NEW ZEALAND PARLIAMENTARY LIBRARY

BILLS DIGEST PROPERTY LAW BILL 2006 Date of Introduction: 30 October 2006 Bills Digest No. 1444 NEW ZEALAND PARLIAMENTARY LIBRARY

Bills Digest No. 1444 Published by the Parliamentary Library Parliament Buildings, Wellington New Zealand. 14 November 2006 Prepared by John McSoriley BA LL.B, Barrister Legislative Analyst Ph. (04) 471-9626 (Ext. 9626) Fax (04) 471-1250 Caution This Digest was prepared to assist consideration of the Bill by members of Parliament. It has no official status. Although every effort has been made to ensure accuracy, it should not be taken as a complete or authoritative guide to the Bill. Other sources should be consulted to determine the subsequent official status of the Bill. Copyright NZ Parliamentary Library, 2006 Except for educational purposes permitted under the Copyright Act 1994, no part of this document may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, other than by Members of Parliament in the course of their official duties, without the consent of the Parliamentary Librarian, Parliament Buildings, Wellington, New Zealand. This document may also be available through commercial online services and may be viewed and reproduced in accordance with the conditions applicable to those services.

NZ Parliamentary Library, Bills Digest No. 1444 1 PROPERTY LAW BILL 2006 Date of introduction: 30 October 2006 Portfolio: Justice Select Committee: As at 14 November, 1 st reading not held PURPOSE This Bill replaces the Property Law Act 1952 (the 1952 Act) and restates, reforms, and codifies (in part) certain aspects of the law relating to real and personal property 1. BACKGROUND Law Commission report The replacement of the 1952 Act was proposed by the Law Commission in its report entitled A New Property Law Act (NZLC R29) 2. One of the new Act s most important objectives, the report suggested, would be to set out rules of property law accessibly and in a way which, allowing for the subject matter, can be readily understood. The report was well received by interested parties when it was published in 1994. This Bill generally follows closely the text of the Bill in the Commission s report. However, some changes have been made to accommodate refinements in policy, and developments in statute law and case law since 1994. Proposals not carried forward in this Bill include proposals on release of assignors from liability, appointment of receivers in respect of mortgaged land, mortgagee sales of goods through the Registrar, and waiver of contingent conditions in agreements for sale and purchase. Current law The 1952 Act contains rules of general law relating to the creation, disposition, and control of property of all kinds, including land. These rules underpin a vast range of activities and transactions in the day-to-day life of New Zealanders. They are therefore fundamental to the workings of our society. The 1952 Act, the Law Commission noted, is a collection of miscellaneous rules; not a code, more a repository for legislative supplements to or corrections of judge-made law. It is over 50 years old, and was itself very largely a compilation of provisions introduced many years before, some dating from one of New Zealand s earliest pieces of legislation: the Conveyancing Ordinance 1842. The 1952 Act is therefore long overdue for 1 Property Law Bill, 2006 No 89-1, Explanatory Note, General policy statement, p. 1. 2 New Zealand Law Commission, A New Property Law Act, Report No 29, New Zealand Law Commission, 1994 (referred to in this Bills Digest as: NZLC, Report 29).

NZ Parliamentary Library, Bills Digest No. 1444 2 revision. Its shortcomings have resulted in litigation. This Bill will also repeal and replace ancient English statutes dating back to the thirteenth century. Effect of Bill To help to provide certainty in property dealings and protection for property rights, facilitate the resolution of disputes, and reduce litigation, this Bill: restates existing rules in language more likely to meet present and future needs; and codifies (in part) property law (much of which will continue to be dealt with by the common law) by providing a convenient statement of some of the common law and modifying portions of it that are no longer thought to be satisfactory. The Bill includes changes to a number of complex, technical, general property rules. The Law Commission considered that the provisions governing mortgages and leases were most in need of reform. A large number of reforms are proposed to clarify and reform the rules governing mortgagees in possession, mortgagees in breach of their duty (in the exercise of the power of sale), and mortgagee sales. For example, the procedural requirements for mortgagees (relating to notices to mortgagors of the exercise of mortgagees powers) are to be extended and prescribed in more detail. Mortgagees in possession will be required to account to mortgagors for income received from the mortgaged property. The Bill also contains detailed instructions for the application of income, or the priority of distribution of the proceeds of sale, received by a mortgagee of mortgaged property. The Bill codifies the law on the following matters: cancellation of agreements for sale and purchase of land where the purchaser is in possession, and relief against the purchaser's loss of the interest in the land; and cancellation of leases by lessors, and relief against forfeiture. Rules about specific property interests are found in other Acts, which will generally prevail. Those other Acts include the Residential Tenancies Act 1986, Land Transfer Act 1952, and Personal Property Securities Act 1999. The Bill will bring the law into line with other new and amended legislation, thereby ensuring that related Acts work together effectively. It will also contribute to the success of recently-amended legislation 3. MAIN PROVISIONS The Property Law Act 1952 (the 1952 Act) has 96 distinct provision which contain no equivalents in this Bill. In the Bill there are 137 distinct provisions which contain no equivalent in the 1952 Act. Below is a description of what appear to be some of the 3 Ibid, pp. 1 3.

NZ Parliamentary Library, Bills Digest No. 1444 3 more important non-equivalents in the Bill. The full Bill is described very comprehensively in its explanatory note. Purpose and scope of the Bill Clause 3, the purpose clause of the Bill, provides that:. the purpose of this [Bill] is to restate, reform and codify (in part) certain aspects of the law relating to real and personal property (Part 1, Clause 3). This Bill has a limited purpose: to restate, reform and codify the law relating to certain aspects of the law relating to real and personal property. This Bill is an opportunity to reform and codify the whole body of law relating to real and personal property and the Bill could perhaps be treated by any Select Committee invited to consider it as an opportunity to do just that. While certain parts of the Bill are stated to be themselves codes, perhaps an attempt to codify the whole of New Zealand land law in the Bill, rather than only in certain parts of it, could be considered. If the Bill as it stands is enacted, it may not achieve any sort of finality concerning land law in New Zealand. For the sake of completeness, for example, there may need to be more attention given in the Bill to equitable estates and equitable interests in land. Thought could be given to amalgamating the Land Transfer Act 1952 with this Bill. Also a much closer cross-referencing could be considered between this Bill and Te Ture Whenua Maori Act 1993 (which governs the complex Maori land system in New Zealand) as well as more specific treatment of Maori freehold land in this Bill. Definitions The Bill sets out many definitions, most of them have no equivalents in the Act. For example, new definitions include that of acceleration clause which is defined as an express or implied term in an instrument which provides that, if there is a default, any amounts secured by a mortgage become payable (or may be called up as becoming payable) earlier than would be the case if there had not been a default (Part 1 of the Bill, Clause 4, definition of acceleration clause ). The definition of bankrupt is narrowed. In the 1952 Act, bankruptcy includes administration under Part 17 of the Insolvency Act 1967, and any other Act or proceeding in law having, under any Act for the time being in force, effects or results similar to those of bankruptcy (Section 2, Property Law Act 1952, definition of bankruptcy ). In the Bill, bankrupt is a person who is adjudged bankrupt and includes a deceased person s estate administered under Part 17 of the Insolvency Act 1967 (Part 1, Clause 4). Although the definition of land 4 in the Bill refers to estates and interests in real property, the words estates and interests are not themselves defined in the Bill, nor are the terms real property and personal property. The Bill contains no definition of the word rent, although there is such a definition in the Act, even if the definition of rent in the Act may not be wholly satisfactory (as it is only of an 4 The word land is defined as includes all estates and interests, whether freehold or chattel, in real property (Part 1 of the Bill, Clause 4, definition of land ).

NZ Parliamentary Library, Bills Digest No. 1444 4 inclusive character). In the definition of the term mortgage debenture 5, the words substantially all are employed. The use of the word substantially is sure to give rise to argument, and it may be well wondered what a Court would make of the use of that word (quot homines, tot sententiae 6 ). In the definition of the term positive covenant 7, the words any person occupying it should perhaps be replaced by the words any person lawfully occupying it (although the term occupier is defined in the Bill, it is only defined for parts of the Bill and not for others). There is no definition in the Bill (or in the Act) of the term licence to occupy. Licences to occupy land are extremely common in New Zealand. It is certainly not an estate in land, but it is difficult to know what may be its characteristics. A licence to occupy land especially if given for valuable consideration may be difficult to distinguish from a lease especially a lease of a short term nature. It may be prudent to put into the Bill a definition of intellectual property. General rules relating to dispositions, instruments, transactions, and property Certain new provisions relating to deeds are set out in the Bill. Provision is made for when deeds come into force. The rule of law that a deed becomes invalid if there is a material alteration after its execution is abolished. However, alterations must be agreed to by all parties. An attorney executing a deed for a party must be appointed by deed (Part 2, Subpart 1, Clauses 9 12). Specific performance of voluntary promises made by deed The Bill provides that a court may make an order for the specific performance of a voluntary promise made by deed, but must not refuse to do so because there was no valuable consideration for the promise (Part 2, Subpart 1, Clause 18). This is an improvement in the law for volunteers. When a voluntary promise is contained in a deed, it is binding on the promisor at law and damages can be awarded for failure to carry out the promise. But equity will not assist a volunteer and, therefore, specific performance is not available for a voluntary promise (because the promise has paid no consideration). Order for refund of deposit, etc, in respect of Agreement for sale and purchase The Bill provides in relation to an agreement for the sale and purchase of land (coming into operation after 31 December 2007), where a Court has not ordered, and no Court would order, the specific performance of it by the purchaser and the purchaser is not entitled to cancel it, that the purchaser may apply to a Court for an order: 5 The term mortgage debenture is defined as an instrument creating a charge on property of a body corporate that comprises all, or substantially all, of the assets of the body corporate (Part 1 of the Bill, Clause 4, definition of mortgage debenture ) 6 There are as many opinions as there are people. 7 the term positive covenant is defined as a covenant, including an express or implied covenant in an easement, under which the covenantor undertakes to do something in relation to the covenantor s land that would beneficially affect the value of the covenantee s land or the enjoyment of the covenantee s land by any person occupying it (Part 1 of the Bill, Clause 4, definition of positive covenant ).

NZ Parliamentary Library, Bills Digest No. 1444 5 cancelling the agreement; requiring the vendor to refund the deposit and any other amounts (including interest) paid by the purchaser under the agreement; declaring that the purchaser has a lien on the land to which the agreement relates to secure payment by the vendor of any amounts ordered to be refunded to the purchaser. The purchaser remains bound by the agreement and liable to a damages claim even if the court would refuse to order specific performance. Damages for breach of contract may still be awarded to a vendor against whom an order for relief has been made. The relief is taken into account when the award is made. The jurisdiction conferred upon the court is intended to be fully discretionary, but the section has been drawn in such a way as to prevent its use by a purchaser in circumstances in which the vendor could successfully have sought a decree of specific performance. Contracting out of the section is prohibited (Part 2, Subpart 3, Clauses 37-39). This provision implements proposals in paras 195 205 of NZLCPP16 and applies in circumstances where the court in its discretion would not order specific performance by a purchaser of an agreement for sale and purchase of land but, because the vendor has not broken the contract or is not in serious breach, the purchaser is not entitled to cancel. An example is a failure by the vendor to point out a defect in quality (as contrasted with a defect in title). The vendor has no legal duty to disclose it, but knows that the purchaser is ignorant. The court might decline to grant specific performance but the contract is still on foot and, under present law, the purchaser s deposit is lost. The vendor may also be able to sue for damages: Summers v Cocks(1927) 40 CLR 321, 329 330. Another example is where a vendor has a defective title, but the purchaser has failed to put in a requisition on the title within the requisition period and the defect is not sufficiently serious to stand outside the requisitions clause 8. Feudal incidents of estate in fee simple abolished The Bill provides that a Crown grant of land, or a certificate of title or computer register having the force and effect of a Crown grant of land, whether issued before, on, or after 1 January 2008, for an estate in fee simple confers on the person named in the Crown grant or the certificate of title or computer register a right of freehold tenure (free and common socage 9 ) without any incident of tenure for the benefit of the Crown. This means that : all freehold estates granted by the Crown at any time confer freehold tenure without obligations in the form of services to the Crown; 8 NZLC Report No 29, paras. 284 and 285. 9 Socage is the feudal tenure of land involving the payment of rent or other non-military service to a superior. In New Zealand, freehold tenure carries no such payment obligation and is therefore held in free and common socage.

6 fee simple estates are freely transferable; subinfeudation of an estate in fee simple is prohibited: therefore any attempt to create a fee simple out of a fee simple operates as a conveyance of the fee simple without any reservation 10 (Part 1, Subpart 7, Clause 57). In 1992 the New Zealand Law Commission recommended that the doctrine of tenure (including the doctrine of estates) should be (at least partially) removed from New Zealand law 11 and for estates in fee simple to be converted into allodial ownership 12. But the Bill makes no provision for any such removal or conversion. It seems that additional legislation may have to be introduced to deal with these matters. The above provision is an attempt to remove the accidents (although they are now largely redundant anyway) of the doctrine of estates without removing the appearance a sort of reverse transubstantiation. Perhaps the feudal system of land law which is continued by this Bill could be replaced by a system akin to Roman law where there existed only the following distinctions with regard to property: movable property and immovable property; and things which can be touched and things which cannot be touched, and all property was owned directly (without intervening doctrines of tenures and estates). Waste The Bill provides that a life tenant or a lessee of land is liable in damages for the tort of voluntary waste and the tort of equitable waste to the person entitled to the reversion or remainder expectant on the estate for life or the lease. The Bill also deals with voluntary or equitable waste by co-owners (joint tenants or tenants in common)). and the tort of permissive waste is abolished (Part 2, Subpart 7, Clauses 68 70). This new section renders a life tenant or a lessee of land liable to pay damages to the person entitled to the reversion or remainder for the torts of voluntary waste and equitable waste unless the grant of the life estate or lease provides otherwise. The tort of voluntary waste involves taking certain action in relation to premises whereby their nature or character is altered in a permanent way to the prejudice of the person entitled to the reversion or remainder. A lessee who alters buildings on the land in a manner which damages the interest of the lessor commits voluntary waste and can be sued in tort by the lessor. However, this is rarely necessary since ordinarily the action just described will constitute a breach of the lease contract as well and the lessor will sue in contract. But the action in tort may be of assistance to a lessor where the lease covenants are inadequate; for example, in relation to the destruction of trees on the property, or where someone encourages or directs the lessee to cause damage to the property. In Mancetter Developments Ltd v Garmanson Ltd [1986] 1 QB 1212, a 10 NZLC Report No 29, paras 189 192. 11 New Zealand Law Commission, Tenure and Estates in Land, NZLC PP20, New Zealand Law Commission, Wellington 1992. 12 allodial : land held absolutely. Under the present New Zealand land law system, only the Crown has allodial rights to land. Others hold land under the doctrine of estates (e.g. usually in fee simple).

7 director of a tenant company was found liable and ordered to pay damages, because he had caused the company to commit voluntary waste by removing trade fixtures without reinstatement of holes made in the outside walls during their installation. Permissive waste is a failure to prevent delapidation 13. Mortgage over land to take effect as charge The Bill provides that a mortgage over land, whatever its form, except if the mortgage is created by a registered transfer instrument, takes effect as a charge and does not operate as a transfer of the estate or interest charged (Part 3, Subpart 2, Clause 78). This is already the case for mortgages registered under the Land Transfer Act 1952 (s 100 of that Act.) So, for example, under this Bill, a mortgage of an unregistered lease effected by assignment (by way of mortgage only) of the lease to the mortgagee, would not operate as an assignment. The literal wording of the instrument of mortgage would be overridden by the statute and consequently the mortgagee would not become, in any sense, the lessee. The exceptional situation is where the form used to convey title to the mortgagee is a memorandum of transfer; but the exception applies only after the transfer has been registered under the Land Transfer Act 1952 14. NZ Parliamentary Library, 2006 13 NZLC Report No 29, paras 210 216. 14 NZLC Report No 29, paras 346 and 347.