By Warren Bygrave - 7 Jun 2011
As a landlord, you must follow notice requirements carefully
when attempting to cancel a lease.
A recent Supreme Court decision - Ingram v Patcroft Properties
Limited [2011] NZSC 49 - shows that mistakes can be costly.
Overview of the Case
In this case, the tenant failed to pay rent on time. So the
landlord exercised the right to re-enter the premises and change
the locks, as allowed under the lease. But problems arose because
the landlord re-entered one day sooner than the lease allowed -
i.e. after the 13th day that the rent was overdue, rather than
after the 14th day.
After the landlord's re-entry, the tenant still failed to pay
the outstanding rent. But neither did the tenant accept the
landlord's re-entry by giving notice of cancellation to the
landlord (the tenant's right under section 7(4)(b) of the
Contractual Remedies Act).
One year later, having still not received the overdue rent, the
landlord claimed damages on the basis that the lease had been
validly terminated. The tenant retaliated by claiming for damages
based on the landlord's breach of the notice requirements.
The Outcome
Initially, the tenant won. The High Court agreed that the
landlord's re-entry was unlawful and awarded the tenant damages for
the loss of business.
But then the Court of Appeal reversed this decision, saying that
the tenant had failed to cancel the lease after the wrongful
re-entry. The Court of Appeal decided that, on the 14th day after
the rent became overdue, the landlord's re-entry had become
acceptable.
Finally, in the Supreme Court, the tenant won again. The Supreme
Court decided that the landlord's action in unlawfully excluding
the tenant from the premises a day early, by re-entering and
changing the locks, constituted a repudiatory breach of the lease.
The landlord had prevented the tenant from carrying out its
business. As the tenant did not accept the landlord's re-entry, and
did not cancel the lease itself, there was no valid cancellation of
the lease by either party.
The Supreme Court restored the original orders made by the High
Court, awarding costs of $15,000 to the tenant plus reasonable
disbursements.
If you would like help with or have any questions regarding your
rights and obligations as a landlord, please contact Warren Bygrave.
Note: The provisions of the Property Law Act 2007 (PLA) did not
apply to this case as the lease was in place before 2007. Any
leases entered into after the PLA came into force need to comply
with additional PLA notice provisions, including a 10 working day
notice period for re-entry by the landlord. This case would
presumably have been decided in the same manner even if the PLA had
applied.