accordingly invalid and of no effect;

(b) Alternatively, the rent having now been paid, relief against cancellation of the lease should be granted.

[15] Mr and Mrs Wise oppose the application on the basis that: (a) the re-entry was valid;

(b) they have entered into a tenancy agreement with a third party in respect of the upstairs accommodation at the premises;

(c) other third party rights have intervened and would be affected if relief is granted; and

(d) although they acknowledge that Wood Bay’s financial position is not hopeless, there is a substantial risk of continued default if relief is granted.

Peaceable re-entry

[16] Mr Farrands, for Wood Bay, submits that a lease can only be cancelled validly under s 244 of the PLA if there has been a peaceable re-entry or an order for possession of the land. He submitted that peaceable re-entry would be one achieved through co-operation with the tenants and without animosity or conflict.

[17] Mr Collecutt, for Mr and Mrs Wise, submitted that peaceable re-entry occurred in this case on 20 April 2012 when the key pad code was changed and Mr and Mrs Wise physically re-entered the premises. As a fall-back position, Mr Collecutt submitted that peaceable re-entry was achieved on the afternoon of

27 April 2012 when Mr Wise re-entered the premises. This was before the Police were asked to assist in evicting Mr Rankin at about 7.00 pm that evening. Mr Collecutt submitted that there is an important difference between a re-entry and an eviction.

[18] I agree with Mr Farrands that s 244 of the PLA anticipates that where peaceable re-entry of premises is not possible, lessors should apply to the Court for an order for possession. Clearly, breaches of the peace and forcible re-entry are unlawful and to be avoided. However, the critical issue for me to determine is whether peaceable re-entry was in fact achieved.

[19] Based on the evidence that has been provided, it appears that peaceable re- entry was effected on 20 April 2012. Mr and Mrs Wise both say that the pin code was changed by the locksmith and they re-entered the premises that day. There is no suggestion that such re-entry was not peaceable. Indeed, on 23 April 2012, Wood Bay’s solicitors acknowledged that the lease had purportedly been terminated and asked that access be restored. On 24 April 2012, Wood Bay’s solicitors wrote to the Wises’ solicitors confirming that the Wises were in the premises. It appears from this that they had re-entered without breaking the law or breaching the peace.

[20] In any event, I accept Mr Collecutt’s submission that peaceable re-entry was effected on 27 April 2012, if not before.

[21] Accordingly, I reject the first ground of Wood Bay’s application.

Should relief be granted?

[22] It has long been established that the right of forfeiture for non-payment of rent is security for the payment of rent. In all but exceptional circumstances, for example where a tenant is hopelessly insolvent, a tenant will be entitled to relief against forfeiture or cancellation of a lease upon payment of the rent. Mr Collecutt accepted this and he acknowledged that although Wood Bay’s financial position is weak, it is not hopelessly insolvent.

[23] However, Mr Collecutt submits that relief should not be granted in this case because third party rights have intervened. Mr Farrands acknowledged that the interests of third parties must be taken into account but he submitted that the discretion to grant relief should be exercised in Wood Bay’s favour because the

damage it will suffer, if relief is not granted, far outweighs any loss or inconvenience to third parties or the Wises.

[24] Despite the careful and comprehensive submissions made by Mr Farrands, I have come to the view that relief against cancellation of the lease should not be granted in this case. Ms Scott now has a tenancy agreement covering part of the premises. It is not possible to grant relief against forfeiture of Wood Bay’s lease without infringing Ms Scott’s occupation rights under this tenancy agreement.

[25] Further, the grant of relief would cause serious inconvenience to Ms Scott who has accepted employment with the Wises, has started moving into the premises and has relocated her daughter to a new school. Similarly, the grant of relief would seriously inconvenience Ms May, who has resigned from her employment in Perth, taken her son out of day care and arranged to come to New Zealand.

[26] These arrangements were made by Mr and Mrs Wise in an effort to recover from the difficult financial position they found themselves in as a result of Wood Bay’s default.

[27] I accept that Wood Bay may well suffer harm if relief is not granted. But, unlike the Wises and the third parties, it has brought this position on itself. I do not consider that it would be just for me to grant the indulgence sought by Wood Bay in the circumstances of this case, where to do so would inevitably inflict considerable disruption and inconvenience on innocent third parties.

[28] Accordingly, I have concluded that the application must be declined.

Result

[29] The application is dismissed.

[30] The respondents are entitled to costs on a category 2B basis which counsel have agreed amount to $10,152.

M A Gilbert J