Vallance v Vallance [2015] NZHC 957 (7 May 2015)

Last Updated: 14 May 2015

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2013-409-001572 [2015] NZHC 957

UNDER	the Property Law Act 2007
IN THE MATTER	of an application for a sale order pursuant to ss 339 to 343 Property Law Act 2007
BETWEEN	CLIVE CONWAY VALLANCE AND ROSS RAYMOND TEMPLETON AS TRUSTEES OF THE ESTATE OF ARNOLD RAYMOND VALLANCE Plaintiffs
AND	CHRISTOPHER JAMES VALLANCE Defendant

Hearing:	6 May 2015
Appearances:	P J Shamy for Plaintiffs J E Bayley for Defendant
Judgment:	7 May 2015

_{SECOND INTERIM JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

[1] The Court issued an interim judgment on this proceeding on 8 April 2014. The issues between the plaintiff estate and the defendant arise from their co- ownership of a property in Christchurch, in which the defendant resides. The plaintiff trustees in the estate wish to sell their interest in the property so that the estate may be distributed.

[2] After the judgment was issued the property was offered for sale by auction, but did not sell. Recently, the property has been valued, and a market value of

$390,000 has been assessed. Both the trustees and the defendant accept this figure, and both agree to an order being made that the defendant purchase the estate’s one

_{half share in the property for a figure based on half of this sum.}

VALLANCE and TEMPLETON v VALLANCE [2015] NZHC 957 [7 May 2015]

[3] The only issue between the parties in relation to this is whether there should be deducted from the market value, before dividing it in half in order to reach a sale price, a figure equating real estate agent’s commission, and a reasonable allowance for sale expenses. Counsel for Mr Vallance has calculated a sum of $20,288.25 for these items. The defendant is prepared to purchase the estate’s half share of the property, but the parties differ on the price that should be paid, because of the defendant’s wish to receive a credit against the purchase price for half of this sum.

[4] Mr Bayley says that expenses as assessed would be deducted if a real estate agent were instructed, and effected a sale, so the estate will receive more for its half share of the property if the defendant buys it, than it would if it was sold on the open market by an agent. An agent was originally instructed, by order of the Court, to endeavour to sell the property by auction, and subsequently by private treaty. Mr Bayley says it would be unfair for the defendant to have to pay a price based on the market value without a credit for the otherwise inevitable costs of sale.

[5] Mr Bayley notes that in Leary v Leary.¹ The Court, in dealing with the purchase by a wife of a husband’s share of a property, fixed the price taking into account the deduction of sale expenses. Mr Bayley correctly acknowledged, however, that there is authority to the contrary, subsequently.²

[6] Finally Mr Bayley notes that s 339(1)(c) of the Property Law Act 2007, which gives the Court jurisdiction to make the order now sought by both parties, empowers the Court to require a purchase by one co-owner “at a fair and reasonable price”. He says it is fair and reasonable that the price should be set taking into account the expenses the estate would otherwise have incurred.

[7] Mr Shamy referred me to Fisher on Relationship Property at paragraph 10.12 which contains the following passage:

The sum which a property would fetch if placed upon the open market for immediate sale or other form of realisation is still by far the most common basis for valuation in relationship property cases. Even in the case of real estate, however, it is not normal to make any deduction in value to allow for

¹ _{Leary v Leary (1986) 3 FRNZ 88.}

² DJT v ABT Family Court Tauranga, [2013] NZFC 2605.

real estate agent’s commission and other expenses of sale. Presumably this is because the property in question will usually be retained by one or the other spouse or one or the other de facto partner for the foreseeable future.

[8] Mr Shamy says that the position between the plaintiffs and the defendant as co-owners in the present case, should be resolved in the same way. He notes that in the valuation which the parties have both accepted there is no reference to deduction of commission or costs. It is an assessment of value based on a willing seller and a willing buyer. That is the position between the plaintiffs and the defendant, now, and the valuation should apply accordingly.

[9] I have formed a clear view that there should not be any allowance for commission or other sale expenses when fixing the price at which the defendant should purchase, under s 339(1)(c), for the following reasons:

(a) Neither commission nor marketing expenses have been incurred.

(b) The sale to Mr Vallance is at market value, so if he paid any less than the assessed value he would be buying at below market value.

(c) By buying at the assessed value he is not paying any more than he would if he were buying the property through a real estate agent.

(d) The effect of deducting a sum for notional commission and sale expenses would be that the estate would incur an expense which, by selling without the services of an agent, it does not in fact incur.

(e) The ultimate recipients of the bulk of the sale proceeds, no doubt after trustees’ costs of administration, will be the beneficiaries in the estate (which in fact includes the defendant). There is no reason why they should give a credit to the defendant, thus receiving a reduced payment from the estate when they have not in fact incurred an expense. A “fair and reasonable price” must be assessed after taking into account the interests of both seller and buyer.

[10] The result is that the orders to be made will require the defendant to purchase from the plaintiffs for one-half of the assessed market value, $195,000.

[11] As noted in the first interim judgment, there remain issues between the plaintiffs and the defendant in relation to the payment of occupation rent, because the defendant has been occupying the property without paying rent, and without being the owner of all of it.

[12] The occupation rent to be paid by the defendant for the estate’s half share of the property has not yet been assessed. Various assessments by real estate agents have been put before the Court. The present position is recorded in an order made on 6 June 2014. It was noted:

• In the interim judgment the Court directed that the defendant would pay an occupation rent, commencing three months after the date of death of the late Mrs Vallance and concluding on the date he either vacated the property (should it be sold) or the date of settlement of the defendant’s purchase (if he were to buy it). So far as quantum is concerned, I noted that the valuers would need to give evidence and be cross-examined, at a fixture to be allocated in due course.

• The Court went on to order that a sum of $32,760 was to be retained from the defendant’s share of the proceeds of sale pending final order of the Court on the issue of occupation rent. This sum was calculated for a period of three years by reference to figures given by valuers whose reports have been filed with the court, by counsel, for both the plaintiffs and the defendant. The way the sum was assessed is set out in more detail in a Minute issued on 26 May 2014.

[13] I sense a measure of agreement between counsel that the approach taken in that Minute to quantifying a figure was appropriate. The real difference between the parties stems from the fact that a Mr Brazier, an agent who advises the defendant, says that a market rent for the property would be at no more than 30 per cent of the rent it would otherwise be, because the property lacks certain chattels. The question of who owns the chattels in the property was determined in the first interim judgment.

[14] Whilst at the hearing I expressed to Mr Bayley some surprise at the extent of the deduction Mr Brazier assesses, I accept that neither his evidence nor any evidence from the agent advising the plaintiffs has been tested by cross-examination, and despite the apparent unlikelihood of the rent being just 30 per cent of the sum that it would otherwise be, the benefit must be given to the defendant in the meantime of any doubt that may arise in relation to that assessment.

[15] As can be seen from Mr Brazier’s report, the chattels which Mr Brazier notionally disregarded are a stove, fixed floor coverings, blinds, curtains, drapes, light fittings, a heat pump and a dishwasher, from inside the house and a greenhouse and a shed from the outside of the house. All of these items are in used condition. No rationale was expressed by Mr Brazier for his assessment, for example a return on the capital that might be expended if a tenant supplied second-hand items within these categories. This is an issue that would need to be explored with Mr Brazier and any valuer called for the trustees, if the question of occupation rent is not resolved by agreement.

[16] Section 339(4) of the Property Law Act 2007 provides that the Court may make a further order, when making an order under s 339(1). The further orders that may be made are set out in s 343. Section 343(f) provides that an order may be made requiring the payment by any person of a fair occupation rent for all or any part of the property. Section 343(g) permits the making of an order that provides for or requires any other matters or steps the Court may consider necessary or desirable as a consequence of the making of an order under s 339(1).

[17] In my view an order should be made for payment by the defendant of an interim sum by way of fair occupation rent when he takes title of the property. The sum should be assessed on the basis of Mr Brazier’s view of the discount to be applied, but this will not bind the plaintiffs or the Court, or for that matter the defendant, when the issue of occupation rent comes to be finally determined. It is simply a requirement that an interim payment be made. The reason for it stems from the financial position of the estate.

[18] According to counsel for the estate, after the estate’s share of the property has been sold for the sum now agreed, it is likely that the defendant’s share as a residuary beneficiary in the estate will be insufficient to pay the occupation rent that the Court assesses. Mr Shamy asks that the Court defer settlement of the sale to the defendant until the occupation rent has been finally assessed, and that the defendant then be required to pay the assessed occupation rent in full before he takes title.

[19] Proceeding that way, however, would in my view have results that are not appropriate. First, the estate would be out of pocket for longer, and in my view the beneficiaries of the estate, as a whole, are entitled to have this asset realised and issues in relation to that finalised.

[20] Secondly, the defendant would be continuing to pay rent which seems, on the evidence before me, to be some $230 per week for rental of the estate’s half share,³ less such discount as may be found to be appropriate. I am told that whilst he needs to borrow a modest sum to complete the purchase, he has funds of his own to contribute. There is a possibility that the rent he is found liable to pay will well exceed the cost of borrowing funds to settle.

[21] Thirdly, I do not have any calculations provided by the trustees to substantiate the prospect that occupation rent finally ordered would not be covered by the defendant’s share in the estate. There is an existing order preventing distribution to the defendant until the debt for occupation rent is quantified.⁴ And, as Mr Bayley points out, the defendant will have substantial equity in the property, so if there was a shortfall it could be recovered.

[22] I am not, therefore, prepared to defer settlement. However, it is appropriate to impose a condition that the defendant pay a provisional sum on account of rent. I have assessed this by reference to Mr Brazier’s evidence on rental, to give the maximum benefit of any doubt on this point to the defendant. He assesses occupation rent to 10 May 2014 at $54,513.33 with all the chattels listed being made

_{available. The rent which he found to then be current was $460 per week. I am not}

³ _{The last assessment of rent is $460 per week.}

⁴ Order 6 June 2014.

aware of any circumstance which would suggest that the market rent, now, should be less than that. Adding rent from 10 May 2014 to a date as close as practicable to the date on which settlement of the transfer will take place would add 53 weeks of rental, a total of $24,380. This means that total occupation rental for the property would amount to $78,893.33. Thirty per cent of that, using Mr Brazier’s discount, is

$23,667.99. The defendant’s half share of that is $11,833.

_Outcome

[23]	I ma (a)	ke the following orders: The defendant will purchase the share in the property of the plaintiffs
		for the sum of $195,000.
	(b)	Settlement of the purchase will take place 10 working days from the
		date of this judgment.
	(c)	In addition to the purchase price the defendant will pay the plaintiffs
		the sum of $11,833 on account of his final liability for occupation rent, which will be assessed by this Court (if not agreed) and may be more or
		less than that sum. In the event of it being less, the plaintiffs will, of course, be required to repay this sum to the defendant.
[24]	Cost	s continue to be reserved.

Procedural directions

[25] Final assessment of occupation rent, and of costs on this case, remain for determination. If the plaintiffs and the defendant are unable to reach some middle ground in relation to a fair occupation rent, it will be necessary for there to be a further half day fixture. Counsel are to advise the Court within 20 working days whether agreement has been reached, or whether a fixture for the purposes of assessing fair market rental will be required. On receipt of that memorandum, I will make directions if a fixture is required, for the provision of briefs of evidence, cross- examination, and oral submissions in relation to costs. If counsel resolve occupation

rental issues I will make directions for the provision of written submissions on costs,

_{which will then be dealt with on the papers.}

_{J G Matthews}

Associate Judge

Solicitors:

Hatherly Loughnan, Christchurch. Rhodes & Co, Christchurch.