IN THE COURT OF APPEAL OF NEW ZEALAND CA484/2016 [2017

BRIAN GREEN PROPERTIES (1971) LTD v BINDON HOLDINGS LTD [2017] NZCA 284 [6 July 2017]

IN THE COURT OF APPEAL OF NEW ZEALAND

CA484/2016

[2017] NZCA 284

BETWEEN

BRIAN GREEN PROPERTIES (1971)

LIMITED

Appellant

AND

BINDON HOLDINGS LIMITED

Respondent

Hearing:

9 May 2017

Court:

French, Miller and Clifford JJ

Counsel:

J W Maassen, M W G Riordan and R E Riddle for Appellant

P B Churchman QC and J M Moran for Respondent

Judgment:

6 July 2017 at 10 am

JUDGMENT OF THE COURT

A The application for leave to adduce further evidence is declined.

B The appeal is allowed.

C The matter is remitted to the High Court for further consideration on the

basis set out in the judgment.

D The respondent must pay the appellant costs for a standard appeal on a

band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Clifford J)

Introduction

[1] Brian Green Properties (1971) Ltd leases land from Bindon Holdings Ltd in

Dunedin, adjacent to that city’s new stadium (the Land). Bindon and Brian Green

entered into that lease (the Lease) on 27 April 2009. In 2015 Bindon gave

Brian Green notice of breach of a covenant in the Lease for maintenance and repair.

Brian Green subsequently applied to the High Court for relief against forfeiture.

[2] The High Court granted Brian Green such relief, on condition that

Brian Green undertake, by reference to what the Court saw as Brian Green’s

obligations under the Lease, certain repairs to a building on the Land (the Building).1

[3] Brian Green says those repairs are not required of it under the Lease and

therefore appeals that condition. At issue is the significance in these circumstances

of s 223 of the Property Law Act 2007 (the 2007 Act).

Facts

[4] The Lease is a Glasgow lease. The Building is a warehouse. In the

High Court, Dunningham J summarised the history of the Lease in the following

helpful terms:

[5] The property is subject to a Glasgow lease. A description of such

leases was given in Mandic v Cornwall Park Trustboard Inc as follows:

[25] Long-term ground leases (usually of 14 or 21 years)

renewable in perpetuity with rent calculated either by an

assessment of fair or market rent (or some similar concept) or,

as in this case, as a percentage of a sum established pursuant to

stipulated valuation exercises, are referred to as Glasgow leases.

They were mainly put in place in the 19th and early 20th

centuries. A Glasgow lease is, in economic substance, a bond

which is revalorised every 14 or 21 years and secured against

the demised land…

[26] Glasgow leases proceed on the basis that:

(a) increases in the value of the land due to

extrinsic factors are for the lessor’s benefit; but

1 Brian Green Properties (1971) Ltd v Bindon Holdings Ltd [2016] NZHC 1993, (2016)

17 NZCPR 637 at [90].

(b) the rent should not be fixed in relation to value

due to improvements made by the lessee.

[6] The original lessor of this property was the Otago Harbour Board,

and the Court was provided with the copies of the three leases which

preceded the current lease and which commenced on 1 October 1945,

1 October 1966 and 1 October 1987 respectively. They all name the Otago

Harbour Board as lessor. The last of these leases was signed on 14 March

1988 when the land was leased from the Otago Harbour Board to Smart

Group Khyber Pass Properties Limited. This lease was for a term of

21 years from 1 October 1987, and expiring on 30 September 2008.

[7] In 1990, Smart Group Khyber Pass Properties Limited assigned the

lease to Volumex Investment No. Nine Limited (Volumex). Mr Brian Green,

the director of [Brian Green], was also the sole director of Volumex.

[8] Bindon purchased this, and other ground leases in the area, from the

then lessor (being Chalmers Properties Limited, a subsidiary of Port Otago),

in 2001. Shortly afterwards, Bindon’s consent was sought to the transfer of

the lease from Volumex to [Brian Green]. The assignment of the lease to

[Brian Green] was registered on 23 August 2001. It was at that point that the

parties to these proceedings became the relevant lessor and lessee.

(Footnote omitted.)

[5] In February 2008 Brian Green gave notice of its wish to renew the then

current lease. In April 2009 Bindon and Brian Green executed the Lease. As had

been the case with all the prior leases, the Lease contained in cl 4 the following

covenant of maintenance and repair:

That the lessee will during the said term keep and maintain in good and

tenantable condition and repair all buildings, fences, erections and drains

now or hereafter erected or laid upon or under the said land.

[6] In April 2015, having received an engineer’s report on the state of the

Building, Bindon gave two notices of breach of Brian Green’s cl 4 obligations. One

notice related to the condition of the roof, and gave Brian Green until 15 January

2016 to remove and replace the roof. The other notice addressed issues relating to

the rest of the Building, and required a variety of repairs to be made by 16 November

2015.

[7] The service of those breach notices occasioned discussions between the

parties as to whether one of them might purchase the other’s interest in the Land. At

the same time, Brian Green disputed its liability to carry out the repairs required by

Bindon.

[8] On 13 November 2015, three days before it was required to complete the

general repairs to the Building, Brian Green applied to the High Court by way of

originating application for relief against forfeiture. It did so on the basis that the

timeframe within which Bindon required that work to be done was unreasonable.

That was because, amongst other things, it owned the Building (the Lease being for

ground rent only), there was a rent review in train and it was ready to carry out those

repairs once the rent review had been completed. That is, Brian Green did not assert

it had not breached the maintenance and repair covenant at all. Rather, and as the

Judge put it, Brian Green acknowledged that the Building needed repair.2 But, from

its perspective, commercial reality dictated that any repair work be done after a new

tenant had been signed up. Brian Green supported its application with an

undertaking as to damages.

[9] On 17 November 2015 Bindon advised Brian Green of its intention to cancel

the Lease. It said notice of cancellation would be served shortly. It would not look

to unilaterally re-enter the premises, but would apply to the Court for orders for

possession. Brian Green’s application for relief against forfeiture could be dealt with

at the same time.

[10] Bindon filed its response to Brian Green’s originating application on

3 February 2016. By that time, the date for replacement of the roof had also passed.

Bindon opposed the grant of relief on the basis that Brian Green was in breach of

both notices to maintain and repair and had been given ample opportunity to remedy

those breaches. The next day, by way of a separate originating application, Bindon

applied to the High Court for formal orders for cancellation of the Lease and for

vacant possession. Anticipating that both its opposition to relief against forfeiture

and its applications for cancellation and vacant possession might not prevail, Bindon

in the alternative sought orders requiring Brian Green to remedy the breaches, pay

rent and provide security against the risk of it failing to remedy the breaches.

[11] The hearing before Dunningham J was conducted on the basis of affidavit

evidence. The important aspects of that evidence for our purposes are:

2 At [24].

(a) Based on the advice of a quantity surveyor, Bindon assessed the cost

of necessary repairs to the Building at $1,549,000.

(b) Brian Green asserted that the condition of the Building had not

changed substantially since 2008, that it had spent approximately

$60,000 replacing part of the roof and that the repairs Bindon required

would bring the Building to an excellent standard, one well beyond its

state in 2008. By its estimate, a further $200,000 was the upper limit

of what would be required to put the Building in an appropriate state

of repair. It had placed that amount of money in its solicitor’s trust

account.

The Judge’s decision

[12] The Judge identified three issues requiring resolution:3

(a) Had there been a breach of the covenant to maintain and repair?

(b) Did a right to cancellation arise?

(c) Should there be a grant of relief against cancellation?

[13] The Judge said the question of whether there had been a breach of the

maintenance and repair covenant depended on whether the obligations under the

covenant were referenced to the condition of the Building on 1 October 2008 (the

commencement date of the Lease)4 as Brian Green maintained, or whether those

obligations should be referenced to an earlier time (for example 1990, when

Mr Green’s company Volumex first leased the land) as Bindon maintained.5

[14] Addressing that issue, the Judge concluded that the Lease was a new lease,

rather than a renewal of an existing lease.6 As that aspect of the Judge’s reasoning is

not challenged, we need consider it no further.

3 At [3].

4 The Lease was signed on 27 April 2009 but had retrospective application.

5 Brian Green Properties (1971) Ltd v Bindon Holdings Ltd, above n 1, at [31].

6 At [39].

[15] On that basis, the question became the significance of s 223 of the 2007 Act,

which came into force on 1 January 2008 and applies to all leases entered into after

that date.7 Section 223 provides:

223 Effect of covenant to keep premises in good condition

In a lease, unless the context otherwise requires, a covenant to keep

leased premises in good condition (or words to that effect) does not

require the lessee to put the premises into good condition if they are

not in good condition when the term of the lease begins.

[16] The Judge acknowledged the purpose of s 223 was to negate the effect of the

1847 decision of the English Courts in Payne v Haine.8 There it was held that an

obligation to keep leased premises in good condition may include an obligation to

put them in good condition, even if they were not in that condition at the

commencement of the lease.9

[17] The real issue, the Judge reasoned, was whether s 223 could “stand in light of

cl 11 of the lease”.10

Clause 11 of the Lease provides:

That the covenants and provisions implied in leases by the Land Transfer Act

1952 and the Property Law Act 1952 or any amendment or re-enactment

thereof11

shall be negatived or modified in respect of this lease in so far as

the same are or may be inconsistent with the modifications hereby made or

the covenants and provisions herein expressed.

[18] Based on the decision of the Supreme Court in Mobil Oil New Zealand Ltd v

Development Auckland Ltd,12

of this Court in Cornwall Park Trust Board Inc v

Chen13

and of the High Court in BP Oil New Zealand Ltd v Ports of Auckland Ltd,14

the Judge concluded:15

… The requirement contained in cl 4 of the lease to keep all improvements

on the land in good and tenantable condition and repair would be rendered

meaningless if, as here, the premises were not in good and tenantable

7 Property Law Act 2007, s 206(2).

8 Payne v Haine (1847) 16 M & W 541, 153 ER 1304 (Exch). Payne v Haine was applied in

New Zealand in Puhi Maihi v McLeod [1920] NZLR 372 (SC). 9 At 545 and 1306.


11 The 2007 Act is a re-enactment of the Property Law Act 1952.

12 Mobil Oil New Zealand Ltd v Development Auckland Ltd [2016] NZSC 89, [2017] 1 NZLR 48.

13 Cornwall Park Trust Board Inc v Chen [2016] NZCA 65, [2016] 2 NZLR 637.

14 BP Oil New Zealand Ltd v Ports of Auckland Ltd [2004] 2 NZLR 208 (HC).


condition at the time the term of the lease began and would therefore be

inconsistent with s 223.

[19] Thus, the obligation in cl 4 was to be construed in accordance with the

principles recognised in Cornwall Park. Whilst there was no obligation to put the

Building in an “as new” condition, there were clearly deficiencies in the Building

which would have to be rectified to put it in “good and tenantable” condition.16

On

that basis, the Judge concluded that a large proportion, if not all, of the repair work

identified by Bindon was the obligation of Brian Green.17

[20] We can deal with the balance of the Judge’s reasoning more briefly, as it is

not challenged in this appeal.

[21] The notices of cancellation were effective. In particular sub-pt 6 of pt 4 of

the 2007 Act is a code. The issue raised by s 7(4) of the Contractual Remedies

Act 1979 — whether a particular breach is substantial so as to provide a basis for

cancellation — is no longer relevant to the question of cancellation. Rather, that

issue goes to whether relief against forfeiture should be granted.18

[22] The Judge acknowledged relief against forfeiture was usually only granted to

a lessee who had made good the breach, and was able and willing to fulfil its

obligations in the future.19

However, recognising the economic and legal

significance of the terms of a Glasgow lease, the Judge reasoned that the primary

risk to Bindon if Brian Green did not perform the covenant was that, at the

conclusion of the Lease, a financial burden (the cost of implementing repairs or

demolition) would fall on Bindon.20

But Brian Green was in a sound financial

position and continued to pay its rental.

[23] On that basis, the Judge concluded that it was appropriate to grant relief to

Brian Green against forfeiture on one condition.21

That condition was if the

covenant to repair and maintain was not complied with within 24 months of the date

16

At [50]. 17

At [51]. 18

At [66]. 19

At [68]. 20

At [81]. 21

At [85].

of judgment, Brian Green was to provide security to Bindon in the sum of

$1,549,000 “or such other sum as the parties agree or as is fixed by the Court”.22

[24] The Judge reserved leave to the parties to apply for further directions,

particularly as regards the quantum of security to be provided.23

This reflected the

Judge’s reasoning that, if less than the cost of repair, the cost of demolition would be

the appropriate measure of the security to be provided.

Respondent’s application to adduce fresh evidence

[25] As noted, part of the Judge’s reasoning in the High Court referenced the fact

that Brian Green was both financially sound and continuing to meet its rental

obligation in full. Bindon made an application to adduce further evidence in this

appeal relating to a dispute between it and Brian Green on that very matter. In an

affidavit in support, Ms Hagaman (a director of Bindon) explained that Brian Green

was in default of its rental obligation as regards the period 1 October 2015 to 30 June

2016.

[26] Bindon said this additional evidence was both fresh and compelling, because

it undercut that important element of the Judge’s reasoning. We do not agree.

[27] The evidence Ms Hagaman sought to introduce showed that Brian Green in

fact tendered a cheque in payment for some of that rent (1 October 2015 to

31 December 2015) at the time it applied for relief against forfeiture.

Notwithstanding the provisions of s 250 of the 2007 Act,24

Bindon declined to accept

that payment. It was not until 1 September 2016, following the release of

Dunningham J’s decision, that Bindon invoiced Brian Green for that rent, and for the

rent for the first six months of 2016. A dispute then arose as to the rent properly

payable by Brian Green to Bindon during those nine months. In these

circumstances, and whatever may be the outcome of the parties’ dispute as regards

the rent owed for that period, we do not see it as being relevant to the resolution of

22

At [90]. 23

At [91]. 24

Section 250 provides that acceptance of rent by the lessor after notice of intention to cancel the

lease is given does not operate as a waiver of the lessor’s rights.

this appeal. Accordingly, we decline Bindon’s application to adduce further

evidence.

The appeal

[28] Between them, the parties identified a total of 20 issues to be determined. We

are satisfied, however, that the principal issue is whether the Judge was right when

she found that what would otherwise have been the effect of s 223 of the 2007 Act

was excluded by cl 11 of the Lease.

[29] As we explain, we are satisfied the Judge’s conclusion on that point was

wrong. We add that, in all other respects, we agree with the Judge’s reasoning and

the relief she ordered, albeit on the basis of that error of law. The question then

becomes one of the relief we should grant.

Submissions

[30] For Brian Green Mr Maassen argued, more than a little optimistically in our

view, that in allowing the appeal we should simply quash the condition upon which

relief against forfeiture was granted. Notwithstanding Brian Green’s apparent

acceptance at trial that some repairs were required, making its relief subject to the

performance of repairs or payment of security was inappropriate. Sub-part 6 of pt 4

of the 2007 Act was designed to provide parties to commercial leases with swift

resolution of disputes in relation to cancellation and repossession. A lessor could

bring a separate action for breach of contract, and seek appropriate remedies, where

relief against forfeiture was granted.

[31] For Bindon, Mr Churchman QC formally supported the approach the Judge

had taken to the interpretation of s 223. He placed greater emphasis, however, on his

alternative argument — that the condition the Judge had placed on her grant of relief

against forfeiture (which grant itself Bindon was not challenging) was nevertheless

appropriate. Neither when applying for relief, nor on appeal, had Brian Green

contended that it was not in breach of cl 4. The Judge’s condition, particularly when

seen through the lens of the alternative of providing security in the lesser amount of

the cost of demolition, would continue to be appropriate no matter what the Court

might subsequently determine the extent of Brian Green’s maintenance and repair

obligations to be.

[32] Both Mr Maassen and Mr Churchman did acknowledge, however, that if we

concluded the Judge had erred as regards the application of s 223, our indication that

the appropriate relief would be to refer the matter back to the High Court for further

consideration was an outcome that had a measure of attraction. We consider that was

a realistic acknowledgement, as otherwise fresh proceedings would inevitably be

required to determine the proper extent of Brian Green’s current maintenance and

repair obligations. Were we to decide upon that course of action both counsel further

submitted it would be beneficial if we were to provide some guidance on the

implication, in these circumstances, of the words “unless the context otherwise

requires” found in s 223.

Analysis and outcome

[33] A covenant requiring a lessee to keep the leased premises in “good and

tenantable repair” has since at least the enactment of the Property Law Act 1908,

been implied by statute into leases — otherwise than of dwelling houses. At the

same time provision has been made for parties to a lease to contract otherwise.

[34] When the Property Law Act 1952 (the 1952 Act) was enacted that implied

covenant was referenced to the condition of the premises at the commencement of

the lease. Section 106(b) of the 1952 Act provided:

That [the lessee] will, at all times during the continuance of the said lease,

keep, and at the termination thereof yield up, the demised premises in good

and tenantable repair, having regard to their condition at the commencement

of the said lease, accidents and damage from fire, flood, lightning, storm,

tempest, earthquake, and fair wear and tear (all without neglect or default of

the lessee) excepted …

[35] Section 68 of the 1952 Act provided for implied terms to be negatived. It

read:

68 Implied covenants may be negatived

A covenant or power implied under this or any other Act shall have

the same force and effect, and may be enforced in the same manner,

as if it had been set out at length in the deed wherein it is implied:

Provided that any such covenant or power may be negatived, varied,

or extended in the deed, or by a memorandum in writing endorsed

thereon and executed as a deed is required to be executed by the

parties to the deed intended to be bound thereby.

[36] Clause 11 of the Lease, set out at [17], effectively imports s 68 into the terms

of the Lease itself.

[37] The introduction of the words “having regard to their condition at the

commencement of the said lease” by the 1952 Act is generally understood as an

attempt to ameliorate the effect of the decision in Payne v Haine.25

The Law

Commission recognised this in its 1991 Preliminary Paper on the 1952 Act when it

commented:26

An obligation to keep premises in good condition may include an obligation

to put them in good condition if they are not in that condition at the

beginning of the term … The requirement to have regard to the condition at

the beginning of the term reduces the tenant’s exposure to this rather unfair

rule. Where a landlord wants premises to be improved by the tenant there

should, we think, be express agreement to that effect. Perhaps the rule [in

Payne v Haine] itself should be negated.

(Emphasis added.)

[38] Following the passage of the 1952 Act, express clauses in leases, such as cl 4

of the Lease, were used by lessors to negative or modify that aspect of the s 106(b)

implied clause. In Auckland Waterfront Development v Mobil Oil New Zealand Ltd

this Court noted that a repair clause requiring the tenant to keep buildings and other

improvements “in good and tenantable repair and condition to the reasonable

satisfaction of the [lessor]” excluded the s 106(1)(b) covenant that would otherwise

have required the demised premises to be kept and yielded up in good and tenantable

repair having regard to their condition at the commencement of the lease.27

A similar

conclusion was reached in Cornwall Park.28

Accordingly, in both those instances a

25

Payne v Haine, above n 8. 26

Law Commission The Property Law Act 1952 (NZLC PP16, 1991) at 137. 27

Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd [2015] NZCA 390,

[2016] 2 NZLR 281 at [33]. 28

Cornwall Park Trust Board Inc v Chen, above n 13.

lessee was required to improve the leased premises, relative to their condition at the

commencement of the lease.

[39] The Judge’s conclusion that, to similar effect, s 223 was excluded by cl 11 of

the Lease depends in the first instance on the implicit conclusion that the effect of

s 223 is to imply a covenant into the Lease. That must be the case, given the

wording of cl 11. As a matter of general law, and of interpretation of the words of

s 223, that is where we differ from the Judge. In our view, s 223 is not a provision

which implies a covenant. Rather, it is one which limits the effect of covenants like

cl 4 of the Lease. Moreover, it does so here in the manner Brian Green asserts.

[40] That conclusion flows from the express terms of s 223, the broader context

provided by the 2007 Act and its purposes and principles, and the relevant legislative

history.29

The statutory scheme

[41] We start with the provisions implied into the Lease by the 2007 Act.

Relevantly, s 219 provides:

219 Covenant implied in leases (except unregistered short-term

leases)

Every lease other than a short-term lease that is not registered

contains the covenant set out in Part 3 of Schedule 3 (lessee to keep

and yield up premises in existing condition).

[42] That “keep and yield up” covenant is found in cl 13 of sch 3 to the 2007 Act:

13 Lessee to keep and yield up premises in existing condition

(1) The lessee will,—

(a) at all times during the currency of the lease, keep the leased

premises in the same condition that they were in when the

term of the lease began; and

(b) at the termination of the lease, yield the leased premises in

that condition.

29

Ross Carter Burrows and Carter Statute Law in New Zealand (5th ed, LexisNexis,

Wellington, 2015) at 439.

[43] As can be seen, cl 13(1) would, more explicitly than was the case with the

s 106(b) covenant under the 1952 Act, relieve a lessee from the effects of the

decision in Payne v Haine.

[44] Section 217 of the 2007 Act allows parties to modify or vary implied terms

by express agreement to the contrary:

217 Application of sections 218 to 220

Sections 218 to 220 apply, as the case requires, unless a contrary

intention is expressed (whether in a lease or otherwise) in

accordance with section 279(2) (construction and variation, etc, of

implied covenants).

[45] Section 279, in turn, provides:

279 Construction and variation, etc, of implied covenants

(1) A covenant implied, by this Act or any other enactment, in an

instrument or in a short-term lease not made in writing has the same

force and effect, and may be enforced in the same way, as if it had

been expressed in that instrument or short-term lease.

(2) However, the covenant may be negatived, varied, or extended—

(a) by the express terms of the instrument; or

(b) by a written memorandum executed, as the instrument was

required to be executed, by the parties to the instrument; or

(c) if implied in a short-term lease not made in writing, by the

express or implied agreement of the parties.

[46] Clause 4 of the Lease is, fairly obviously, a clause which negatives or varies

the implied “keep and yield up” covenant found in sch 3. Remember, cl 4 provides:

That the lessee will during the said term keep and maintain in good and

tenantable condition and repair all buildings, fences, erections and drains

now or hereafter erected or laid upon the said land.

[47] On its face, cl 4 provides maintenance and repair obligations similar to those

interpreted in Payne v Haine as requiring a lessee to improve the leased premises.

[48] Turning now to s 223, it provides:






[49] The words of s 223, and their plain meaning, speak for themselves. Clause 4

is clearly a covenant “to keep leased premises in good condition (or words to that

effect)”. Clause 4 is the type of clause which is subject to s 223. Therefore,

pursuant to s 223, and notwithstanding the words used, cl 4 does not require

Brian Green to put the Building into good condition if it was not in good condition

when the Lease began, unless the context otherwise requires.

[50] On that basis, the overall effect of these provisions in the 2007 Act is as

follows:

(a) Section 219 implies the sch 3 repair covenant into the Lease.

(b) Section 217 provides for such an implied term to be negatived “where

a contrary intention is expressed in accordance with s 279(2)”.

Section 279(2) provides for implied covenants to be negatived, varied

or extended by, as relevant, the express terms of the instrument.

(c) Clause 4 is such an express term.

(d) Section 223 limits the effect of cl 4, subject to the proviso “unless the

context otherwise requires”.

[51] That analysis is supported by the 2007 Act’s legislative history.

The Law Commission report

[52] In the draft Bill the Law Commission prepared to accompany its 1994 final

report cl 188 provided:30

30

Law Commission A New Property Law Act (NZLC, R29, 1994) at 149.


In a lease of land coming into operation on or after — 199- [date on

which this Act comes into force], a covenant to keep the leased

premises in good condition (or words to that effect) does not require

the lessee to put the premises into good condition if they are not in

good condition when the term of the lease begins.

[53] The commentary in that report on the draft Bill stated:31

This new section adopts the proposal in para 408 of NZLC PP16. At present

an obligation to keep premises in good condition may include an obligation

to put them in good condition if they are not in that condition at the

beginning of the term: Payne v Haine (1847) 16 M & W 541, 153 ER 1304

(Exch). This rule is negated in leases coming into operation after the new

Act comes into force. A covenant to keep leased premises in good condition

(or words to that effect) will not require the lessee to put the premises into

good condition if they are not in good condition when the term of the lease

begins. However, this limitation can be overridden by express agreement of

the parties concerning the repair work which must be done by the incoming

lessee.

(Emphasis added.)

[54] The Law Commission’s intent could not be clearer.

The legislative process

[55] The Property Law Bill 2006 was introduced on 30 October 2006.

Clause 222, which became s 223, read:






[56] The explanatory note stated:32

Clause 222 provides that, unless otherwise agreed, a covenant to keep leased

premises in good condition does not require the lessee to put the premises

into good condition if they are not in good condition when the term of the

lease begins.

31

At 359. 32

Property Law Bill 2006 (89-1) (explanatory note) at 39.

[57] Thereafter, the wording of cl 222 was not changed throughout the legislative

process, nor was there any further comment on that clause specifically. As so

enacted, s 223 remains the same today.

[58] It would appear that the Law Commission’s overall intention was adopted,

because:

(a) subject to the addition of the phrase “unless the context otherwise

requires”, the Bill as introduced used wording identical to that used by

the Law Commission in its draft bill; and

(b) that phrase reflects the Law Commission’s intention that the parties to

the lease should be able to otherwise agree.

[59] That is, cl 222 negates the rule in Payne v Haine, unless — to use the Law

Commission’s phrase — “the parties agreed otherwise”, or — as provided in the

statute — “the context otherwise requires”. We return to the meaning of the proviso

below.

[60] For those reasons, and as indicated, we conclude the Judge was wrong to find

that s 223 was excluded by cl 4 of the Lease. We allow Brian Green’s appeal to that

extent. Implicit in that conclusion is our view that, by itself, cl 4 is not a provision

which represents an “agreement otherwise” or which creates a “context that

otherwise requires” in the terms of the proviso to s 223. To hold otherwise would be

to rob the section of virtually any effect.

“Unless the context otherwise requires”

[61] We turn then to the significance of the phrase “unless the context otherwise

requires” in s 223.

[62] As a matter of first impression, two interpretations of these words would

appear to be available. The words “unless the context otherwise requires” appear in

the interpretation section of almost every statute. There they typically qualify the

introductory words “in this Act”. Thus the reference to “the context” is manifestly a

reference to the use of a defined term within the statute, but in such a way, in such a

context, that it is clear the specific definition does not apply. An immediate limit on

the relevance of that interpretation is that s 223 does not prescribe a specific meaning

to words. Rather, and as regards specific words and like words, it negates a common

law rule regarding the construction of a lessee’s obligations. Having said that, the

use of the common statutory phrase “unless the context otherwise requires”, here

qualifying the introductory words “In a lease”, does suggest that the relevant context

is provided by the words of the lease itself, rather than any broader, factual context

relating to the parties and their dealings with each other.

[63] However, and to quite opposite effect, the phrase “unless the context

otherwise requires” might be interpreted as a statutory mandate to look beyond the

lease and, in the standard way of interpreting contracts, to have regard to the context

provided by the factual matrix.

[64] The meaning to be attributed to this statutory phrase is also to be determined

on the basis of the well-established principles of statutory interpretation.33

Applying

those principles, the words “unless the context otherwise requires” are, in our view,

best interpreted as requiring there to be an express written agreement to the contrary

recorded in the manner provided for in s 279.

[65] As already noted, s 217 provides for the limited range of implied covenants

now provided by statute to be negatived, varied or extended by a contrary intention

expressed in accordance with s 279(2). Section 279 requires such an agreement to

be recorded in the express terms of the lease itself or in a written memorandum

executed in the manner a lease is required to be executed. It would therefore be

surprising if the express statutory effect of s 223 could be avoided, particularly given

the statutory purposes and principles already referred to, by an agreement recorded

in a less formal manner or for which the evidence is to be found in the factual

matrix, rather than the words of a lease itself or a formal written memorandum.

[66] More generally, s 3 of the 2007 Act records the legislation’s overall purpose:

33

See above at [40].

3 Purpose

The purpose of this Act is to restate, reform, and codify (in part)

certain aspects of the law relating to real and personal property.

[67] Aspects of the legislative history enlarge on that purpose. The first point of

note is that the 2007 Act was intended to make lessees’ obligations under leases

accessible. The Law Commission Report stated:34

One of the most important objectives of the new Act is to set forth rules of

property law accessibly and in a manner which, allowing for the subject

matter, can readily be understood.

…

The purpose of the new Act [is] to make the law relating to real and personal

property more accessible.

[68] A key aspect of accessibility was ensuring that the lessees’ obligations were

expressly set out in the lease instrument. See, for instance, the comments in the Law

Commission’s Preliminary Paper:35

Implied covenants may be something of a fall-back for people who have

been unwise enough to proceed without any (or with incomplete)

documentation. The range of implied covenants must be limited to those

which would be appropriate in any circumstances as a means of filling in the

gaps left by the parties. For this reason they are not particularly extensive or

sophisticated. That must be left to persons drafting leases for particular

circumstances and parties.

[69] That goal of accessibility, and also the related goal of certainty, were referred

to in Parliament.

[70] During the Bill’s first reading on 14 November 2006 Hon Clayton Cosgrove

(the then Associate Minister of Justice) stated:36

The Bill is based largely on the recommendations of the Law Commission

report. It restates and clarifies the existing Act and includes some rules

currently found in the general law or other Acts. There are a large number of

small reforms to the rules that collectively will improve the effectiveness of

the law. The Bill ensures that law relating to property is clear, accessible,

and effective, so that it better meets the present and future needs of people

34

Law Commission A New Property Law Act, above n 30, at 1 and 253. 35

Law Commission The Property Law Act 1952, above n 26, at 135. 36

(14 November 2006) 635 NZPD 6460.

such as property owners, lessees, and mortgagees”. The Bill provides

certainty in property dealings ...

(Emphasis added.)

[71] The second reading took place on 11 September 2007. Hon Chris Carter (the

then Minister of Conservation) stated that he hoped the Bill would:37

Usefully provide clarity in the law and enhance certainty in property

dealings.

[72] Accessibility, clarity and certainty are all promoted where the proviso to

s 223 is interpreted as requiring express, written, agreement.

[73] Academic commentary generally supports our conclusion.

[74] Tom Bennion’s New Zealand Land Law states:38

The lessee is frequently required to “keep” the premises in good repair,

which could involve the premises being put into good repair first.

Arguments as to whether the lessee was obliged to put the premises into a

better state of repair than they were in at the start of the lease in this situation

have now been largely rendered nugatory by the clear provision in s 223

Property Law Act 2007; that:

“In a lease, unless the context otherwise requires, a covenant

to keep leased premises in good condition (or words to that

effect) does not require the lessee to put the premises into

good condition if they are not in good condition when the

term of the lease begins.”

However, the context and words of the lease may require otherwise. For

example, this (apparently) will not be so if the initial disrepair arose from an

excepted cause of damage under the lease. If the lessee covenants to

“maintain and keep” the premises in good repair, there may be an

implication that the lessor has ensured they are in good repair at the outset.

(Footnotes omitted and emphasis added.)

[75] Hinde, McMorland and Sim Land Law in New Zealand states:39

The rule that an obligation to keep premises in good repair may include an

obligation to put them in good repair if they are not in that condition at the

37

(11 September 2007) 642 NZPD 11763. 38

Tom Bennion and others New Zealand Land Law (2nd ed, Thomson Reuters, Wellington, 2009)

at [8.11.09]. 39

Hinde, McMorland and Sim Land Law in New Zealand (online looseleaf ed, LexisNexis)

at [11.117].

beginning of the term is negated (unless the context otherwise requires) in

leases that come into operation on or after 1 January 2008 by s 223 of the

Property Law Act 2007.

[76] The authors go on to refer to the decision under appeal as being one where

s 223 had been found to be excluded by an express term. We have already found that

conclusion to be in error.

[77] Hinde, McMorland and Sim cites the New Zealand Law Commission Report

in stating:40

It is noteworthy that the provisions of this section can be “overridden by

express agreement of the parties concerning the repair work which must be

done by the incoming lessee”.

(Footnotes omitted.)

[78] There may, we acknowledge, be circumstances — albeit likely to be rare —

in which a context requiring otherwise in terms of the proviso could be provided by

evidential material other than a s 279 agreement. The common law method avoids

absolute categorisations. Having said that, we do think that it will undoubtedly

become best practise for a lessor — who intends a lessee to have an obligation to put

premises that are not, at the commencement of the lease, in a good or otherwise

specified condition into that condition — to provide an express clause in the lease

imposing that obligation. Not only is legal certainty promoted in that way, but that

approach also ensures lessees properly understand the economic consequences of the

lease contract. Both fairness and efficiency are thus promoted.

[79] We note that, subject to matters which we may not be aware of, the facts as

we understand them here seem unlikely to lead to that rare conclusion.

Relief

[80] As indicated, the question then becomes one of relief.

[81] We agree with Dunningham J’s statement that the issue raised by s 7(4) of the

Contractual Remedies Act — whether a breach is substantial — is no longer relevant

40

At [11.124].

to the question of cancellation (at least, when the lessor is seeking to cancel the

lease).41

Cancellation is no longer available under the Contractual Remedies Act.

The question of whether the breach is substantial may be taken into account when

the Court exercises its discretion to grant relief against forfeiture. Relief against

forfeiture is an equitable remedy. As the Judge recognised, it has long been the case

that relief will only be given where a lessee will make good the breach and is able

and willing to fulfil his or her obligations in the future.42

We also agree, therefore,

with the structure of the relief the Judge granted Brian Green: that is, as a condition

of its relief Brian Green be required to comply with its maintenance and repair

obligation, or secure Bindon against its failure to so comply. What is now required

is for this matter to be remitted to the High Court for the extent of Brian Green’s

maintenance and repair obligations to be determined by reference to the condition

the Building was in when the Lease commenced in 2008. Depending on that

determination, the alternative relief of posted security, co-extensive with the

estimated cost of demolition should the Building be in a more run-down state at the

end of the Lease, may continue to be appropriate.

Result

[82] The application for leave to adduce further evidence is declined.

[83] The appeal is allowed.

[84] The matter is remitted to the High Court for further consideration on the basis

set out in this judgment.

[85] The respondent must pay the appellant costs for a standard appeal on a

band A basis and usual disbursements.

Solicitors: Cooper Rapley, Palmerston North for Appellant Meares Williams, Christchurch for Respondent

41

At [12.233]. 42

Brian Green Properties (1971) Ltd v Bindon Holdings Ltd, above n 1, at [68].

Documents

IN THE COURT OF APPEAL OF NEW ZEALAND CA484/2016 [2017