Leases – Setoff Against Outgoings

by | Mar 22, 2017 | Leasing

A recent decision Drake City Limited v DJ Tasman-Jones & Anor (High Court, Auckland 20 December 2016) concerned a lease for one of the restaurants in the Victoria Park Market precinct.  There were arrears under the lease and the tenant had gone into liquidation.  The guarantors were being pursued for sums due.  These included unpaid rent of approximately $140,000.00 and outgoings of approximately $56,000.00.

The landlord was successful in its claim for rent.  The guarantors opposed the summary judgement for the outgoings on the basis of a set-off for breach of quiet enjoyment.  They alleged that construction dust, noise and other disruption gave an entitlement to damages under the lease.  They alleged that set-off can be applied against the outgoings that were due.

Clause 1.1 of the lease, which appears to be the standard ADLSi form of deed of lease, provides “all rent shall be paid without any deductions or set-off by direct payment to the landlord or as the landlord may direct”. This wording does not say expressly say set-off against outgoings is prohibited.  The judge considered whether or not the lease would prevent a set-off against unpaid outgoings for damages for breach of quiet enjoyment.  Given this was a summary judgement application the landlord had to show that the guarantors had no arguable case.  The landlord failed to do so.  Set-off against outgoings would be possible if damages were due.

The evidence presented was enough to convince the judge that it would be peremptory to grant summary judgement as damages might be due.  The evidence included a picture of substantial disruption from dust, construction noise and other effects together with a lack of occupancy of other tenancies.  The judge did not rule on this issue (whether there was a breach of quiet enjoyment) but thought caution was appropriate.

If landlords want to preclude tenants setting off damages against outgoings then this must be made express in the deed of lease.

By Denise Marsden

By <a href="" target="_self">Rachael Stevenson</a>

By Rachael Stevenson