We all know that leases have formal notice requirements built in to them. In practice however, it is not uncommon for tenants and landlords to miss a date, and sort it out later. But what happens when a landlord tries to take advantage of the slip up for its own commercial advantage? The 2022 case of Kuoch v Ganda shows the High Court’s view on this.
This case related to a bakery-turned-laundromat. In November 2017 the landlord received notice from the council that to boost infrastructure funds for the city, the premises would attract a substantial additional fee if the premises used more than a certain amount of water. Mr Kuoch was unaware of this when he took on an assignment of lease in 2018 for the premises, which had recently been converted for use as a laundromat.
When in June 2020 the landlord received a bill from Council for for over $100,000 it tried to pass that on to Mr Kuoch for payment. Mr Kuoch wasn’t sure he should be paying the infrastructure charge.
The landlord took some time to respond to Mr Kuoch’s request for information about the charge, and then realised that Mr Kuoch had failed to renew his lease in January 2020, and that a rent review was due. The landlord decided that the failure to renew the lease in time presented an opportunity to bargain with the tenant about the water charge.
After a bit of back and forth, the landlord’s solicitor suggested that if the invoice was not paid, their client would terminate the month-to-month tenancy.
Eventually the landlord did pay the invoice, and called the client to say that the water invoice was sorted and that they just needed to organise the renewal.
But when Mr Kuoch received the documents to sign, those in fact varied the lease and required Mr Kuoch to pay over $9,000 to cover the portion of the invoice incurred while Mr Kuoch was in occupation (even though he had not had notice of the new water charges when he took on the lease). The renewal also required Mr Kuoch to take steps to reduce usage, otherwise he would be liable for future invoices.
Mr Kuoch was in a bind. Having failed to give notice to renew in time, it seemed that he had to accept those new conditions in order to secure the further lease term.
However s261 of the Property Law Act 2007 came to the rescue, as that section provides a safety net for tenants when some of the formalities of a lease have been missed.
That section allows the court can force the landlord to renew a lease where the tenant has failed to give proper notice. Here the court agreed that power should be used, because there was no particular reason why the renewal was not formalised (Mr Kuoch had been intending to do so) but simply overlooked it.
The court didn’t like the landlord’s attempt to take advantage of Mr Kuoch’s mistake to put extra obligations into the lease and said that was a “fundamentally an opportunistic attempt” by the landlord to use the missed renewal against Mr Kuoch.
The court’s powers under the Property Law Act are very wide, but you shouldn’t rely on them! To avoid getting yourself in Mr Kuoch’s situation, make sure you diarise your renewal dates (which may be years ahead).
If you are a tenant needing advice or a landlord dealing with the complexities of commercial leasing, have a chat with one of our friendly local commercial tenancy experts at Henderson Reeves Lawyers 09 281 3723.