Logmao v Valdrez [2016] NZHC 315 (1 March 2016)

Last Updated: 3 March 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-2727 [2016] NZHC 315

UNDER	the Land Transfer Act 1952
IN THE MATTER OF	Caveat no.10202257.1
BETWEEN	MA CHRISTINE ROXANNE LOGMAO Applicant
AND	JUAN VALDREZ AND ROSCELI VALDREZ Respondents

Hearing:	18 February 2016
Appearances:	A Gilchrist for Applicant S G Rhind for Respondents
Judgment:	1 March 2016

_{JUDGMENT OF ASSOCIATE JUDGE R M BELL}

This judgment was delivered by me on 1 March 2016 at 4:00pm

Pursuant to Rule 11.5 of the High Court Rules

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Registrar/Deputy Registrar

Solicitors:

R J Burton, Papakura, for Applicant

Rice Craig, Papakura, for Respondents

Counsel:

Andrew Gilchrist, Auckland, for Applicant

LOGMAO v VALDREZ [2016] NZHC 315 [1 March 2016]

[1] The applicant applies under s 145A of the Land Transfer Act 1952 for an order sustaining caveat 10202257.1 lodged against the title to the property at 8A Nelson Street, Papakura, Auckland, a cross lease title, Lot 6 DP17400 identifier NA66B/947. The interest claimed in the caveat is “as purchaser pursuant to an agreement to purchase dated 20/12/2012”. The caveat was lodged on 25 September

2015.

[2] The applicant and her husband are Filipinos who migrated to New Zealand. The respondents are also Filipinos who migrated to New Zealand, but they have now moved to South Australia. In 2012 they were neighbours. The respondents owned the property at 8A Nelson Street, Papakura. The applicant and her husband lived next door at 10B Nelson Street. The respondents moved to Australia at the end of

2012. Before they left, they entered into a rent to own contract with the applicant. She relies on that agreement to claim her interest under the caveat. In opposition to the caveat application the respondents say that she did not exercise her rights under the agreement in time. They have given her notice requiring her to leave the premises.

[3] In applications to sustain caveats under s 145A of the Land Transfer Act, the caveator has the onus of showing a reasonably arguable case for the interest claimed. The interest must come within s 137(1) of the Act. A personal or contractual right is not enough: the caveator must show an entitlement to or beneficial interest in the land in the caveat. Something more than a potential interest is required. Caveat applications are summary and therefore not suited for deciding disputed questions of fact. On the other hand the court is not required to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be. For a caveat to lapse it must be patently clear that the caveat cannot stand because there was no ground for lodging it at the time it was lodged or because any such ground no longer exists. The court has a residual discretion not to uphold a

caveat but that is exercised cautiously, as when the caveat could serve no useful purpose or alternative safeguards are available.¹

The rent to own agreement

[4] Mrs Logmao and Mrs Valdrez signed the rent to own contract on

20 December 2012. The agreement was prepared without any legal assistance, although Mrs Logmao says that she worked off a document she had downloaded from the internet. Mrs Logmao is named as the buyer and Mrs Valdrez as the seller. The property is identified by its street address but not by any other property description. The purchase price of the property is $365,000. In addition, the buyer is to pay the seller’s monthly mortgage instalments (described as a range of

$905-$947 fortnightly).

[5] The agreement includes these provisions. Clause 4:

The seller hereby grants the Buyer the option to purchase the Property. The Seller agrees that he/she will not attempt the sale of the property to any other party while this rent to own contract is in effect. The Buyer should buy the house as soon as they have the capability to do so. It is also agreed upon that maximum date that the Buyer can buy the house is when the Buyer’s kiwi saver can already be used for the purchased.

Clause 5:

CONDITIONS OF THE CONTRACT

The Seller has the right to terminate the contract if the buyer fails to pay the

monthly mortgage of Seller’s house. If the house is not purchased in

8 months time the buyer will have to pay half of the housing rates that the seller is paying depending on the statement given quarterly until they have

purchased the house.

The Seller gives permission to the buyer to have the rooms rented by a third party and gives full authority to the buyer in continuing the third party rent or terminating the third party rent when they deemed necessary to do so.

The Buyer should be responsible for all water bills, electric bills, lawn maintenance and any subscription that they my utilize in the property.

The Buyer can make amendment to improve the condition of the house; any major changes should still be permitted by the Seller while the house is not yet sold.

¹ S v XYZ Ltd [2016] NZHC 26 at [5].

Clause 7 (in part):

CLOSING AND SETTLEMENT

If the Buyer chooses to exercise his/her option to purchase, the Seller shall transfer the title free of any liens judgment or any other encumbrances.

...

Clause 9:

REMEDIES UPON DEFAULT

If the Buyer defaults on the terms and conditions of this rent to own contract or the lease agreement, the Seller shall have the right to terminate this rent to own rent to own agreement [sic] by giving written notice of termination. The Buyer shall then leave the property in 1 month time and shall be responsible for the weekly mortgage of the house until their last week of stay in the premise.

[6] There is also an entire agreement clause which also provides that any variation must be in writing and signed by both parties.

The attempted exercise of the option

[7] Mrs Logmao and her family, including her husband, have occupied the property ever since. They have tried to sell a property in the Philippines to provide finance for the purchase but so far that property has not sold. Under the KiwiSaver scheme Mrs Logmao became eligible to withdraw funds for the purchase in 2014. Her husband did not however become eligible to withdraw his funds from his KiwiSaver scheme until July 2015.

[8] Mrs Valdrez says that Mrs Logmao breached the agreement because she was twice late in paying the mortgage and because rates were not paid. She also says that in 2014 Mrs Logmao gave up the idea of buying the property, but continued to live in the property only as a tenant. She does not however rely on those matters in this application, recognising that they are contentious and the evidence is not unequivocal, but she reserves the right to rely on those matters in any substantive hearing.

[9] Mrs Logmao lodged her caveat on 25 September 2015. On 28 September

2015 Mrs Valdrez gave written notice under cl 9 that the Logmaos were to vacate the property the property by the end of October 2015. On 29 September 2015 the Logmaos’ solicitor gave written notice to Mrs Valdrez, purporting to exercise the option. On 25 October 2015 solicitors for Mr and Mrs Valdrez gave a notice of termination of residential tenancy under s 51 of the Residential Tenancies Act 1986. The Registrar-General gave a notice under s 145A of the Land Transfer Act of lapse of the caveat on 2 November 2015. Faire J made an interim order that the caveat not lapse on 23 November 2015.

[10] The parties agree that the rent to own agreement is a lease with an option to purchase, as opposed to a long-term agreement for sale and purchase, with the purchasers taking possession before settlement.

[11] The respondents’ case is that Mrs Logmao had not exercised the option to purchase within the terms of the agreement. Mrs Logmao became eligible to withdraw from her KiwiSaver account for a house purchase in 2014, so that the purported exercise of the option in September 2015 was clearly out of time. Alternatively, if the time for exercising the option ran from when Mr Logmao became eligible to withdraw funds from KiwiSaver, the exercise of the option was still out of time.

[12] The respondents accept that an option to purchase gives a caveatable interest in the land. They do not take any point that the wording of the caveat does not cover the interest claimed. They say, however, that once the time for exercising the option has passed, any interest in the land has lapsed and accordingly there is no longer a caveatable interest. For Mrs Logmao, Mr Gilchrist accepted that submission. Under ss 261-264 of the Property Law Act 2007, a lessee may apply to the court for relief against a lessor’s refusal to sell the reversion to the lessee when the lessee has failed to exercise the option in time. Mr Gilchrist did not submit that an interest in land continues under an option to purchase, while the lessee has the opportunity to apply to the court for relief under ss 261-264. He also accepted that if the reference to “Buyer’s kiwi saver” in clause 4 applies only to Mrs Logmao, but not to Mr Logmao, the time to exercise the option had passed.

Was the option to purchase excercisable only when Mrs Logmao was eligible to

make her KiwiSaver withdrawal, or does her husband’s count as well?

[13] There is an interpretation question as to the expiry of the time for exercising the option to purchase. What is the meaning of these words in cl 4, “It is also agreed upon that maximum date that the Buyer can buy the house is when the Buyer’s kiwi saver can already be used for the purchased”? Clearly it is intended to fix a time after which Mrs Logmao cannot exercise the option, but how does it apply in the circumstances of this case?

[14] Mr Gilchrist submitted that while Mrs Valdrez and Mrs Logmao were the only persons named as parties to the agreement, their husbands were also bound. He referred to evidence that when the agreement was signed, both couples were present and the agreement was discussed among the four of them. Mr Valdrez must have conferred authority on his wife to sell the property. She could not sensibly have entered into the agreement to sell their jointly-owned property without his authority. “Buyer’s kiwi saver” therefore applies to both Mr and Mrs Logmao’s KiwiSaver schemes. In his submission the entire agreement clause was not an insurmountable problem. If necessary, the agreement could be rectified to show the husbands as parties. He also referred to “the buyer should buy the house as soon as they have the capability to do so” (emphasis added) as showing that the option applied not only to Mrs Logmao’s personal ability to purchase the property, but also her husband’s.

[15] Opposing, Ms Rhind submitted that “Buyer’s kiwi saver” can refer only to one buyer, not two. Mrs Logmao was identified as the buyer in the agreement and her husband was not a party. The time to exercise the option lapsed when Mrs Logmao’s opportunity to withdraw her KiwiSaver funds for a purchase had passed.

[16] There are obvious difficulties in construing this agreement generally. The parties used as a precedent for their agreement a form of contract taken off the internet. The form uses terms which a New Zealand lawyer would not use in drawing up such an agreement. For example, the parties are referred to as “buyer” and “seller”, rather than “lessor” and “lessee” or “vendor” and “purchaser”. The completion of the agreement is referred to as “closing and settlement”. The parties

did not have legal assistance in drawing up the agreement. They are clearly not familiar with all the requirements for a valid and workable lease that is to include an option to purchase. Examples of matters not addressed are:

(a) While the agreement is a lease, coupled with an option to purchase, the agreement does not expressly address what is to happen if the option to purchase is not exercised.

(b) The agreement does not specify how the option is to be exercised, for example by giving notice and, if so, in what form.

[17] While both parties can communicate in English, their first language appears to be Tagalog. The evidence shows that they communicated with each other in both Tagalog and English (often in the same sentence). Their use of English often departs from standard New Zealand usage.

[18] This is an obvious case for recognising that a literal interpretation of the text of the agreement applying the rules of standard usage may not reflect the parties’ intentions when ascertained objectively. (Of course neither side submitted that the parties’ subjective intentions should apply). In the words of Lord Hoffmann, “something must have gone wrong with the language”.² Context counts in working out the meaning.

[19] The relevant arguable context here is that Mrs Valdrez and Mrs Logmao did not enter into the agreement solely for themselves, but for their families. This does not mean that it is necessary to change the parties to the agreement. Mrs Valdrez undertook to transfer title on the exercise of the option. Both she and her husband were the registered proprietors. Even though her husband was not a party to the agreement, she was to ensure that they both conveyed the property to both Mr and Mrs Logmao. Mrs Logmao was buying a family home. She and her husband would take title. On her side, it was her ability to fund the purchase from her family’s

_{resources that counted, not just her personal resources. Her husband’s ability or}

² Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [15].

inability to contribute to the purchase of the property is a part of those family resources.

[20] On this basis, cl 4 works as follows:

(a) In granting the option to Mrs Logmao, Mrs Valdrez undertook to have title to the property conveyed to Mrs Logmao and/or her nominee, upon the option being exercised.

(b) Pending the exercise of the option, she undertook that the property would not be sold, including by her husband.

(c) As a corollary, once the opportunity to exercise the option had passed, the restraint on selling the property lapsed.

(d) On a sale of the property to a third party when the option had not been exercised in time, the lease of the premises would come to an end.

(e) The opportunity to exercise the option was not expected to arise until Mrs Logmao had the means to complete the purchase. (“Should” in the third sentence is not normative but states an expectation).³ That recognised that the opportunity to exercise the option may not come up for some time.

(f) Mrs Logmao’s means to complete the purchase included her family’s resources, including their property in the Philippines and their KiwiSaver schemes.

[21] That leaves the question as to when the option lapsed.

[22] Ms Rhind focused on “the Buyer’s kiwi saver” as referring only to

_{Mrs Logmao’s KiwiSaver account, not anyone else’s. It is necessary to note,}

³ If “should” were normative, that would impose an obligation to purchase as opposed to conferring an option. The rest of the agreement shows however that it gave only an option. “Should” is often used to state expectations, as in “It should rain tomorrow.”

however, that it is difficult to apply the words in that sentence literally. For example, the sentence is intended to set an expiry for the right to exercise the option. “Maximum date” suggests that. “Purchased” really means “purchase”. “Can already be used” probably means that Mrs Logmao has had the opportunity to access funds from KiwiSaver but has not done so by a certain amount of time afterwards, although the amount of time is not expressly stated. The rest of the sentence requires matters to be read into it. Given that the general purpose of cl 4 is to allow Mrs Logmao to have access to family resources generally to fund the purchase of the property, it is arguable that the KiwiSaver accounts to which she may have access may include not only her own account but also other accounts of members of her family, including her husband. For the purpose of the caveat application, it is arguable that “Buyer’s kiwi saver” refers to KiwiSaver accounts of the Logmao family, not just those of Mrs Logmao.

Is it arguable that Mrs Logmao exercised the option within the time allowed under the option?

[23] Mr Gilchrist submitted that it was not open to the court to find at the caveat stage that the exercise of the option was out of time in relation to Mr Logmao’s KiwiSaver account. Mr Logmao joined KiwiSaver on 18 July 2012 and accordingly became eligible to draw on his account for a first home purchase after three years, that is, on 18 July 2015.

[24] Ms Rhind submitted that the exercise of the option on 29 September 2015 was outside the time allowed under cl 4. She referred to the words “should buy the house as soon as they have the capability to do so” as importing a best efforts requirement. She further submitted that Mr Logmao should have been taking steps in anticipation, so that he could withdraw the funds from his KiwiSaver account the moment he became eligible to do so. She referred to the absence of evidence showing that he had done that.

[25] There is not enough evidence for me to make clear findings in favour of the respondents that the exercise of the option was out of time. There is no information as to when funds will actually become available to a purchaser after they become eligible to withdraw funds for a house purchase after three years of having a

KiwiSaver account. I do not know whether an account holder can take any steps before the three years are up. It is arguable that the time to take steps should not start running until after the three years. For all I know, the process might take three months. Presumably a purchaser could not be held to have failed to have exercised the option before they know whether they have been able to withdraw funds from their KiwiSaver account.

[26] Because I cannot make patently clear findings in favour of the respondents, it remains arguable for Mrs Logmao that the exercise of the option on 29 September

2015 was not outside the time that the KiwiSaver account could be used for the purchase. The exercise of the option on 29 September 2015 was arguably within time under cl 4 of the agreement. Because the interest under the option to purchase had arguably not lapsed, Mrs Logmao still had a caveatable interest. On that basis, the caveat should not be removed at this point.

[27] Mr Gilchrist accepted that if the caveat were upheld, Mrs Logmao should be required to issue proceedings to enforce the option to purchase and to obtain an order for specific performance. She will need to pursue that proceeding expeditiously. The order upholding the caveat is subject to that condition. It is also a term of the order that if Mrs Logmao does not prosecute that claim expeditiously, the respondents may apply to the court to review whether the caveat should continue.

Result

[28] I make these orders:

(a) Caveat 10202257.1 is not to lapse pending further order;

(b) As a condition of that order, the applicant is to promptly start a proceeding against the respondents to enforce the option to purchase in the rent to own agreement and to obtain specific performance, and to prosecute the proceeding expeditiously;

(c) Leave is reserved to the respondents to review whether the caveat should continue if the applicant does not comply with the condition in (b);

(d) The respondents shall pay the applicant’s costs on a category 2 basis.

If the parties cannot agree costs, they shall file memoranda for costs to be decided on the papers.

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Associate Judge R M Bell