Ipsofactoj.com: International Cases [2002] Part 3 Case 11 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Corunna Bay Holdings Ltd

- vs -

Robert Gracie Dean Ltd

GAULT J

TIPPING J

McGRATH J

8 NOVEMBER 2001


Judgment

Tipping J

INTRODUCTION

  1. The principal issue on this appeal from Master Thomson concerns the reasonableness of a condition which the appellant, Corunna Bay Holdings Ltd (the lessor), sought to impose when giving consent to the assignment by the respondent, Robert Gracie Dean Ltd (the lessee), of all its interest in the lease between the parties. The proposed assignment was to a company called Thames Holding Ltd, to which we will refer as the assignee. The land which is the subject of the lease is situated in the city of Napier. It was purchased by the lessor subject to the lease which is a conventional perpetually renewable Glasgow lease whose present term of 21 years expires on 16 February 2013.

  2. The owner of the land at the time the lease was entered into was the Napier Harbour Board, referred to therein as the Board. The lease contained as clause 4 the following covenant by the lessee:

    THAT the lessee shall not nor will during the continuance of the term hereby granted assign sublet or part with the possession of the said demised premises or any part thereof without the consent in writing under the seal of the Board first had and obtained but such consent shall not be arbitrarily or unreasonably withheld in the case of a reputable and solvent assignee or subtenant Provided always and it is hereby declared that (without however affecting the generality of any other provision herein contained) this covenant shall extend as well to any licensed assignee or sub-lessee as to the lessee.

    The fee simple interest was transferred from the Board to Port of Napier Ltd and by it to the lessor, Corunna.

  3. The lessee sold its leasehold estate to the assignee and, as required, sought the lessor’s consent to the necessary assignment. Consent was given conditionally by letter from the lessor’s solicitors in these terms:

    We refer to your facsimile of 30 January 2001 to Corunna Bay Holdings Ltd. Our client consents to the transfer of the lease on the following basis:

    (1)

    There is no unremedied default pursuant to Lease 272334.

    (2)

    Our client’s consent is without prejudice to the rights and remedies pursuant to Lease 272334.

    (3)

    The Purchaser [the proposed assignee] enters into a deed of covenant in the form attached.

    (4)

    Payment of our consent fee of $120 plus GST.

    (5)

    Payment of our client’s consent fee of which we understand you have detailed.

    A consent form is presently with our client for signing. Kindly let us have a copy of the signed transfer.

    THE ISSUE

  4. It is condition 3 which raises the present issue. The deed of covenant which the lessor required the assignee to sign was expressed to be between the assignee (described as the covenantor) and the lessor (described as the lessor). After conventional recitals, including a recital that the lessor had agreed to consent to the transfer of the lessee’s interests to the covenantor "if the covenantor executes this deed", the operative part of the deed included as clauses 3.1 and 3.4:

    3.1

    In consideration of the Lessor’s consent to the transfer the Covenantor will as from the date of this deed pay the rent under the Lease and will otherwise comply with all the Lessee’s obligations under the Lease.

    ....

    3.4

     

    If the Covenantor transfers or sub-lets the Lease or parts with possession of the land the Covenantor will first:

    (a)

    obtain the Lessor’s written consent; and

    (b)

    deliver to the Lessor a like deed of covenant by the proposed transferee, sub-lessee or occupant with the Lessor;

    and so on with each succeeding transfer, sub-letting or parting with possession.

  5. The lessee was unable or unwilling to procure from the assignee a deed of covenant as requested by the lessor. The lessee contended that as the lease itself did not contain any obligation on the lessee’s part to procure such a deed to be signed by an assignee, the lessor was being unreasonable in stipulating for same as a condition of its consent to the assignment. When the lessor persisted in its stance, the lessee sought summary judgment in the High Court by way of a declaration that the lessor’s refusal to consent to the assignment of the lease, unless the assignee executed the deed, was unreasonable and thus a breach of clause 4 of the lease. The lessee also sought summary judgment for an order requiring the lessor to hand to the lessee a consent in writing to the assignment. Master Thomson entered summary judgment for the lessee in the terms sought, essentially on the basis that by insisting on the execution of the deed as a condition of its consent the lessor was unreasonably withholding such consent, because clause 4 as a matter of construction did not entitle the lessor to stipulate for such a deed from the assignee. The lessor has appealed.

  6. As the lease is registered, s97 of the Land Transfer Act is relevant. It provides:

    97

    Transfer of lease or mortgage

    (1)

    A registered mortgage or lease may be transferred by memorandum of transfer as aforesaid.

    (2)

    Upon registration of any such memorandum of transfer the estate or interest of the transferor as set forth in the instrument, with all rights, powers, and privileges thereto belonging or appertaining, shall pass to the transferee.

    (3)

    The transferee shall thereupon become subject to and liable for all and every the same requirements and liabilities to which he would have been subject and liable if named in the instrument originally as mortgagee or lessee of the land, estate, or interest; and by virtue of every such transfer as is hereinbefore mentioned the right to sue upon any memorandum of mortgage or other instrument, and to recover any debt, sum of money, annuity, or damages thereunder (notwithstanding that the same may be deemed or held to constitute a chose in action), and all interest in any such debt, sum of money, annuity, or damages shall be transferred so as to vest the same at law as well as in equity in the transferee thereof:

    Provided that nothing in this section shall prevent a Court of competent jurisdiction from giving effect to any trusts affecting the said debt, sum of money, annuity, or damages in case the transferee holds the same as a trustee for any other person.

  7. Also relevant on account of its reinforcement of clause 4 of the lease is s110(1) of the Property Law Act 1952:

    110

    Licence or consent not to be unreasonably withheld

    (1)

    In all leases, whether made before or after the commencement of this Act, containing a covenant, condition, or agreement against assigning, underletting, charging, or parting with the possession of demised premises or any part thereof without licence or consent, that covenant, condition, or agreement shall, notwithstanding any express provision to the contrary, be deemed to be subject to a proviso to the effect that the licence or consent is not to be unreasonably withheld, but this proviso does not preclude the right of the landlord to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with any such licence or consent.

    EFFECT OF PROPOSED DEED

  8. The effect of the assignee signing the proposed deed of covenant would be to create privity of contract between the assignee and the lessor as well as privity of estate. The assignee would thereby undertake significantly greater liability to the lessor than if their relationship rested solely on privity of estate. For example, the assignee would be liable to the lessor for the rent and due performance of the lessee’s covenants for the whole of the rest of the term (at which point a new lease is contemplated under clause 19) rather than simply during the time the assignee remained in privity of estate with the lessor. In spite of its apparently wide terms s97(3) of the Land Transfer Act does not create in an assignee of a lease (referred to as the transferee in the section) any greater liability than existed in such circumstances outside the Act (ie. there is privity of estate but no privity of contract). The assignee is to this extent in a different position from the original lessee whose liabilities necessarily existed in contract as well as by reason of privity of estate.

  9. This is the effect of the decision of this Court in Wilson v Brightling (1885) 4 NZLR 4, a decision on s69 of the Land Transfer Act 1870 which was in materially the same terms as the present s97. The Court (Prendergast CJ, Gillies J and Williams J) upholding Johnson J, held that the section did not make the assignee of a lease liable for rent which had accrued due, or for breaches of covenant occurring after the assignee had himself assigned the lease. Williams J, an acknowledged expert in this field, said at 9:

    It would want very clear, precise, and unmistakeable language on the part of the Legislature to lead the Court to come to the conclusion which [counsel for the appellant] invites us to arrive at. I see nothing in section 69 which obliges us to come to such a conclusion. That section makes a transferree of a lease, on his transfer being registered, liable as if named originally in the lease as assignee. The transferree is therefore made liable in his capacity as transferree. It seems to me that when the transferree transfers the lease to someone else, the first transferree cannot any longer be said to be in the position of transferree, and, therefore, the liability imposed by the section upon him quá transferree also ceases.

  10. Williams J’s reference to the transferree being made liable as if named originally in the lease as assignee is awkward; but the thrust of His Honour’s approach is entirely clear, as is that of the other members of the Court. We were not invited in argument to consider the correctness of Wilson v Brightling; nor indeed were any submissions directed to it. We see no reason to question the interpretation of what is now s97 which this Court took over 100 years ago. It follows that by stipulating for the deed of covenant the lessor was seeking to cast on the assignee a greater liability than that which would lie upon it as a matter of law. It was seeking to do so without any contractual right to require the deed and in circumstances which must necessarily have made the lessee’s right to assign less valuable because potential assignees would be inclined to pay less for the leasehold interest if required to enter into the deed than if not so required.

    DISCUSSION

  11. It is against that background that we must address the essential issue. We will not separately discuss counsel’s submissions but will refer to them as appropriate. Mr Kohler for the lessor criticised the Master’s judgment for its emphasis on the construction of clause 4 of the lease rather than the reasonableness of the condition which the lessor was seeking to impose. There is force in this point but it does not of itself carry the lessor to its intended destination. The essential question is whether the lessee has demonstrated that the lessor’s insistence on the deed amounted to an unreasonable refusal of consent.

  12. Mr Kohler’s argument was that in seeking privity of contract as well as privity of estate, the lessor was seeking no more than to put the assignee exactly into the shoes of an original lessee. While that is undoubtedly what the lessor is trying to do, its problem is that it has no contractual right, vis a vis the lessee, to do so. Mr Kohler pointed to the Auckland District Law Society form of commercial lease as evidence that it is reasonable to include a right for the lessor to stipulate for such a deed as is here in issue. But the fact that such right is expressly provided for does not make it reasonable to stipulate for a deed without a contractual right to do so.

  13. Mr Kohler also pointed to the fact that the deed will provide greater certainty for the lessor than would be the case if matters were left to the conventional basis of determining which covenants run with the land. Such covenants do not of themselves outrun the cessation of an assignee’s privity of estate with the lessor and, in any event, the point does not address the key issue which is that from the lessee’s point of view the lessor’s stipulation diminishes the value of the right to assign without the lessor having any contractual right to impose such detriment on the lessee.

    AUTHORITIES

  14. It is now helpful to examine the relevant authorities. Chronologically the appropriate starting point is the decision of Eve J in Evans v Levy [1910] 1 Ch 452. In that case lessors were found to be acting unreasonably in seeking to make it a condition of their consent to an assignment from the lessee to his wife that he, the lessee, should guarantee performance of all the lessee’s covenants for the rest of the term – some 27 years. As lessee the husband was not in privity of contract with the lessor, having taken by assignment himself from an earlier lessee. Eve J found that it would have been reasonable to require the husband to guarantee his wife’s obligations while she was the effective lessee, but not the payment of rent or the observance of the covenants in the lease in all respects for the whole of the balance of the term. There is therefore a clear analogy between that case and the present.

  15. We note that in the Laws of New Zealand, Chapter 39 on Landlord and Tenant at paragraph 239, the author describes Evans v Levy as being a case of a proposed reassignment by an assignee. We do not think this is strictly correct unless the author meant by reassignment a further assignment but, in any event, this could not logically be regarded as any reason for distinguishing Eve J’s view which provides considerable support for the lessee’s argument. There was no suggestion in Evans v Levy that the lessor had a contractual right to stipulate for the lessee’s guarantee.

  16. In the later English case of Balfour v Kensington Gardens Mansions Ltd (1932) 49 TLR 29 the lessors did have a contractual right to require assignees to enter into direct covenants with them. On that basis Macnaghten J was inclined to the view, although the point did not directly arise, that to stipulate for such a covenant would have been reasonable.

  17. The first New Zealand case which deserves mention is the decision of K M Gresson J in Fairhall v Gillies [1948] NZLR 184. At 188, after reference to English authority, His Honour described the principle as being that grounds of objection unconnected with the person of the assignee or the user or occupation of the premises are not reasonable. Aspects of the matter were touched on by this Court in W E Wagener Ltd v Photo Engravers Ltd [1984] 1 NZLR 412 which stands as authority for the proposition that if the lease permits something to be a condition of the lessor’s consent such contractual provision does not automatically make it reasonable for the lessee to impose that condition. Wagener’s case cannot, however, be regarded as authority for the converse proposition, namely that if something is not contractually permitted, it is never reasonable for the lessor to impose it as a condition. That would rule out innocuous conditions which had not been contractually stipulated for. Nevertheless it must, prima facie, be unreasonable for a lessor, without any contractual right to do so, to stipulate for something as a condition of consent to assignment which diminishes the value of the lessee’s right to assign.

  18. More recent cases in England include International Drilling Fluids Ltd v Louisville Investments Ltd [1986] 1 All ER 321, and Jaison Property Development Co Ltd v Roux Restaurants Ltd (1996) 74 P & CR 357; both decisions of the Court of Appeal. In essence these and the authorities cited stand for the proposition that the lessor cannot seek to achieve a collateral advantage as a condition of consenting to an assignment. The conventionally permitted grounds for refusing consent or imposing conditions relate to the personal or financial circumstances of the proposed assignee, or legitimate concerns which the lessor has about the use or occupation of the premises by the proposed assignee.

    CONCLUSION ON REASONABLENESS

  19. This review of the authorities leads us to the conclusion that when the lessor sought to make the assignee liable to a greater extent than it would have been at law, and declined to consent unless this outcome was achieved, the lessor was unreasonably withholding its consent. The lessee’s right to assign was thereby rendered less valuable. The lessor was not entitled to impose that detriment on the lessee without a contractual right to do so. If such contractual right had existed, the lessee’s right to assign would have been less valuable from the outset, rather than as a consequence of the lessor’s unilateral stipulation.

  20. We therefore agree with the Master that in the circumstances the lessor unreasonably refused its consent. We would uphold the Master’s declaration and order, albeit by a somewhat different process of reasoning. We have reminded ourselves that the lessee’s proceedings were by way of an application for summary judgment, but do not consider the point at issue could have benefited from evidence at trial. It is essentially a point of law.

    SOLVENCY

  21. The appellant raised a subsidiary point concerning the proposed assignee’s solvency. In its solicitor’s letter giving conditional consent, the lessor did not mention the point but, when difficulties emerged about the deed of covenant, it purported to challenge the suitability of the assignee on solvency grounds. The Master dealt with the issue very shortly at the end of his judgment. He regarded the lessor by its earlier silence on the point as having acknowledged the assignee’s solvency. He considered it was appropriate to take a "robust" view and grant summary judgment, despite the belated challenge. The appellant argued on appeal that it was not contractually obliged to accept that the assignee was solvent, nor was it estopped from denying that to be the case. That may well be so but for summary judgment purposes the Master was entitled to assess the genuineness of the lessor’s belated stance. In his affidavit for the lessor, in opposition to summary judgment, Mr Burton said:

    Whether or not Corunna is entitled to a Deed of Covenant will be for the Court to determine, however given that the offer has not been taken up and the Plaintiff and Thames Holding Ltd are not prepared to provide the comfort that a Deed of Covenant will provide then Corunna is concerned about the financial standing of Thames Holding Ltd. Indeed its refusal to agree to such a common requirement is in itself of concern.

  22. As a reason to challenge the assignee’s solvency, after first appearing to accept it, the basis put forward is illogical and wholly unpersuasive. We accept that the details of its financial circumstances put forward by the assignee were sparse but they appear to have been accepted by the lessor. There is no evidence that this apparent acceptance was a mistake or an oversight. It is an obvious inference that the issue of solvency was raised simply as a lever to secure the covenant and not out of genuine concern for the assignee’s solvency. When these factors are borne in mind, along with the wholly unsatisfactory reason for the lessor now challenging the assignee’s solvency, we consider the Master was entitled to view the matter as he did, and effectively conclude that the lessor had raised a point of no substance.

    FORMAL ORDERS

  23. For the reasons given the appeal must fail. The Court being unanimous in that view, the appeal is dismissed. The appellant is to pay the respondent costs in the sum of $5000 plus disbursements including the reasonable travel and accommodation expenses of counsel, if any, to be fixed if necessary by the Registrar.

    McGrath J

    BACKGROUND FACTS

  24. The appellant, Corunna Bay Holdings Ltd, is the registered proprietor of the fee simple estate and lessor of the land subject to registered lease 272334 in the Hawkes Bay Land Registry (the lease). The respondent, Robert Gracie Dean Ltd, is lessee under the lease.

  25. The lease is a perpetually renewable ground lease. It was entered into on 14 July 1972 between the Hawke’s Bay Harbour Board, then known as the Napier Harbour Board, as lessor and the respondent, then known as Pain Products Ltd, as lessee. It provides for an initial term of 21 years with perpetual rights of renewal. Following the disestablishment in 1989 of the Hawke’s Bay Harbour Board the lessor’s fee simple interest in the lease was acquired by Port of Napier Ltd which in June 2000, sold that interest, along with its interest in a number of other former harbour board leases, to the appellant. As indicated, during the whole of this period, the respondent remained the lessee. On 23 January 2001 the respondent entered into a contract to sell its interest in the lease to Thames Holdings Ltd (the purchaser) for the sum of $50,000.

  26. Clause 4 of the lease provides that the lessee shall not assign its interest in the lease without the prior consent of the lessor which is not to be arbitrarily withheld in the case of a reputable and solvent assignee. The clause is set out in full in para [48] of this judgment.

  27. The respondent’s solicitors sought the appellant’s consent to the assignment of the lease to the purchaser by letter dated 30 January 2001. A form of consent for execution was provided together with a copy of the front page of the contract of sale which set out its key terms. Also enclosed was a letter from the purchaser’s solicitor giving the following brief particulars of their client:

    To assist you in obtaining consent of the landlord we confirm that Thames Holdings Ltd was incorporated on the 16th day of December 1975 with shareholders and directors being J A Callaghan and M D Callaghan. The company owns significant prime commercial real estate in the Napier industrial and waterfront area and is currently solvent.

  28. On 31 January 2001 the appellant’s solicitors replied:

    .... Our client consents to the transfer of the lease on the following basis:

    (1)

    There is no unremedied default pursuant to Lease 272334

    (2)

    Our client’s consent is without prejudice to the rights and remedies pursuant to Lease 272334

    (3)

    The Purchaser enters into a deed of covenant in the form attached

    (4)

    Payment of our consent fee of $120 plus GST

    (5)

    Payment of our client’s consent fee of which we understand you have the details.

    A consent form is presently with our client for signing. Kindly let us have a copy of the signed transfer.

  29. The Deed of Covenant referred to in condition 3 was expressed to be between the purchaser, as the proposed assignee (described as the covenantor), and the appellant (described as the lessor). Recitals in the deed referred to the appellant’s agreement to consent to the transfer of the respondent’s interest in the lease, if the purchaser executed the deed. In its substantive provisions the deed provided:

    3.0

    OPERATIVE PART

    3.1

    In consideration of the Lessor’s consent to the transfer the Covenantor will as from the date of this deed pay the rent under the Lease and will otherwise comply with all the Lessee’s obligations under the Lease.

    3.2

    Nothing in this deed shall alter the liability of the Transferor under the Lease.

    3.3

    The Covenantor shall not be released from liability under this deed by any act or omission by the Lessor or any dealing by the Lessor with the Transferor or any other person whereby the Covenantor as a surety might be released.

    3.4

    If the Covenantor transfers or sub-lets the Lease or parts with possession of the land the Covenantor will first:

    (a)

    obtain the Lessor’s written consent; and

    (b)

    deliver to the Lessor a like deed of covenant by the proposed transferee, sub-lessee or occupant with the Lessor.

    and so on with each succeeding transfer, sub-letting or parting with possession.

    3.5

    The deed of covenant referred to in clause 3.4 shall be prepared by the Lessor’s solicitors at the cost of the person liable to procure the deed.

  30. The respondent’s solicitors replied the next day advising that the purchaser had refused to execute the deed. They challenged the appellant’s right to require execution of the deed as a condition of its consent to the assignment. They acknowledged that the appellant was entitled to require that the assignee be reputable and solvent but said it was seeking to impose further requirements as conditions of its consent and to cement them by requiring execution of the new deed. The letter concluded with a reminder that the appellant had already been advised that the purchaser was a solvent company, with substantial assets, and an assertion that the requirements for consent to the assignment were satisfied. An executed transfer was submitted as requested in the letter of 31 January.

  31. Correspondence between solicitors followed in which different views were exchanged and reference made to the differing views of conveyancing practice of the Auckland based solicitors for the appellant and the Napier solicitors for the respondent. There were also exchanges concerning views expressed in the leading texts on what might properly be the basis for refusal to consent to an assignment of a lessee’s interest. No issue was raised in this correspondence concerning the solvency or suitability of the purchaser as a lessee.

  32. It became plain the parties were not going to reach agreement on the right of the lessor to insist the deed was executed before consenting to the assignment. Proceedings were issued in the High Court on 5 March 2001 by the respondent seeking a declaration that the refusal to consent, unless a deed of covenant was executed, was unreasonable and in breach of the terms of the lease. At the same time the respondent sought summary judgment on its claim.

    HIGH COURT JUDGMENT

  33. The application for summary judgment came on for hearing before Master Thomson. He recognised that the appellant did not have privity of contract with the respondent or others who were lessees of former harbour board leases. Nor did the lease explicitly stipulate that a deed of covenant could be required from the assignee in the event of the transfer of the lessee’s interest. The first issue the Master addressed was whether such a deed of covenant could be required by the appellant as a condition of giving consent to the assignment. In the Master’s view this did not turn on whether or not to require such a deed was unreasonable, but rather on whether the terms of the lease gave the appellant the right to insist on execution of a deed of covenant as a condition of giving consent to the assignment. In his view they did not. He relied on the decision of this Court in W E Wagener Ltd v Photo Engravers Ltd [1984] 1 NZLR 423 in support of his approach.

  34. In Master Thomson’s view it followed that for the lessor to be able to require a deed of covenant from an assignee of the lessee’s interest there had to be a provision to that effect in the lease. Clause 4 of the lease was not, in his view, a provision which enabled the lessor to insist on a deed being executed as a condition of giving consent. By so insisting in this case the appellant was in breach of the obligation under clause 4 not to unreasonably withhold consent to the assignment. The Master put it in this way:

    (If) a Deed of Covenant was to be required by the original lessor then in my view it had to be included in the lease as a term thereof, but the original parties to the Harbour Board lease obviously agreed not to include such a separate term, as of course they were perfectly entitled to do. I agree therefore with the plaintiff, that in now insisting on a Deed of Covenant as a condition of its consent pursuant to clause 4, that the defendant is going beyond its contractual rights.

  35. The second issue addressed by the Master was whether consent could nevertheless be withheld on the grounds that it had not been shown the purchaser was a reputable and solvent assignee. Master Thomson took the view that the appellant had earlier acknowledged it was satisfied on that matter but wished to resile from that acknowledgement. The Master thought the case was one where the court should take a robust view. He granted the plaintiff summary judgment accordingly, ordering the appellant to hand to the respondent a consent in writing to the assignment of the lease to the purchaser.

    SUBMISSIONS ON THE APPEAL

  36. Mr Kohler, for the appellant, submitted that the Master was wrong to decide that the appellant’s requirement, as a condition of its consent to the assignment, that the purchaser should execute a deed of covenant had to derive from an explicit empowering provision in the lease. The Master had overlooked, he argued, that there was an implicit power to impose reasonable conditions in the provision in the lease which required that consent should not be arbitrarily or unreasonably withheld. Mr Kohler went on to argue that it was reasonable for lessors generally to require execution of a deed of covenant by an assignee to obtain clarity and certainty as to the assignee’s individual responsibility for the obligations of the lessee under the lease. A deed would give privity of contract with the assignee and thus avoid issues arising about which covenants "touch and concern the land". Mr Kohler also pointed out that the privity of contract with an assignee that was secured on execution of the deed would bind the assignee to perform the lessee’s covenants for the residue of the term rather than just for the time it held the lessee’s interest, which would be the effect of merely relying on s97 of the Land Transfer Act 1952 or on obligations arising from privity of estate.

  37. The second issue came down to whether the appellant remained entitled to more information before committing itself to accepting that the purchaser was a reputable and solvent assignee. Mr Kohler pointed to what he said was the inadequacy of the information originally provided by the purchaser’s solicitors and the failure, despite the expression of concern in the appellant’s affidavits, to provide any further information regarding the purchaser’s solvency. He argued that the appellant was not acting unreasonably in continuing to withhold consent given that lack of adequate detail concerning the purchaser.

  38. For the respondent Mr Wenley commenced his submissions by pointing out that the lease did not make provision for a deed of covenant with the assignee to be executed on an assignment of the lessee’s interest. He argued that, because the original lease was registered, s97 of the Land Transfer Act imposed on assignees all obligations of the original lessee. It was implicit that at the time the lease was executed the parties regarded that provision, along with obligations derived from existence of the relationship of privity of estate between the lessor and lessee at any time, as sufficient protection. The original lessor could have contracted for more but had not.

  39. Mr Wenley next submitted that a lessor’s consent could not be withheld in order to obtain a benefit not provided for in the lease. That was because provisions in the lease precluded the unreasonable withholding of consent to assignment and the deed of covenant which the appellant required the purchaser to execute contained unreasonable elements. In particular counsel referred to the benefit of an extension of the period during which obligations were assumed by the assignee under the deed. Even if the element of extra duration of the obligation were removed from the deed, it would be unreasonable to require its execution by the purchaser as assignee because it would make for the unnecessary involvement of the lessor’s solicitors, at the expense of the lessee for the time being, in the documentation of obligations that added nothing to the parties’ legal position.

    THE STATUTORY CONTEXT

  40. The terms of the lease in relation to assignment must be interpreted in the context of two statutory provisions. Section 110 of the Property Law Act 1952 controls the extent to which the parties can stipulate in a lease the basis on which a lessor may decide whether or not to permit assignment of the lessee’s interest. Section 110 provides:

    110

    Licence or consent not to be unreasonably withheld

    (1)

    In all leases, whether made before or after the commencement of this Act, containing a covenant, condition or agreement against assigning, underletting, charging, or parting with the possession of demised premises or any part thereof without licence or consent, that covenant, condition or agreement shall, notwithstanding any express provision to the contrary, be deemed to be subject to a proviso to the effect that the licence or consent is not to be unreasonably withheld, but this proviso does not preclude the right of the landlord to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with any such licence or consent.

    (1A)

    For the purposes of this section, a licence or consent shall be treated as unreasonably withheld if it is withheld by reason…of the colour, race, or ethnic or national origins of any person.

    (2)

    In this section the term "lease" has, except in relation to any dwellinghouse, the same meaning as in section 117 of this Act.

  41. Section 110 is a deeming provision applicable to all leases containing a covenant against assignment without consent. In W E Wagener Ltd v Photo Engravers Ltd [1984] 1 NZLR 412 the section was characterised as inserting a mandatory proviso that consent to assign is not to be unreasonably withheld wherever a lease contains a covenant not to assign without consent (per Cooke J at p417). Subject to that proviso, however, it was open to the parties to stipulate the terms on which a lessor could allow the lease to be assigned (per Cooke J at p418, McMullin J at p424). The Court held that the requirement in the lease in that case that on assignment the lessee should provide a direct covenant as to the continuing observance of the lessee’s obligations was a separate contractual provision as to the right to assign which did not go to the reasonableness of consent to the assignment. It therefore did not offend s110 (per Cooke J at p419, McMullin J at p424, Somers J at p427).

  42. The second statutory provision of contextual importance in this case is s97 of the Land Transfer Act 1952 which expressly stipulates that in the case of a registered lease, on registration of a transfer, the transferee becomes liable as if originally named as lessee. Section 97, so far as relevant to this appeal, provides:

    97

    Transfer of lease or mortgage

    (1)

    A registered mortgage or lease may be transferred by memorandum of transfer as aforesaid.

    (2)

    Upon registration of any such memorandum of transfer the estate or interest of the transferor as set forth in the instrument, with all rights, powers, and privileges thereto belonging or appertaining, shall pass to the transferee.

    (3)

    The transferee shall thereupon become subject to and liable for all and every the same requirements and liabilities to which he would have been subject and liable if named in the instrument originally as mortgagee or lessee of the land, estate, or interest; and by virtue of every such transfer as is hereinbefore mentioned the right to sue upon any memorandum of mortgage or other instrument, and to recover any debt, sum of money, annuity, or damages thereunder (notwithstanding that the same may be deemed or held to constitute a chose in action), and all interest in any such debt, sum of money, annuity, or damages shall be transferred so as to vest the same at law as well as in equity in the transferee thereof:

    Provided that nothing in this section shall prevent a Court of competent jurisdiction from giving effect to any trusts affecting the said debt, sum of money, annuity, or damages in case the transferee holds the same as a trustee for any other person.

  43. In Wilson & King v Brightling (1885) 4 NZLR 4 the Court of Appeal considered whether the original equivalent to s97, which was s69 of the Land Transfer Act 1870, was intended to make the registered transferee liable as if the transferee was the original lessee. Prendergast CJ, with whom Williams J agreed, took a purposive approach to the words of the section; he held that the legislative intent was to define the liability that was imposed on an assignee of the lease on registration of the transfer but not to extend liability beyond the period of holding the lease, which was its duration at common law. The argument that the statutory language had the effect of putting the assignee in privity of contract with the lessor was accordingly rejected.

  44. In Wilson & King v Brightling the unsuccessful plaintiffs had been the original lessees, who had been required to pay outstanding rent, and who were seeking contribution from a subsequent assignee who no longer held the lease. Counsel for the plaintiffs had invited the Court of Appeal to consider the similar legislative provisions made under the earlier South Australian Land Transfer Acts. There is nothing in the Court of Appeal’s extemporary judgment that indicates it did so. It is however interesting to note that in the South Australian Real Property Act 1886 it was expressly provided in s151 that the liability of a transferee on registration was expressed to be "while he remains the registered proprietor of such estate or interest". In New Zealand there has been no equivalent express amending statutory provision. Section 69 was carried through to s83 of the Land Transfer Act 1855, to ss90 and 91 of the 1908 consolidating Act, to s89 of the 1915 Land Transfer Act Compilation Acts, and eventually to s97 of the Land Transfer Act 1952. All this was done without significant alteration to the form of the provision as originally expressed in s69 of the 1870 Act and considered in Wilson & King v Brightling.

  45. There was a suggestion during oral argument in the present appeal that Wilson & King v Brightling case had not been correctly decided. In my view the consistent re-enactment over the years, without material alteration, of what is now s97 has reinforced the interpretation given it in 1885. The decision concerned avoided the need for the express amending provision that was made in South Australia. Wilson & King v Brightling was also followed by this Court in Seon Developments Ltd v Roger (1993) 2 NZ Conv Cases 181, 664. Whatever may have been the attraction of a more literal approach to its language the stage has now been reached, in my view, where any extension of the period of liability of a registered transferee of a lease to equate to that of a party in privity of contract with the lessor must be by legislative amendment.

  46. In summary of the present position, s110 of the Property Law Act 1952 controls the extent to which parties to a lease may stipulate a basis on which consent to assign the lessee’s interest may be withheld by a lessor. The section does not, however, preclude the original parties from agreeing that on assignment the lessee will directly covenant with the lessor for the performance of the lessee’s obligations over the balance of the term of the lease following assignment. In the absence of such an agreement the obligations imposed on the transferee of a registered lease are those under s97 of the Land Transfer Act 1952. They commence on registration of the transfer and extend while the assignee holds the lease. This is the statutory context in which the terms of the registered lease in this case, concerning assignment, are to be interpreted.

    DECISION

  47. There is no specific provision in the lease presently being considered, as there was in W E Wagener Ltd, giving the lessor the right to secure by deed the continuing benefit of the covenant of an assignee who has ceased to hold the lease. The first issue in the appeal is whether the lease allows the appellant as lessor to require such a covenant from the purchaser as lessee as a condition of consent to the assignment.

  48. Clause 4 of the lease provides as follows:

    That the lessee shall not nor will during the continuance of the term hereby granted assign sublet or part with the possession of the said demised premises or any part thereof without the consent in writing under the seal of the Board first had and obtained but such consent shall not be arbitrarily or unreasonably withheld in the case of a reputable and solvent assignee or subtenant provided always and it is hereby declared that (without however affecting the generality of any other provision herein contained) this covenant shall extend as well to any licensed assignee or sub-lessee as to the lessee.

  49. Clause 4 is expressed as a prohibition on assignment without prior written consent, subject to a proviso limiting the circumstances in which that consent may be withheld. In terms of this provision the question in my view becomes whether the requirement that the purchaser give a direct covenant amounts to an arbitrary or unreasonable withholding of consent, in terms of the proviso.

  50. The principal purpose of the appellant in imposing the requirement as a condition of consent is to secure a right not provided by the lease, namely the continuing support of the covenant of the assignee following any future assignment. That obligation is not only additional to the appellant’s rights under the lease but is unconnected with the individual characteristics of the proposed assignee or with its use of the premises. There is a general principle that grounds of objection to an assignment without a connection to the person of an assignee or the user or occupation of the premises is unreasonable: Fairhall v Gillies [1948] NZLR 184 at 188 per K M Gresson J. Similarly in Mills v Cannon Brewery Co Ltd [1920] 2 Ch 38 a requirement of consent to an assignment that the assignee of a public house reside on the premises, not provided for in the lease, was held to be unreasonable.

  51. In Evans v Levy [1910] 1 Ch 452 consent was refused to the assignment by a man to his wife of a lease with a residue of 27 years still to run of its term of 31 years. Eve J held it was unreasonable for the lessor to require a covenant from the husband, making him liable for the lessee’s obligations during the whole of the residue of the term, as a condition of consent to the assignment. This case is cited in Laws of New Zealand, Landlord and Tenant, Chapter 39, para 239 for the following proposition.

    In the case of a proposed reassignment by an assignee, it is unreasonable to require the assignee to covenant to pay the rent and perform the covenants for the residue of the lease.

  52. Similarly in W E Wagener Ltd v Photo Engravers Ltd [1984] 1 NZLR 412 a desire to extract agreement to alter in the lessor’s favour the terms of a lease as to rent, by negotiating more frequent rental reviews, was held not to be a reasonable ground for refusing consent.

  53. These cases all support the principle that grounds of objection to an assignment aimed at securing rights for a lessor additional to those already provided for in the lease will in general be arbitrary and unreasonable, and that will especially be so when the grounds concerned do not go to either the individual characteristics or attributes of the assignee, such as it solvency and reputation, or to its intended use of the leased premises. In the present case the purpose of seeking to extend the period of an assignee’s liability beyond the period of its holding of the lease falls within that general principle and in my opinion is an unreasonable withholding of consent. This is so regardless of any conveyancing practice that may have emerged or the fact that an express agreement in a lease for a direct covenant to be provided by an assignee does not offend s110 of the Property Law act (see para [41] above).

  54. The remaining issue concerns whether on the facts it remains open to the appellant to require further information concerning such individual attributes of the purchaser before giving its consent. The basis for the Master’s finding was that the appellant had acknowledged the suitability of the purchaser to be an assignee. When indicating on 31 January 2001 its conditional consent to the assignment, the appellant did not request more information concerning the purchaser than the very limited amount provided (see paras [27] and [28] above). Thereafter in a vigorous exchange of correspondence the requirement of execution of the deed remained the only subject of concern raised by the respondent. It was only following issue of the proceeding, in an affidavit made by its solicitor on 3 April 2001, that the suitability of the purchaser to be an assignee was first raised.

  55. The Master’s finding of fact, reflected in his robust view of the case, was that the appellant was in fact satisfied that the purchaser was a reputable and solvent company but that it would consent to the assignment of the lease only if its requirements of a direct covenant were met. This was a finding of fact that the refusal to execute the deed was the true and only ground for withholding of consent. The change of attitude to the purchaser’s suitability was a resiling from that view to support its purpose of securing a direct covenant for the purchaser. I consider these findings of fact by the Master have not been shown to be wrong. I agree with them and that it was appropriate to make them on a summary judgment application. It follows that the only basis in fact for refusal of consent was the unreasonable one of endeavouring to secure an additional benefit to which there was no entitlement.

  56. For these reasons I consider the appeal should be dismissed with costs as in terms of the judgment delivered by Tipping J.


Cases

Wilson v Brightling (1885) 4 NZLR 4; Evans v Levy [1910] 1 Ch 452; Balfour v Kensington Gardens Mansions Ltd (1932) 49 TLR 29; Fairhall v Gillies [1948] NZLR 184; W E Wagener Ltd v Photo Engravers Ltd [1984] 1 NZLR 412; International Drilling Fluids Ltd v Louisville Investments Ltd [1986] 1 All ER 321; Jaison Property Development Co Ltd v Roux Restaurants Ltd (1996) 74 P & CR 357; Seon Developments Ltd v Roger (1993) 2 NZ Conv Cases 181

Legislations

Land Transfer Act 1952: s.97

Property Law Act 1952: s.110(1)

South Australian Real Property Act 1886: s.151

Authors and other references

Laws of New Zealand, Chapter 39 (Landlord and Tenant)

Representations

G J Kohler for Appellant (instructed by Burton & Co, Auckland)

M J Wenley for Respondent (instructed by Willis Toomey Robinson, Napier)


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