If you fail to renew a lease by mistake, what are the options?

Ponsonby Mall Trust Ltd vs New Zealand Food Industries Ltd.

(High Court, Auckland CIV 2005-404-3631, 5 December 2005, Asher J)

When conducting a business in New Zealand, you may become so busy or things happen so fast that you may forget to renew the lease by mistake. What can you do if the landlord wants you out of the premise for this mistake? This may cost your business dearly.

This case involved a tenant, New Zealand Food Industries Ltd (“NZFI”), mistakenly failing to renew its lease in accordance with its terms. The landlord, Ponsonby Mall Trust Ltd and Crummer Trading Trust Ltd (“PMT & CTT”) sought to rely on that failure, and issued court proceedings for possession of the premises. NZFI counterclaimed seeking an order under s 120 of the Property Law Act 1952 (“the Act”), for a renewal of its lease. This was granted to NZFI by the Court.

NZFI is New Zealand’s largest producer of yeast, producing 100 per cent of liquid yeast and 98.5 per cent of all compressed yeast. From around 1910, NZFI carried out its operations at a site in Ponsonby, Auckland. Until 2004, it owned the site.
By 2002, it had become apparent to NZFI that its premises were located on prime real estate, being situated within populated residential accommodation and upmarket retail premises. NZFI’s yeast business was up for sale as a going concern, in addition to the premises.

On June 2004, PMT & CTT bought the premises with the intention of redeveloping the site. On the same date, NZFI took a lease back of the premises for a period of one year, with two rights of renewal for six month terms.

In July 2004 the shares in NZFI were sold. Restructuring occurred whereby many of the management team were either made redundant or resigned. During this “flurry of change,” the issue of the need to renew the lease was overlooked. The newly appointed site manager had no idea that the lease required written notice to be given at least three calendar months before the end of the term.

Section 120(3) of the Act provides that a lessee may apply to the Court for relief if the lessee, is in breach of a term of the lease, or fails to give the lessor notice of intention to renew. Section 120(4) of the Act gives the Court a discretion as to whether to grant or refuse relief, as it thinks fit. Among the factors considered by the Court, the most important one for this case was the prejudice to NZFI if the relief was not granted, “lessee’s bona fides”. If a renewal was not granted, the prejudice to NZFI “would be very grave indeed”. The consequence would be that the existing yeast making operations would have to close down, and NZFI would have no choice but to lay off staff, and import yeast fromAustralia. This would mean that the yeast would not be fresh, there would be inevitable delays, and NZFI’s product could become less competitive in theNew Zealand market. The immediate loss of revenue was estimated at around $5 million. The Court considered NZFI’s reputation it had built up over 100 years would be damaged.

Please note that the above information is intended to provide general information only. The contents contained in this article do not constitute legal advice and should not be relied on as such. For legal advice please contact our professional team at Forest Harrison.