Increased
rents demanded by Cornwall Park Trust on its leased properties look to be too
high when no bids were received for a Maungakiekie Avenue property abandoned after
the annual rental increased 900 per cent.
Cornwall Park Trust
Board in Auckland took a hard line against one leaseholder who abandoned her
property after a twenty one year rent review raised the annual ground rent to
$73,750. She was liable to pay the cost
of refurbishing the property up to standards demanded by the lease.
Young Xin Chen has
been in dispute with Cornwall Park Trust after annual rent for her property
jumped in 2009 from $8300 to $73,750.
She purchased the property at 21 Maungakiekie Avenue, Epsom in 2005 for
$450,000 when the lease had four years to run before the next rent review. Many properties in the area are owned by the
Trust and leased on perpetually renewable, long-term ground leases known as
“Glasgow” leases. Leaseholders enjoy
rights of occupation, while the Trust has residual ownership: in economic
terms, the lessor’s interest is like a bond secured over the land with the
value of the bond reset with each 21 year rent review. Rentals are recalculated with each rent
review at five per cent of the freehold property value excluding the value of
improvements to the property.
The court was told Mrs
Chen disputed the increased rental, retaining possession of the property for
the next two years before surrendering the keys.
The Maungakiekie
Avenue home was put up for auction by the Trust. Terms of the lease entitled Mrs Chen to compensation
for the value of the house and garage situated on the land if the property sold
at auction. No bids were received.
Evidence was given
that the Trust subsequently refurbished the property to what it called
“executive standard”, then rented out the property at a rate which is about
two-thirds the $73,750 annual rental demanded of Mrs Chen.
The Trust Board sued
Mrs Chen claiming lease payments at the new higher rate for the two years she
remained in possession following the rent review and also claiming costs of
repairs to the house.
Justice Ellis ruled
that Mrs Chen was liable for two years rent at the old rate only. Her Honour did not accept the Trust’s
arguments that the lease required Mrs Chen to pay two year’s rental at the new
higher rate and that she had lost her entitlement to compensation for the value
of the house and garage.
Justice Ellis ruled
that Mrs Chen was liable to pay some $119,000 for the Trust Board’s costs in
getting the property to good order and condition. Mrs Chen was in breach of lease terms
requiring her to maintain the property in good condition and to repaint the
house every five years. The house was
built in the 1920s. It was no defence
for Mrs Chen to say the house was in poor condition when she purchased it. There was evidence that Mrs Chen had stripped
from the house vanity units, doors and the stove before surrendering possession
to the Trust Board.
The Trust Board did
not seek to recover from Mrs Chen its cost in refurbishing the property above
and beyond that required by the lease in order to have the house fitted out to an
executive standard.
Cornwall
Park Trust Board v. Chen – High Court (8.10.14)
14.046