The lessor has choice of valuer when owners of leasehold interests want to freehold Freemans Bay townhouses build by Auckland city in the 1970s.
Occupiers have been looking to freehold in the face of crippling rent rises as property values sky rocket. Some occupiers have walked off; reducing liability for rent arrears by selling their leasehold interest back to the lessor.
Inner city suburb Freemans Bay was gentrified by Auckland City in the 1970s with its purchase and demolition of slum properties, subsequently redeveloping the suburb with terraced townhouses. Auckland City initially retained ownership, selling leasehold interests to intending purchasers. Neil Christian’s Paros Property Trust Ltd took ownership after Auckland City sold its Freemans Bay property interests in the 1990s.
Caught in the rent review vice was Tim Smith. In 2015, he purchased the leasehold interest in a Napier Street townhouse for $155,000. Four years later, a rent review notice advised annual rent was now $81,375. The lease requires rent reviews every seven years. He had recently lost his job and there were ongoing relationship property negotiations with his former spouse, the High Court was told. Mr Smith approached Paros Property, looking to exercise his right to purchase the freehold. No agreement was reached on choice of valuer to put a price on the freehold. Mr Smith wanted valuers Gribble Churton Taylor; Mr Christian did not. A Paros Property internal email variously described Gribble Churton as having a ‘torrid reputation’ and acting as ‘advocate for lessees.’ Mr Smith said Paros Property’s failure to accept his choice of valuer meant the lease was cancelled and he was no longer liable for rental arrears, by then running into the hundreds of thousands of dollars.
Wording of the lease was not specific, but Paros Property had the right to choose a valuer, Justice Harland ruled. Mr Smith had no grounds for cancellation. He was ordered to pay rent arrears of $237,600. Mr Smith’s former spouse is also liable for the unpaid rent; she is recorded as joint owner of the leasehold interest in Napier Street. She has never lived at the property.
Paros Property Trust Ltd v. Smith – High Court (19.08.21)
21.139