Trace Investments Ltd v Prince’s Wharf Property Fund Ltd (High Court, Auckland CL13/02, 5 July 2002, Fisher J)
With rising rental price, you as a landlord may want to raise the rent of your rental property. How can you do this effectively?
The decision involves an application by the tenant for a declaratory order that the notice given by the landlord purporting to initiate the rent review was invalid. The wording of the rent review provision of the lease requiring “notice … specifying the annual rent considered by the landlord to be the current market rent as at that review date”. The landlord’s letter did not use those specific words, but instead said: “The Lease provides the lessor with the right to review rental. We have sought advice from a valuer as to the current market rental and they have indicated that the current market rental is $53,000.00 per annum plus GST. Accordingly, we write to advise that we wish to review the rental to $53,000.00 per annum plus GST.”
Main challenges to the validity of the notice were that:
1. It did not specifically state that the rent nominated in the letter was the rent considered by the landlord to be the current market rent as at the review date.
2. It sought to increase the rent on review by 45 per cent, whereas the lease expressly provided that on that review the rent was not to exceed a 15 per cent maximum increase.
The Court held that an informed tenant reading the letter would appreciate that it specified what the landlord considered to be the then current market rent and that it was triggering the rent review procedure. Fisher J also commented that “one is to assume an ordinary sensible commercial reader looking at the document as a whole. We are not concerned with the reactions of a legal pedant or a frustrated English teacher.”
On the second point, the Court held that the fact that the letter claimed a rent higher than could be claimed under the lease did not invalidate the notice either. It held that to constitute a trigger notice under the provisions of the lease it merely needed to state what the landlord considered to be the then current market rent — which it did. The special provision of the lease operated separately to limit the level to which the rent could be increased on that review, but this did not affect the mechanism by which the rent review was to be initiated.
Hence, the landlord was successful in raising the rent although it was limited to a 15 percent increase under the Lease agreement.
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.