Stylo Medical Services Ltd v Hum Hospitality Ltd

• Jurisdiction: New Zealand
• Judge: Whata J
• Judgment Date: 27 May 2015
• Neutral Citation: [2015] NZHC 1150
• Docket Number: CIV-2013-404-4995
• Court: High Court
• Date: 27 May 2015

[2015] NZHC 1150

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-4995

Under s 244 Property Law Act 2007

In the Matter of an application for cancellation of Deed of Lease dated 22 January 2011 and possession

BETWEEN

Stylo Medical Services Limited

Applicant

and

Hum Hospitality Limited

Respondent

Appearances:

R O Parmenter for Applicant

S Abdale for Respondent

Application for forfeiture against cancellation of a lease and for a stay preventing further proceedings in respect of the lease — parties had been involved in a long running dispute over the leasehold of a property — applicant sought cancellation of the lease on the grounds of non-compliance with covenant of repair and non-payment of rent — respondent sought a stay preventing the applicant from commencing further proceedings, pending resolution of an appeal by the applicant against a High Court (HC) decision – lease contained a covenant requiring the tenant to renovate the building – the respondent had undertaken renovations at considerable expense but had fallen behind on rent on three occasions — whether relief from forfeiture should be granted in respect of cancellation on the repair clause — whether relief against forfeiture should be granted given the past and current defaults in rent — whether a stay should be ordered.

The issues were: whether relief from forfeiture should be granted in respect of cancellation on the repair clause; whether relief against forfeiture should be granted given the past and current defaults in rent; and whether a stay should be ordered.

Held: The report was of limited assistance, but the overall impression it gave was that the repair and painting has largely been undertaken to a workmanlike standard. For the purposes of exercising the discretion to grant relief, the assessment was overall favourable to Hum. As a whole, substantial works had been undertaken by Hum with key aspects of it undertaken to a good workmanlike standard. Any residual relevant breach of cl 48.5 appeared to be minor. It was appropriate that the order be made final insofar as it concerned Stylo's complaint of non-compliance with cl 48 of the lease.

A history of non-payment of rent did not necessarily disqualify a tenant from relief. However, it would be inequitable to place a landlord in the position where immediate defaults would follow the granting of relief. Evidence of incapacity to pay rent was therefore a relevant factor.

The balance overall favoured of the grant of relief because:

• (a) Hum had made substantial improvements to the property so that it was now habitable;

• (b) The amount owing at any given time (after the compliance with the first order of the Court) was small relative to the contribution made by Hum to the property;

• (c) Hum had indicated that it would be able to regularise the rental payments from end of June onwards.

• (d) The lease was premised on understanding that in exchange for the property being restored to a habitable state, Hum would be able to enjoy the leasehold over a very long term. The current insistence by Stylo on its strict legal rights was discordant with this underlying premise.

While Stylo was fully entitled to insist on its legal rights, further relief from cancellation was warranted in these circumstances. However Hum had to pay outstanding rent and to regularise its payment of rent in accordance with the lease. Hum had one final opportunity to regularise matters. Accordingly, a condition of relief against forfeiture was that Hum pay all outstanding rental owing by 31 June 2015. If it did not do so, Stylo would have leave to seek cancellation without the need to file a further application

Hum could then expect that the lease would be cancelled if all relevant payments had not been made. Furthermore, future non-payment of rent on time would result in cancellation.

It was not necessary to consider the stay applications. While Stylo was plainly intolerant to any further non-compliance with the lease terms, it had not abused the PLA notice regime thus far. There was however a risk that the use of the regime could unfairly burden Hum with costs liability. The Stylo notices were effectively pro forma documents that required little by way of expert attention. If Stylo wished to continue with its litigious approach to the rental payments, closer scrutiny would need to be given to the appropriateness of costs on the applications, particularly where any default had been very short.

Relief against forfeiture granted. Application for a stay declined

JUDGMENT OF Whata J

1 Stylo Medical Services Ltd (Stylo) and Hum Hospitality Ltd (Hum) are locked in a long-running battle concerning a leasehold of a grand villa in Parnell. This will be the sixth judgment dealing with the dispute in 24 months. 1

2 In this judgment I must resolve:

• (a) Whether I should cancel the deed of lease for noncompliance with covenant of repair;

• (b) Whether I should cancel the lease for non payment of rent in January this year;

• (c) Whether I should grant a stay preventing Stylo from commencing further proceedings against Hum, pending resolution of an appeal by Stylo against my judgment of November last year. 2

Background

3 The full background to this matter is thoroughly essayed in previous judgments. For present purposes it is sufficient for me to borrow from the third cancellation decision: 3

5

The immediate background to the lease assumes significance in light of Hum's claim that, contrary to representations made by Stylo's director, Dr Ooi, the buildings foundations were not fit for purpose. [6] Stylo purchased the villa in 2008 located at 123 Grafton Road, Auckland. It was in a state of considerable disrepair. Dr Ooi says that $22,000 was spent on repiling and relevelling the building. He also says that Code of Compliance (CoC) “was issued and said it should last for 50 years”. I could not find a copy of the CoC in the morass of paper filed with the1 See Stylo Medical Services Ltd v Hum Hospitality Ltd[2013] NZCHC 2114 [first cancellation decision]; Stylo Medical Services Ltd v Hum Hospitality Ltd[2014] NZHC 1587 [second cancellation decision]; Stylo Medical Services Ltd v Hum Hospitality Ltd[2014] NZHC 2029 [the consolidation decision]; Stylo Medical Services Ltd v Hum Hospitality Ltd[2014] NZHC 2428 [third cancellation decision]; Stylo Medical Services Ltd v Hum Hospitality Ltd[2014] NZHC 2723 [fourth cancellation decision].2Stylo Medical Services Ltd v Hum Hospitality Ltd[2014] NZHC 2723 [fourth cancellation decision]. In that judgment I resolved to extend the time in which Hum was required to pay all outstanding rentals ($53,995.50) by one working day. Stylo appeals that decision to the Court of Appeal.3Stylo Medical Services Ltd v Hum Hospitality Ltd[2014] NZHC 2428 [third cancellation decision].applications, but I assume he is referring to a CoC for the repiling. A resource consent to operate a café was also obtained, apparently at a cost of about $30,000. Dr Ooi then avers: 6. …. Based on the original consent too, only building consent is needed which would not take long at all to get as most of the detail has been submitted for the resource consent and I have full support from the heritage counsellor Ian Grant and heritage architect, Antony Matthews. I mention that the resource consent only lasts for 5 years, so we have lost a good part of that period already. [7] Stylo, it appears, had no further money to repair the villa and went searching for a tenant. Dr Ooi was introduced to Ms Armitage, director and shareholder of Hum. The best evidence of the outcome of their negotiations are the agreements to lease and the executed lease to which I will now turn. … The lease [13] As I observed in my previous judgment, cl 46.1 provides the rent holiday, though the length of holiday is extended from 28 to 36 months. Clauses 48.1 to 48.7 deal with tenants' fitout and other work and effectively replicates the second agreement to lease. Given their significance, I include the operative clauses for present purpose here: 48.1 The Landlord agrees to provide the tenant full access to the premises upon this agreement is declared unconditional. 48.2 Before the commencement of the Tenant's business the tenant shall, at the tenant's cost complete the following work: 48.2.1 Repaint and repair (if necessary) the exterior of the building; 48.2.2 Repair the roof (if necessary); 48.2.3 Fence around the balcony; 48.2.4 Landscaping. 48.2.5 fitout all floors by painting, flooring, installation of toilet and kitchen. 48.2.6 any other work that at the Tenant's opinion is necessary for the Tenant's business use of the premises. Details of the work are listed in the attached schedule. 48.3 All work shall be done in a workmanlike manner and according to the New Zealand Building Code. If resource consent and/or building consent are required for any work the Tenant shall at the Tenant's cost obtain the relevant consent before the work starts. The Tenant shall also obtain Code Compliance certificate for any work that building consent is required. 48.4 The tenant must obtain the Landlord written approval for the fitout work and other work at lease 20 working days prior to the commencement of the work. If resource consent or building consent is required for the work the tenant must obtain the landlord's written consent at least 10 working days before the Tenant submit the application for the consent to the authority. The tenant shall provide the landlord with plans and specifications and other information necessary for the landlord to approve the work. The landlord shall consider the work fairly and reasonably and shall make a decision within 5 working days after receiving the notice and necessary information from the Tenant for the...