A
Christchurch commercial tenant four years into a 15 year lease was given two
months to pack up his business and his personal effects when the property was
sold out from underneath him in a mortgagee sale. Secured creditors can ignore leases given
after a mortgage is set up unless they have consented.
Mr McVicar felt he had been shafted after
given notice to quit his leased property at 227 Fitzgerald Avenue in
Christchurch. He took out a 15 year lease
on an earthquake-damaged building in 2015 at $400 per week. It was used as a clothing retail outlet. He also lived in a small part of the
building. Mr McVicar used his skills as
a builder to remediate some of the earthquake damage, successfully reversing a
local authority demolition order.
Evidence was given the landlord cancelled
his building insurance in late 2010, months prior to the February 2011 earthquake. Secured creditors hold a $378,000 first
mortgage security, registered back in 2004.
The High Court was told police were
called when hostilities broke out between Mr McVicar and his landlord: the
landlord complained rent was in arrears; Mr McVicar said the landlord had not
reimbursed him for work done protecting and preserving the building. Police invited lawyers acting for secured
creditors to step in and sort things out.
It was in the secured creditors’ interests that lease payments be
made. The landlord could than pay
interest due on the mortgage. With a mortgagee
sale looming, Mr McVicar canvassed the possibility of buying the property
himself. Nothing came of this.
With the landlord in arrears on loan
repayments, secured creditors’ gave notice of a forced sale requiring Mr
McVicar to vacate. They were not bound
to honour the lease. Their mortgage security
was taken before the lease was given.
They had not consented to the lease.
Associate judge Matthews said consent
requires a positive affirmative act. The
creditors had notice of the lease. Their
solicitor had been given a copy.
Knowledge does not amount to consent.
Their solicitor had attempted to mediate in the dispute between landlord
and tenant, but was careful to make it clear that this was not consent to the
validity of the lease. While the McVicar
lease was enforceable against the landlord, it was not enforceable against the
prior secured creditors who had not given consent. The mortgagee was entitled to vacant
possession on a forced sale.
Cameron
& Co v. McVicar – High Court (29.02.16)
16.037