Paros Property Trust Limited v Faith [2014] NZHC 3155 (10 December 2014)

Last Updated: 19 December 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-1906 [2014] NZHC 3155

UNDER	Part 4 of the Property Law Act 2007
IN THE MATTER	of an application for an order for possession
BETWEEN	PAROS PROPERTY TRUST LIMITED Applicant
AND	PAUL MICHAEL FAITH Respondent

Hearing:	10 December 2014
Counsel:	D R Bigio and A J Steel for Applicant E J Grove for Respondent
Judgment:	10 December 2014

_{JUDGMENT (NO 2) OF FOGARTY J}

This judgment was delivered by me on 10 December 2014 at 4.30 p.m., pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ...............................

Solicitors:

Brown Partners, Auckland

Stewart & Associates, Alexandra

Chris Patterson Barrister Limited, Auckland

Copy to:

D AR Bigio, Auckland

PAROS PROPERTY TRUST LTD v FAITH [2014] NZHC 3155 [10 December 2014]

[1] On 13 November 2014, in the first judgment I declined the applicant’s order for possession and gave relief to the respondent lessee against forfeiture. I left unresolved the terms of the relief.

[2] In [64] of that judgment I set out proposed conditions, reserving leave to the parties to file submissions and seek a further hearing.

[3] I have received further submissions, considered them and had heard counsel this morning. Conditions (a) and (b) remain the same. Condition (c) is amended, other conditions added, and proposed condition (d) becomes (i):

(c) In response to both the late valuation of the rent and to the finding that the rental valuation did not address expressly the rent-setting formula in the lease, the lessor shall invoice the lessee at the rate of

$16,350 per annum, being the rental assessed by the lessee’s valuer (hereafter “the lessee’s rent”), pending the lessee electing to arbitrate or not. If the election to arbitrate is taken, the lessee’s rent is payable pending the outcome, but the arbitrated rental will be backdated to

25 January 2014. If arbitration is not elected, the lessor’s rental will

apply as from 25 January 2014.

(d) The lessee shall pay the difference between the old rent within ten working days of invoices issued pursuant to cl (c).

(e) Thereafter the lessee shall pay the lessee’s rent quarterly as provided

for under the lease until the arbitration decision is delivered.

(f) The new rent set by arbitration shall be backdated to 25 January 2014. (g) Each party shall pay the usual security of costs for the arbitration.

(h) There is leave to apply to the Court to resolve any dispute as to security for costs or in relation to the conduct of the arbitration.

(i) In the meantime the lease is not cancelled. There is leave to apply to renew the application for cancellation of lease depending on the response of the lessee to the preservation of his rights made above.

Reasons for amendments to proposed conditions

[4] Taking advantage of the leave, counsel for the applicant filed written submissions as to the conditions on which the Court would grant relief against forfeiture of the lease.

[5] Mr Bigio relied on a number of authorities making relief against forfeiture for non-payment of rent, which required the payment of arrears up to the time of the hearing, or adequate security. Counsel particularly relied upon the decision of Andrew v Horner¹ where Tipping J said:

It is a rare case, as I observed to counsel during the course of argument and this is uncontroversial in this field, where in a relief against forfeiture for non payment of rent situation relief is given without rent being paid up or at least secured.

[6] Counsel submitted that the lessee has adduced no evidence of his ability to pay any accrued ground rental and that there would inevitably be arrears as the lessee’s own valuer had assessed ground rental at $16,350 per annum. Counsel relied upon the dictum of Asher J in Q T Hospitality Ltd v Oxford Holdings Ltd² where Asher J said:

... it would be inequitable to place a landlord in a position where it was certain to face immediate serious defaults following the granting of relief.

[7] Counsel for the applicant also applied to remove proposed condition (b) which provides the lessee with the option of invoking arbitration of the rental. It was submitted it was unnecessary to do equity to resurrect this option to refer the ground rental to arbitration as delay in obtaining the valuation and setting the ground rental had already been accommodated by condition (a), deferring the application of the

_{new rent by two calendar months, until 25 January 2014.}

¹ _{Andrew v Horner HC Wellington M459/95, 16 November 1995 at 7.}

² Q T Hospitality Ltd v Oxford Holdings Ltd HC, Invercargill CIV-2007-425-178, 11 May 2007 at

[16].

[8] In reply, Mr Grove, for the respondent, sought to distinguish the appellant’s authorities on the facts, essentially contending that the merit issues were materially different. In contrast to those authorities, Mr Grove drew attention to criticisms made in the first judgment in this case as to the reasoning by which the lessor’s valuer derived the rental of $34,450 per annum which, although not being amenable to judicial review, justified testing in arbitration.

[9] In oral argument I elaborated that, to my mind, the 100 per cent difference between the suggested rentals of $16,000 and $34,000 respectively suggests either a significant difference as to the valuer’s assessment of relevant facts or a conceptual difference. Counsel agreed that the difference between the valuers is conceptual, going thereby as to the understanding of the standard to be applied rather than a difference as to facts.

[10] I observed in the course of argument that had the difference between the valuers being of an order of less than 10 – 15 per cent, I might well have acceded to Mr Bigio’s submissions that delaying payment of the new rental by two months would have been an adequate remedy.

[11] Given the disparity between the two rental numbers and the lost opportunity of the lessee to have that identified prior to the commencement of the second term, it seemed to me that the Court should facilitate an arbitration by granting a remedy in that regard, notwithstanding the expiry of the term of the lease setting a limited period of two months to elect to arbitrate or not. For the overall policy of the Court, as explained in the first judgment, is to secure for the lessor payment of the rental, being the principal benefit of the lease but otherwise lean against forfeiture of the lease.

[12] However, I agree with Mr Bigio that, in the circumstances, payment in the interim of the much lower old rental is insufficient. On any view of it, that rental was not going to survive into the new 21-year term. Accordingly, I essentially agreed with Mr Bigio’s argument that it was insufficient protection to the lessor that the lessee pay the old rent pending the result of an arbitration.

[13] Sensibly, Mr Bigio had indicated, in a further submission in reply to the Court, accommodating a measure of financial security by payment of the lessee’s preferred rent, observing that it could not be any lower.

[14] In the course of oral argument, I examined whether or not instead of the lessee making that payment, the lessor would be protected by the benefit of a higher rental value of the land should the lease be at an end by reason of recovering the full rental value of the property or being able to sell the property and recovering the value of improvements as well as the land value. Mr Bigio resisted that argument, noting that so far as he was aware there is no authority for that proposition. I agree there isn’t although, as I put to him, I was not aware of any forfeiture of a Glasgow lease by reason of non-payment of rent in circumstances where there was a genuine dispute as to the appropriate rental. In the end, however, it was my overall judgment that it was inequitable for the lessee to acknowledge an appropriate rental at $16,530 per annum but to decline to pay that rental while continuing to enjoy occupancy of the property and the benefits of the lease because the lessor was seeking $34,450 per annum. For these reasons, I have varied cl (b) and added the additional clauses as set out above. Clauses (a) and (b) are now confirmed.

[15] Costs are reserved.

[16] I would observe that both in respect of the first hearing, resulting in the first judgment, and in this judgment the outcome has been mixed for both parties. I am inclined to think that the costs of the proceedings so far should lie where they fall. Leave, however, continues for either party to apply for costs.