Cazna Avenue Nominees Ltd v The University of Auckland

JurisdictionNew Zealand
CourtHigh Court
JudgeAndrews J
Judgment Date27 Feb 2014
Neutral Citation[2014] NZHC 303
Docket NumberCIV 2012-404-005209

[2014] NZHC 303

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-005209

BETWEEN
Cazna Avenue Nominees Limited
Plaintiff
and
The University of Auckland
Defendant
Appearances:

R J Hollyman and A J Holmes for Plaintiff

D J Neutze and J Jeffries for Defendant

Claim for damages for breach of a lease agreement by not removing all fixtures and failing to reinstate the property following the termination of the defendant's lease — building had been sold to the plaintiff prior to the lease expiring — agreement for sale had purported to assign to plaintiff the right to negotiate the ‘make good' requirements — vendor submitted building was later sold at a loss because of the defendant's failure to reinstate – whether the reinstatement obligations were assigned to the plaintiff under the sale agreement or s130 Property Law Act 1952 (assignment of debts and things in action) – whether plaintiff had standing to sue — whether a term should be implied that the plaintiff was required to provide notice of the requirement to reinstate within a reasonable time before the lease expired – what was the appropriate measure of damages.

Held: The sale agreement had authorised Cazna to negotiate with the University in relation to the reinstatement obligations before the sale and purchase agreement became unconditional; something that Cazna would otherwise have been unable to do. The sale agreement had also provided that prior to the sale agreement becoming unconditional, or unless the sale agreement was terminated, New Bay would not enter into any agreement with the University regarding the reinstatement obligations. That restricted New Bay's legal rights to enforce the reinstatement obligations, and protected the ability to negotiate.

Once the deposit was paid and the sale agreement became unconditional, then Cazna alone had the ability to enforce the reinstatement obligations. The University had been given written notice of the assignment in November 2006, when New Bay emailed the University informing it of the assignment. Accordingly, there was an assignment of the reinstatement obligations under s130 PLA. Because of the assignment, Cazna had standing to bring proceedings to enforce the reinstatement obligations under the lease.

In the alternative, if there had been no effective assignment under the sale agreement and s130(1) PLA, there had been an assignment in equity by New Bay's conduct in informing the University.

The University had not pleaded its implied term. This was a new defence and should have been pleaded. The University required leave to amend its pleadings. The fact that the argument as to an implied term had been raised at this very late stage was of concern. However, the issues were whether an amendment was in the interests of justice, would not cause significant prejudice to Cazna, and would not cause significant delay.

The issue as to whether a “reasonable time” term should be implied was a matter of contractual interpretation, and did not depend on witnesses' evidence. It went to the real controversy between the parties – Cazna's ability to enforce the reinstatement obligations. Cazna had had the opportunity to file further submissions, and no significant delay had been caused, Cazna had not been caused significant prejudice, and that it was in the interests of justice to give the University leave to amend its statement of defence.

The lease provided that the landlord could permit the tenant to hold over occupation of the property. While Cazna could not permit the University to hold over (because the sale agreement assigned only the reinstatement obligations), the sale agreement (being after the lease agreement) did not determine interpretation of the lease. The holding over provision provided a mechanism for reinstatement obligations to be met after the term of the lease ended. Thus, it was not necessary to imply a “reasonable time” term.

Further, implying such a term would, cause uncertainty, and impede the business efficacy of the reinstatement obligations. The “reasonable time” term proposed by the University did not provide a specific time and it would vary according to the required reinstatement. This introduced significant uncertainty into the lease and would very likely lead to litigation as to whether notice of reinstatement requirements was given within a “reasonable time”. This pointed against a conclusion that a “reasonable time” term should be implied to ensure business efficacy.

Cazna was not requiring a complete removal of the University's fit out. The University was required to remove the partitions it had put up, to replace the carpet, and to paint and make good the damage that would result from removing the partitions. The fact that the carpet in the property was not in good condition at the start of the University's lease did not mean that replacing it would be betterment. All of the reinstatement work required was within the terms of the lease. The University's failure to undertake the work was a breach of the lease.

When a lessee failed to reinstate on the termination of a lease, the general rule was that the measure of damages was the cost of reinstatement. The evidence and calculations of diminution in value were speculative. That evidence did not support Cazna's claim that the value of the property would have increased by $880,000 as a result of reinstatement. The proper measure of damages was the cost of reinstatement of $333,379 based on a joint statement by quantity surveyors.

Judgment for plaintiff.

(RESERVED) JUDGMENT OF Andrews J

Andrews J
Contents

Introduction

[1]

Background facts

The Deed of Lease..

[3]

The sale of the property to Cazna..

[6]

Expiry of the lease..

[9]

Does Cazna have standing to enforce the reinstatement obligations?..

[15]

Assignment under cl 15 of the sale agreement and s 130 of the Property Law Act 1952

..[17]

(a) Was there an absolute assignment?

[20]

(b) Was written notice of the assignment given to the University?

[30]

(c) Conclusion as to whether the reinstatement obligations were assigned to Cazna under cl 15 of the sale agreement..

[33]

Equitable assignment.

[35]

Did Cazna require the University to reinstate the property?

.[38]

Was Cazna required to provide notice of the requirement to reinstate within a reasonable time before the lease expired?..

[41]

Does the University need to plead an implied term?

.[43]

Should the University be given leave to amend its statement of defence?

..[45]

Should a “reasonable time” term be implied?

..[48]

What did Cazna require the University to dO'

[54]

Was the work Cazna required the University to do within the terms of the lease?

.[60]

(a) The partitions

..[61]

(b) Carpet

..[63]

(c) Painting

..[65]

(d) Betterment?

..[67]

(e) Conclusion as to whether reinstatement work was within the terms of the lease

[69]

What is the appropriate measure of damages?

..[70]

Quantum

.[77]

Interest

..[81]

Result

.[86]

Introduction
1

The plaintiff, Cazna Avenue Nominees Ltd (“Cazna”) has sued the University of Auckland (“the University”) claiming damages following the termination of the University's lease of the building at 55 Anzac Avenue, Auckland (“the property”). Cazna claims that the University has breached the lease agreement by not removing all fixtures and failing to reinstate the property. The University claims that it has not breached the lease agreement. It further claims that, in any event, Cazna has no right under the lease to enforce the terms of the lease and to sue the University.

2

The following issues must be determined:

  • (a) Does Cazna have standing to enforce the terms of the lease by requiring the University to reinstate the property?

  • (b) In the event that Cazna can require the University to reinstate:

    • (i) Did Cazna require the University to reinstate?

    • (ii) What was the University required to dO'

    • (iii) Did the University fail to do what it was required to dO'

  • (c) If Cazna establishes that the University has breached the lease agreement:

    • (i) What is the appropriate measure of damages?

    • (ii) What quantum of damages must the University pay? and

    • (iii) Is Cazna entitled to receive interest on the judgment sum, and if so, for what period?

Background facts
The Deed of Lease
3

On 30 June 2000, the University entered into an agreement to lease the first to fourth floors of the property from New Bay Holdings Ltd (“New Bay”). Under the Deed of Lease (“the lease”) between New Bay and the University, signed by the parties on 11 December 2000, the University leased the property for a term of six years commencing on 1 September 2000, with a right to renew the lease for two further terms of three years.

4

The lease set out the University's obligations relating to what it, as tenant, had to do once the lease ended. Of relevance to this proceeding are the obligations relating to reinstating the property, at cls 10.1, 21, 22.1, and 33 (“the reinstatement obligations”):

10.1 The tenant shall (subject to any maintenance covenant by the Landlord) in a proper and workmanlike manner and to the reasonable requirements

(a) Maintain the premises

Keep and maintain the interior of the premises including the Landlord's fixtures and fittings in the same clean order repair and condition as they were in at the commencement of this Lease and will at the end or termination of the term quietly yield up the same in the like clean order repair and condition. In each case the Tenant shall not be liable for fair wear and tear arising from reasonable use or damage by fire, earthquake, flood, storm, Act of God,...

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