Business / Commerical
Even when the documentation entered into between parties appears clear and able to be interpreted precisely, when the parties end up in a dispute, it is always quite fascinating to see how the actions or words of one or the other of them can be interpreted differently depending on which side of the dispute you are sitting.
In summary, the proceedings related to a dispute in relation to a lease granted by Southhead Holdings Limited (“Southead”) to Green Road Cattle Company Limited (“Green”). Southhead claimed that the parties agreed to surrender that lease with effect from 31 May 2017, the date it says the initial term of the lease expired. Southhead applied to the High Court to re-take possession of the property pursuant to such surrender.
Green did not accept that there was any agreement to surrender the lease and maintained that the initial term of the lease did not expire until 31 May 2019. Further, it claimed there were various rights of renewal beyond the initial term.
Green also claimed a right of first refusal to purchase the property if Southhead wished to sell it. Green counter claimed against Southhead to preserve its alleged rights under the lease and an injunction to restrain Southhead from taking any steps to evict it from the property.
A lease was executed on 29 July 2016 in a standard form prepared for use by Federated Farmers of New Zealand. The terms reflected the need for Green to invest in the property to bring it up to a suitable standard for farming. It contains various covenants requiring Green to carry out various works on the property. The parties agreed to a concessionary rental during the initial term of the lease while Green invested in the property and five rights of renewal of two years each.
The term was defined as:
“First Tranche: 10 Months. Commencing on 1 August 2016 and expiring on 31 May 2017. Second Tranche: 1 June 2017 till 31 May 2019. “
The rent was set as:
“$15,000 per annum plus GST for the first term till 31 May 2017. Thereafter $20,000 per annum plus GST.”
Southhead argued that the initial term of the lease expired on 31 May 2017 notwithstanding:
it was clear from the quoted provisions that the initial term of the lease continued until 31 May 2019 and was in two tranches or parts, the first being from 1 August 2016 to 31 May 2017 and the second from 1 June 2017 to 31 May 2019;
the broken period was simply to allow for a differential rental to be paid during the two parts of the initial term. The first right of renewal was not exercisable until 1 June 2019; and
it would not make sense if the initial term expired on 31 May 2017 because the first right of renewal, if exercised, was effective from 1 June 2019.
All fairly clear one would argue. However, the waters became muddied as a result of email dialogue between representatives of each of the parties.
Green’s director sent an email describing the poor state of the property in some detail, and commented that it was not economic nor a good investment for Green to continue spending money repairing damage as in its current state the property was not farmable. He commented that Green had two options. Option one was to not renew the lease. Option two was to renegotiate the lease.
Southhead’s manager replied saying that she had referred the correspondence to her solicitor and would respond after she had received advice.
Green’s director again responded, stating he was happy to invest money on improving the land as it has been run down and not in the fertile state advertised. In return Green required a longer term of lease. Otherwise, he indicated, Green wouldn’t renew the lease, or, would seek to cancel the lease after the first year because the land was so badly run down it was not economic to farm it and required so much money to put it right Green couldn’t recover costs over the initial short term of the lease.
Southhead’s manager replied rejecting the complaints and pointing out that the agreed lease terms reflected the need for money to be spent on the property. She asked Green “.. be patient and honour [the] lease…” and confirmed that Southhead would seek legal advice on its position.
Green’s director then responded that not honouring the lease agreement was the very least preference as the property had real potential.
Southhead relied on the various emails from Green’s director as constituting a request to surrender the lease, which they agreed to.
The Court Decision
The question to be decided was, was there an arguable case that the email dialogue had varied the lease provisions thereby effectively ending it. The answer would enable the Court to issue either:
(a) an interim order in favour of Southhead requiring vacant possession, or alternatively,
(b) an injunction in favour of Green preventing Southhead from acquiring vacant possession,
pending a substantive claims hearing by each party against the other of them.
Gilbert J. determined:
the interpretation of the lease was as set out in the Documentation section above;
notwithstanding the different issues raised in the email correspondence, there was no clear variation, or apparent intention by Green to vary, the lease documentation to bring about an early termination of the lease.
Always ensure any documentation recording contractual agreements with other parties is clear and precise and record all arrangements as you require them to be so there can be no confusion in the event of a dispute between parties.
Be careful in entering into casual dialogue which could, in the event of a dispute with that other party, be interpreted to vary the contractual arrangements between you.
This information is intended to be general in nature. You are strongly recommended to seek your own legal advice in relation to the matters dealt with here.
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