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What a Difference a Day Makes

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.


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