Auckland commercial landlord Neil Christian thought he was dealing with just one pesky leaseholder running a hopeless legal argument about lease cancellation when the Court of Appeal ran a bulldozer through the entire case ruling that Christian’s Paros Property Trust invalidly raised rents for all its Freemans Bay leaseholders, failing to follow the correct statutory procedure for its 2018 rent review.
Occupants of leased townhouses in Auckland’s Freemans Bay look to benefit with substantial rent credits; the 2018 review almost tripled previous annual rents.
Sixty years ago, slum housing in Freemans Bay was demolished by Auckland Council, replaced by townhouses sold on long-term leases. Council subsequently sold its leasehold interests. Neil Christian’s Paros Property Trust Ltd snapped up the properties. It now exercises all the rights as lessor previously held by Council. The leases allow rent reviews every seven years.
Since 2018, Napier Street leaseholder Tim Smith has been waging a quixotic battle with Paros Property over his rights to purchase the freehold. The Court of Appeal was told the dispute arose after Mr Smith received his 2018 rent review, raising annual rent from $31,000 to $81,375. He signalled an interest in freeholding. Neither side could agree on the process. Mr Smith was adamant he had the right to choose a valuer to determine cost of freeholding; Paros Properties said the lease was explicit, it was for Paros as lessor to choose the valuer. Mr Smith argued this stalemate meant the lease was cancelled and he was not liable for rental arrears. The High Court ruled Paros had the right to choose the valuer and ordered Mr Smith pay over $240,000 in rental arrears.
Mr Smith appealed. The Court of Appeal confirmed the lease was never cancelled, but then put Paros Property’s lawyers in a spin by ruling the 2018 rent review process was not properly carried out. This had the effect of freezing rents at the pre-2018 rate. Mr Smith’s liability for rent arrears dropped markedly to some $87,000.
The court ruled rent reviews required a prior valuation by three independent valuers to set market rates. Both Mr Smith and Paros Property had assumed valuation was required from one valuer only.
After doing its own homework and then marking it as correct, the Court of Appeal ruled that supposedly repealed valuation procedures in the Municipal Corporations Act still applied. This anomaly arose because of the legal history of Freemans Bay’s gentrification; properties were compulsory purchased and the area redeveloped by Auckland Council using 1945 legislation: the Urban Renewal and Housing Improvement Act.
Smith v. Paros Property Trust Ltd – Court of Appeal (21.09.22)
22.168