gavel-1238036-freeimages.comA lease is more than a contract. It creates an estate in land.

Even when a lessee does not follow a renewal process properly or where there are other questions around a renewal right, the Court more often than not finds in favour of the lessee and protects its right to a lease by granting relief.

 

A High Court decision in Wellington (13 October 2017) follows this trend*. The Court considered whether to grant relief to Saisatman Limited, the lessee of a Quest serviced apartment. The trustees of the Hawke Family Trust (the owner of the apartment) had refused the renewal of lease.

 

When the lease was arranged, the form of deed of lease appears not to have been provided the tenant. The lease was contained in a memorandum of offer, with key terms (such as the term, renewal rights, rent review rights) in very brief, simplified form. The Court found this was enough to create a lease on those simplified terms. The informality of the documents was not sufficient for the lessor to prevail.

 

That was the case even though the tenant, Saisatman Limited had not followed the renewal process as set down in the memorandum. This provided for two terms of 10 years each and a final expiry in 2021. Instead Saisatman Limited had been renewing the lease on a five yearly basis and that had been accepted by the lessors up until the final renewal in March 2016. The manner in which the parties continued to proceed, as if the lease contained 5 yearly renewal rights rather than 10, was sufficient in the Court’s view to leave the lessee with one further renewal right of 5 years (from March 2016 to 2021).

 

Against that background, the Court then had to consider the other relevant factors to determine whether the lessee should have relief and retain a lease for the remaining 5 years of the term. As we discussed previously the Court has a wide discretion to grant relief to a lessee where they have been denied a renewal. The principles the Court will consider in the exercise of discretion to grant relief include:

 

  • The lessee’s conduct, in particular whether it has complied with all conditions and covenants and been a good tenant.
  • Prejudice to either party if relief is, or is not, granted.
  • The lessors motivation for refusal to renew and an understanding of the lessee’s intentions.

The lessor alleged here that there had key-to-the-life-1556450freeimages.combeen breaches of the lease by the tenant, that meant the Court should not grant relief. The Court decided there was not sufficient evidence of breach.

 

There were deductions from the rents by the lessee which the lessor questioned, and allegations the rent review mechanisms had not been properly followed. The combined effect was that the lessor viewed itself out of pocket. That was insufficient, particularly when viewed against what the lease actually required (not much, for example the rent review process was missing from the simple lease memorandum).

 

The Court’s decision

 

The Court appeared to be influenced by the fact the lessor was unhappy with the commercial investment and wished to sell the property believing it would get a higher price without the lease in place. That counted against them given they had bought into what was obviously a Quest serviced apartment complex.

 

Relief was granted and the lessee remains in the premises for one further 5 year term.

 

Although the lessee was successful here, we do know from the work that we do that often the serviced apartment leases are not maintained in proper form. That might ultimately trip up an operator where the discretions favour the lessor for some other reason. An example could be where the lessee is in breach and there is clear evidence of this.

 

More generally it’s a good reminder to keep lease documentation in clear and proper form and to take care as a lessor before refusing to grant a renewal of lease.

 

By Denise Marsden

 

*CIV-2016-485-737 [2017] NZHC 2509