16 Te Waipounamu MB 63 IN THE MĀORI LAND COURT OF NEW ZEALAND TE WAIPOUNAMU DISTRICT A20090014879 UNDER Sections 18(1)(d) and 20, Te Ture Whenua Māori Act 1993 IN THE MATTER OF Section 14 Block XIII Tautuku Survey District, Section 15 Block XIII Tautuku Survey District, Section 2 Block XIV Tautuku Survey District - Recovery of rental arrears, vacant possession and reentry on Māori Freehold Land BETWEEN TAUTUKU BLOCK XIII SECTION 14 TRUST, TAUTUKU BLOCK XIII SECTION 15 TRUST AND TAUTUKU BLOCK XIV SECTION 2 TRUST Applicants AND ELIZABETH PATRINE CAIRNS AND RICHARD DAVIS CAIRNS Respondents Hearing: 9 March 2010, 2 Te Waipounamu MB 233 6 October 2010, 5 Te Waipounamu MB 49 3 November 2010, 5 Te Waipounamu MB 298 16 November 2012 28 November 2012 7 December 2012 (Heard at Dunedin) Judgment: 21 December 2012 JUDGMENT OF JUDGE C T COXHEAD
16 Te Waipounamu MB 64 Introduction [1] Three Tautuku block ahu whenua trusts seek orders pursuant to ss 18(1)(d) and 20 of Te Ture Whenua Māori Act 1993 for rental arrears, vacant possession of, and re-entry to the Tautuku trust lands which have been leased to Elizabeth and Richard Cairns for approximately 13 years. [2] The applicants contend that the Cairns are in breach of the lease agreement, having failed and/or refused to pay the rental payments due. [3] The Cairns claim that they have upheld the terms of the lease and that by agreement with the applicants, the rental due was to be offset by capital improvements undertaken by them on the trust lands. The land subject to this application [4] Section 14 Block XIII Tautuku Survey District, Section 15 Block XIII Tautuku Survey District, and Section 2 Block XIV Tautuku Survey District ( the trust lands ) are situated in the Catlins and are predominantly forestry lands with approximately 85.5 hectares of grass area. The blocks are Māori freehold land and were created by Crown grants on 6 January 1913. 1 [5] Section 14 Block XIII Tautuku Survey District is 89.9212 hectares and has 56 owners. Section 14 is administered by an ahu whenua trust. The current trustees are Huirapa Manning, Judith Manning and Richard Manning. [6] Section 15 Block XIII Tautuku Survey District is 129.0669 hecatres and has 254 owners. Section 15 is administered by an ahu whenua trust. The current trustees are Arthur Martin, Graham Nutira, Malcolm Wards, Maurice Nutira and Peter Piper. [7] Section 2 Block XIV Tautuku Survey District is 218.204 hectares and has 554 owners. Section 2 is administered by an ahu whenua trust. The current trustees are Geroge Tikao, Graham Gremell, Natalie Hoani, Peter Roben and Richard Manning. 1 CFR OT 168/252; CFR OT168/251; and CFR OT168/249.
16 Te Waipounamu MB 65 [8] The blocks were formerly administered collectively by the Tautuku Waikawa Lands Trust. Applicants submissions [9] An application was lodged by the three Tautuku block ahu whenua trusts seeking orders for rental arrears, re-entry to and vacant possession of their trust lands, along with costs and expenses of and incidental to this proceeding. [10] The applicants submit that: a) by written lease commencing November 2003 Richard Charles Tainui Manning, as an authorised agent for the trustees and approved signatory of the three ahu whenua block trusts, leased the Tautuku trust lands to the respondents. On 20 August 2008 that lease was renewed by the respondents for a period of five years through to November 2013; b) rental was agreed to be $3,500 plus GST per 6 months payable 6 months in arrears or by way of capital improvements made to the property as agreed to by both parties to a similar value; c) the respondents wrongfully and in breach of the lease agreement have failed and/or refused to pay rental payments for the period commencing from November 2003 to date; d) the applicants have agreed to exclude $7,000 plus GST of rental due for the year of November 2003 to November 2004 from any rental payable because of fertiliser said to have been applied to the trust lands by the respondents; e) the respondents received notice under the Property Law Act 2007 in May 2009 requiring them to remedy their default and pay the rental then outstanding in the amount of $28,000 plus GST;
16 Te Waipounamu MB 66 f) the respondents have failed to pay the outstanding rental and remain in default of the terms of the lease; g) a registered valuation obtained by the trustees indicates that $12,210 plus GST worth of capital improvements have been made by the respondents to the trust lands. The applicants are prepared to credit this amount to the rental outstanding under the lease; and h) therefore the total amount payable by the respondents under the lease as at the date of filing on 10 September 2009 is $17,763.65 plus GST. [11] Further, in his affidavit in support of this application, Richard Manning submits that: i) it is not accepted that the work claimed to be undertaken by the respondents was done as there is no obvious improvement to the land. The invoices for fertiliser produced by the respondents do not prove that the products were applied to the trust lands, and further the respondents never obtained agreement from the trustees for any of the expenditure as required under the terms of the lease. Respondents submissions [12] The respondents, Elizabeth and Richard Cairns, oppose the application for rental arrears and re-entry on the trust lands, and seek relief against the cancellation of the lease on the basis that they are not in breach of the lease agreement and have not failed and/or refused to pay rental payments on the due dates. They also seek costs and expenses of and incidental to these proceedings. [13] The respondents submit that: a) it was Richard Manning s suggestion that instead of paying a cash rental for the lease they could carry out improvements to the land. It was also agreed that the value of the work undertaken in the years prior to the lease agreement being formalised would be taken into account;
16 Te Waipounamu MB 67 b) the total value of work undertaken and costs incurred is $121,344.70; and c) they have occupied the land since September 1999. First informally, and since November 2003, pursuant to a formal lease and at a rental of $7,000 plus GST per annum. Calculated from September 1999 until September 2009, the total rental owing is $78,750 including GST. The value of the work and improvements evidenced exceeds this amount and accordingly there is no rent outstanding. The lease [14] As noted, the Cairns have occupied the trust lands since 1999. At first this was pursuant to an informal agreement with the trustees. In November 2003, a formal lease was entered into by Richard Manning, on behalf of Tautuku Waikawa Lands Trust (as it was then), and Richard and Elizabeth Cairns. The lease was for a term of five years and contained a right of renewal. It was renewed by the respondents for a period of five years through to November 2013. The lease covers approximately 85.5 hectares of the Tautuku trust lands. The annual rental is $7,000 plus GST payable in two six monthly instalments or by way of capital improvements made to the property as agreed to by both parties to a similar value. [15] This important clause is to be found in the schedule to the lease. The clause is set out in full below: Rental payments: $3,500.00 plus GST per six months payable six months in arrears. The first payment is due or by way of capital improvements made to the property as agreed to by both parties to a similar value The issue [16] The applicants claims are made on the basis that the respondents have failed to pay rent and are therefore in breach of the lease. Their claims for vacant possession/recovery of the land, re-entry to the land and incidental costs are reliant on a finding that rent is owed. The first issue, therefore, is whether the respondents owe rent. If it they do, then the Court may go on to consider whether it is appropriate to make orders terminating the lease or granting re-entry on the land.
16 Te Waipounamu MB 68 Has rent been paid? [17] No rental payments have been made. The Cairns claim that they had an agreement whereby instead of paying a cash rental for the lease, they would carry out improvements to the land. These improvement costs would then be credited as rental. Agreement to credit improvements for rent [18] As set out in full at [14], the lease itself clearly states that rental payments can be by way of capital improvements made to the property as agreed to by both parties to a similar value. Can the Cairns claim rental credit for improvements made before the formal lease? [19] Prior to the creation of the formal lease, between 1999 and 2003, there was an informal arrangement whereby the Cairns were allowed to graze the lands. The Cairns claim that Richard Manning agreed that the improvements made during this period before the formal lease was entered into were to be taken into account and credited towards rental payments. Richard Manning denies that such an agreement was made. [20] The applicants claim relates solely to the period following the creation of the formal lease agreement in November 2003. Mr Manning accepts that he suggested that instead of paying a cash rental the Cairns could be credited for improvements made by them to the land. He claims, however, that this agreement clearly relates only to improvements made after the formal lease was entered into. [21] The lease does not explicitly mention whether improvements made prior to the lease are to be credited towards rental, nor does it explicitly exclude them from being taken into account. The clause in the lease on rental payments states that rental payments can be made by way of capital improvements to the property. No timeframe is mentioned. Read widely, this could therefore include any capital improvements made both prior to and after the formal lease was entered into. [22] However, apart from Elizabeth Cairns affidavit, there is nothing to support the claim that improvements made prior to the formal lease were intended to be taken into
16 Te Waipounamu MB 69 account. If such an agreement was made, it would have been prudent for a clause stipulating this to have been included in the formalised lease. It would also have been prudent for the Cairns to have stated the approximate amount of improvements made prior to that date that they were seeking to credit towards rental payments. [23] There is nothing in writing, either in emails or letters, to prove that such an agreement was made. There does not appear to be any suggestion that these arrangements included consideration of improvement costs made prior to the lease taking effect. There is no proof that the issue was contemplated by the parties, and certainly no proof that it was contemplated by the applicants. [24] As there is nothing to verify the existence of such an arrangement, I cannot make a finding that there was an enforceable agreement between the parties to allow the improvements made by the Cairns prior to the formal lease to be credited towards rental payments. Amount of rental arrears claimed [25] My starting point in terms of assessing improvements to be credited as rental is the clause in the lease set out above at [14] stating that rent is $3,500.00 plus GST per six months payable six months in arrears or by way of capital improvements made to the property as agreed to by both parties to a similar value, confirming that the arrangement was agreed to by the parties from the date of the lease taking effect in November 2003. The applicants claim for rental arrears [26] In May 2009, the applicants served the respondents with a notice under the Property Law Act 2007 requiring the defendants to pay the rental then outstanding, calculated by the applicants to be $28,000 plus GST at that date, taking into account a $7000 plus GST credit for fertiliser. [27] The applicants claim that the total rental outstanding from November 2003 to September 2009 (the date the claim was filed) is $38,500 plus GST. The applicants submit that the total rent payable at that date, taking into account the $7000 plus GST concession
16 Te Waipounamu MB 70 for fertiliser and $12,210 plus GST concession for improvements is $17,763.75 plus GST. This is calculated on the basis that the concessions are valued at $20,736.25. It appears to have been reached by adding $7000 and $13,736.25 ($12,210 plus GST). Thus the applicants claim that the total rent payable for that period, with a starting point of $38,500 plus GST taking into account their calculation of concessions, is $17,763.725 plus GST. [28] The applicants advised the Court on 11 November 2012 that their claim for outstanding rental is now $52,500 plus GST. This appears to be claimed on the basis that the initial claim in May 2009 was for $28,000, and a further period of three and half years have passed since the claim was filed, thus at a rate of $7,000 plus GST per annum, an additional $24,500 plus GST is claimed taking the total claim to $52,500 plus GST. [29] By my calculations, at an annual rental of $7,000 plus GST, the total rental outstanding for the period November 2003 to May 2009 would be $38,500 plus GST. The total rental outstanding for the period November 2003 to September 2009 (the date this claim was filed) would be $40,883 plus GST. Therefore for the period November 2003 to November 2012 (nine years at a rental of $7000 plus GST per annum), the total rental outstanding is $63,000 plus GST. [30] The applicants concede that the $7,000 plus GST of rent due for the year of November 2003 to November 2004 should be offset by the cost of the fertiliser applied to the trust lands by the Cairns during that period. This reduces the claim to $56,000 plus GST. [31] A further reduction is made based on the applicants expert witness valuation of the improvements at $12,210 plus GST. [32] By my calculations, therefore, following the applicants approach of calculating the outstanding rental for the period from November 2003 to November 2012, taking into account the concessions for fertiliser and improvements, the total rental outstanding as at November 2012 is $43,790 plus GST.
16 Te Waipounamu MB 71 The Cairns claim for improvements [33] The Cairns have provided extensive invoices as evidence of their work to improve the land, which included applying fertiliser, cultivating and re-grassing land, fencing, pruning the pine trees, gorse spraying, creating roadways and fixing the existing ones. [34] As at December 2009, the Cairns claim that the total value of work undertaken and costs incurred by them since September 1999 (being the date at which they informally began to lease the land, and including the period since the formal lease came into effect in 2003) is $121, 344.70. [35] According to the Cairns claim, the improvements they made to the property between 2003 and 2009 totalled $82,053.04 in value. According to the figures supplied by the Cairns, the total value of improvements from November 2003 (when the formal lease came into effect) to the date the claim was filed in 2009 is $62,324.40, or including the value of the gorse-spraying and pruning claimed that year, $65,135.07. The gorse-spraying and pruning are not dated in the claim and thus it is unclear whether they occurred before or after the formal lease took effect. What improvements should be counted? [36] Richard Manning disputes whether the improvements claimed by the Cairns were actually made to the trust lands. Mr Manning submits that just because invoices have been produced, there is no proof that there have been improvements to the trust lands, in fact he suggests that the fertiliser and other products shown on the invoices may have been applied to the Cairns own property. He offers little evidence to substantiate this claim. Although the invoices are general in description and do not specifically refer to the Tautuku trust lands, there is equally no evidence that the fertiliser and other products claimed by the Cairns were not applied to the trust lands. [37] As noted, the applicants concede that the $7,000 plus GST of rental due for the year of November 2003 to November 2004 should be offset by the costs of fertiliser applied to the trust lands by the Cairns during that period. Further, as also noted, the expert evidence
16 Te Waipounamu MB 72 provided by Grant Barron for the applicants values the capital improvements at $12,210 plus GST. Capital improvements [38] The applicants rely heavily on the clause in the lease which states that rental payments are $3,500.00 plus GST per six months payable six months in arrears... or by way of capital improvements made to the property as agreed to by both parties to a similar value (emphasis added). [39] The applicants claim that according to this clause, the only improvements to the land that can be credited towards rental payments are capital improvements. In his expert evidence for the applicants, Grant Barron noted that although the term capital improvements is not defined in the lease, for the purposes of his valuation, he assumed it to have the same meaning as in s 2 of the Valuation of Land Act 1951 (repealed), now s 2 of the Ratings Valuation Act 1998, in which improvements are basically defined as structural improvements. [40] Grant Barron s valuation of improvements therefore does not include fertiliser, cultivation and re-grassing of land, pruning the pine trees, gorse spraying or the cost of any other products used on the land, which form a significant part of the improvement costs claimed by the Cairns. [41] The applicants submit that the Tautuku trusts have themselves also spent a significant amount of money on the land. From late 2005 to 2009, the trusts spent $147,000 on land maintenance, fencing, gorse-spraying, planting, and root-raking and land conversion. [42] Richard Manning is clear that in his view the improvements to the land which the Cairns can credit towards rental payments are capital improvements only and not mere maintenance, which he considers a large amount of the Cairns claims to be for.
16 Te Waipounamu MB 73 Agreement of both parties [43] Prior to the 2003 lease, there had been no formal arrangement for making improvements to the land in lieu of paying rent or for making any rental payments at all. However, once the formal lease was entered into, it was explicitly stated that rent could be offset by capital improvements made to the property as agreed to by both parties (emphasis added). [44] The introduction of the formal lease appears to have had little practical effect on the processes followed by the applicants and respondents with regard to the land. The Cairns continued to notify the trustees of improvements made to the land by supplying the trustees with copies of invoices after the improvements with which they sought to offset the rent had been completed. [45] While there is now no agreement between the parties as to which improvements should be credited towards rental payments, prior to the applicants request for outstanding rent in July 2008, and the subsequent claim being filed in 2009, there was no dispute with the improvements being made by the respondents. [46] From 1999, the Cairns have intermittently advised the trustees of improvements made to the land. At no time between 1999 and 2008 did the applicants dispute the nature or value of those improvements or indicate any disagreement with them. It was not until July 2008 that the Cairns were made aware of the applicants dissatisfaction with the improvements when the applicants solicitor wrote to the Cairns demanding payment of rental from 2004 to 2008. [47] It should be noted that neither between 1999 and 2003 when the formal lease was entered into, nor afterwards between 2003 and 2009, did the applicants provide any written or oral agreement to the improvements being undertaken. However as the applicants did not question or indicate any disagreement with the improvements, by allowing the Cairns to continue to farm the land, the trustees appear to have accepted the improvements that were undertaken.
16 Te Waipounamu MB 74 Is fertiliser a capital improvement? [48] At hearing, Mr Manning claimed that of the $57,000 in invoices submitted by the Cairns for improvements, $45,000 of that was for fertiliser. He makes the point that if the value of fertiliser is deducted from the improvements claimed by the Cairns, then the improvements made total $12,000 in value, and this figure is accepted by the trustees. This is also approximately the same as the figure reached by Grant Barron in his valuation of the capital improvements to the land. [49] The Cairns claim that Richard Manning specifically suggested that fertilising the land was an improvement that could be credited as rental payment. In his own evidence, Mr Manning says that the trust was prepared to exclude the rental payment for the November 2003 to November 2004 period of the lease in recognition of the cost of fertiliser applied to the land by the Cairns during that period. This shows that the applicants accept that fertiliser can be credited towards rent. [50] It is, in my view, questionable whether fertiliser can be considered a capital improvement. Surely it is an expense, and while it may go towards increasing the value of the land, it must be seen as part of the Cairns obligation under the lease to cultivate and manage all of the property in a good and husbandlike manner. Following the approach taken by Grant Barron in his expert evidence, which was not disputed, I would not consider fertiliser to be a capital improvement. However, it is clear that fertiliser was nonetheless considered as an improvement for which rental credit could be given. This is evidenced by both the acceptance by the applicants to give rental credit for the fertiliser applied by the Cairns between 2003 and 2004, and also by discussions leading up to the lease being formalised in 2003. [51] In a letter regarding the creation of a lease document, dated 18 October 2000, Mr Manning wrote to the Cairns that [w]hile the annual lease is shown in capital terms, payment can be optional, and indicated that the annual rental could be offset by work carried out to make improvements to the land. The letter concludes: I shall leave it in your hands to have your lawyer prepare a lease with all the variables of air strips, fertilizer etc being included in the attached schedule (emphasis in original).
16 Te Waipounamu MB 75 [52] This indicates that in preparing the lease fertiliser was clearly envisaged as being an improvement to the land the cost of which could be credited towards the annual rental payments. [53] This leads me to conclude that in this instance fertiliser should be considered an improvement to the property. Is rent owed? [54] Given the above, it is now a mathematical process to assess if rent is owed. [55] The total rent due from November 2003 (when the formal lease was entered into) until November 2012, taking into account the applicants concessions, is approximately $43,790 plus GST, or $49,264.75 including GST. [56] The total value of the improvements made by the Cairns, including the cost of fertilisers, from November 2003 to November 2009 is $62,324.40, or if the undated gorsespraying and pruning done in 2003 is counted, $65,135.07. The 2 Cairns updated the Court in a letter dated 27 November 2012 that they have continued to make improvements to that land from 2009 to 2012 but didn t submit any figures as to the costs incurred in making these improvements. Either way, the value of the improvements claimed by the Cairns exceeds the total rental outstanding. [57] As noted above the applicants claims are made on the basis that the respondents have failed to pay rent and are therefore in breach of the lease. Their claims for vacant possession/recovery of the land, re-entry to the land and incidental costs are reliant on a finding that rent is owed [58] No rent is owed and the applicants claims therefore fail. There is no need to consider the matters further. [59] The application is dismissed.
16 Te Waipounamu MB 76 [60] There are no issues as to costs. Pronounced in open Court at 11 am in Rotorua on the 21 st day of December 2012. C T Coxhead JUDGE 2 Paragraph [16] above.