Category: Property

Land and Property Development – Legislative changes on the way

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The Resource Management (Enabling Housing Supply and Other Matters) Amendment Bill (“the Bill”) was introduced in October of this year to speed up implementation of the National Policy Statement on Urban Development 2020 (NPS-UD). The NPS-UD aims to remove restrictive planning rules and will require councils to plan better for growth. The introduction of the Bill, alongside the NPS-UD, will change the way that New Zealanders develop land, making it easier and faster to create higher-density housing.

The Bill was read for the third and final time on 14 December 2021 and we expect to see it take effect from August 2022 (the deadline for councils to incorporate changes into their district plans). It will amend the Resource Management Act 1991 to require specified territorial authorities (including those located in Auckland, Hamilton, Tauranga, Wellington and Christchurch) to set more permissive land use regulations to enable greater housing intensification.

The main way that the Bill does this is by requiring those specified territorial authorities to incorporate medium density residential standards (MDRS) into their district plans. These MDRS will designate high-density building as a “permitted activity” and will remove some of the barriers to getting resource consent for these kinds of developments. The new rules will allow developers to construct three-storey buildings with up to three residential units on a single site, and will also remove minimum size restrictions on lots created by subdivision, making it much easier to create freehold parcels for new high-density units.

The new Bill does, however, set some minimum building requirements to enable and control development (shown below).

Capture

The MDRS will only take legal effect from the time that council notifies that it has made the relevant plan changes. In the process of doing so, councils can modify the MDRS rules to make them less enabling of development where certain exceptions apply. One such exception being that a “qualifying matter” applies and an area has certain features such as significant infrastructure, natural hazards, open space for public use, heritage and consistency with iwi participation legislation. An example that applies to the Waikato specifically is where strict application of the MDRS would contravene the objectives of Te Ture Whaimana o Te Awa o Waikato — the Vision and Strategy for the Waikato River.

Watch this space

Overall, the new process proposed by the Bill (shortly to be the Act), is expected to result in fewer resource consents being required and a simpler development process. While this sounds positive, it is still unclear exactly how each council will adopt and manage this change and there are still a number of unanswered questions about how the Bill will interact with the current development environment – i.e. the current subdivision process and the number of private land covenants that exist preventing further development.

In particular, McCaw Lewis will be paying close attention to Hamilton City Council’s response to the Bill and how that will affect property development within the city. We will post updates as we receive them.

In the meantime, please get in touch with our property lawyers if you have any questions.

Amy and Emma are Solicitors in our Property Team. Amy can be contacted on 07 958 7459, and Emma’s contact number is 07 958 7439.

Inconvenient Covenants and How to Remove Them – A Cautionary Tale for Developers

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Land covenants are commonly used in New Zealand to protect a party’s underlying interests in land. The Supreme Court has recently provided guidance for landowners and developers on how the Courts will treat potentially irrelevant covenants, and how they can be extinguished or modified by the Court.

Summary

Section 317 of the Property Law Act 2007 (“PLA”) contains the legal process for modifying or removing land covenants.  A person bound by a land covenant can apply to the Court to modify or extinguish it.  In short, even when it may seem that a land covenant is no longer relevant, the Courts will be reluctant to sweep it aside.  In the recent December 2020 Supreme Court decision of Synlait Milk Ltd v New Zealand Industrial Park Ltd, Synlait would be ultimately successful in its application under section 317 of the Property Law Act 2007 (“Act”). However, this was a costly and time consuming exercise, to the point that Synlait ultimately settled the matter out of Court to protect its new $250 million factory, despite having gone through a full Supreme Court hearing.  This case presents a cautionary tale on the difficulties of removing land covenants.

History

Synlait entered into a conditional contract in February 2018 to purchase 28 hectares of land from Stonehill Trustee Limited (“Stonehill”). The contract was conditional upon Stonehill removing land covenants which restricted use of the site to grazing, lifestyle farming and forestry.

The land covenants were 20 years old and ran for 200 years. The land covenants had been put in place to protect New Zealand Industrial Park Limited’s (“NZIPL”) ability to develop a quarry in the future. Removing the land covenants would make it more difficult for NZIPL to apply for a quarry resource consent on Stonehill’s land.

Stonehill attempted to negotiate with NZIPL for the removal of the land covenants but was unsuccessful.

The land had been rezoned from rural to industrial land in 2012 and notably there were other industrial activities nearby, including another dairy plant. There were also a number of planning changes to the Pōkeno area which changed the Synlait land to “Industrial 2” land. Grazing, lifestyle farming and forestry were “non-complying activities” under “Industrial 2” zoning which compromised what the land covenants had intended to achieve. NZIPL’s land was still zoned to allow for discretionary quarrying.

Court Decision and Appeal Grounds

A High Court decision in November 2018 removed the land covenants, and Synlait consequently took title of the land and began building their milk factory. NZIPL succeeded in overturning the High Court decision in the Court of Appeal, with the Court of Appeal finding that despite the changes in zoning and neighbourhood, NZIPL should continue to enjoy the same benefits from the land covenants.

Synlait appealed the May 2019 Court of Appeal decision. The key ground being under section 317 (d) of the PLA, and the Court of Appeal’s assessment of whether there has been “substantial injury” to entitled parties.

In short, Synlait sought to extinguish the land covenants on their burdened land. Alternatively, it sought to modify the land covenants to allow development of the burdened land.

NZIPL submitted that Synlait’s factory would make it harder for NZIPL to obtain quarrying resource consent, thereby “substantively injuring” NZIPL.

Supreme Court Analysis

Section 317 of the PLA has a number of grounds that can be considered when modifying or extinguishing an easement of covenant. The categories considered by the Supreme Court were:

317(1)(d): Would there be substantial injury (from the milk factory)?

For an injury to be substantial it must be “real, considerable, significant as against insignificant, unreal or trifling.” The Supreme Court was satisfied that modification of the land covenants would not substantially injure NZIPL. This was in part because there were already two milk factories in the area, meaning a further milk factory would not make much difference. There was also uncertainty as to whether NZIPL would ever actually develop a quarry.

317(1)(a)(ii): Does the change in neighbourhood justify the removal/modification of the land covenants?

The second ground relied upon was that modification of the land covenants was justified due to changes in the neighbourhood. The Supreme Court was satisfied this ground was made out due to a significant increase in the population of Pōkeno, and there had been significant commercial and residential development.

317(1)(b): Do the land covenants impede reasonable use of the burdened land?

When the land covenants were entered into, it was reasonable for the burdened land to be restricted to grazing or forestry operations. The reasonable use of the burdened land had changed because of the changes in zoning and the neighbourhood generally.

The Supreme Court was satisfied that the changes were not foreseeable when the land covenants were entered into. This in turn meant that the land covenants, appropriate at the time, now impeded the reasonable use of the land to a greater extent. The Supreme Court disagreed with the Court of Appeal, and held the land covenants were an impediment on the land.

Key Learnings

Land developers should treat land covenants with an appropriate amount of respect before looking to challenge them, even if the covenants appear no longer relevant.  There has been a substantial increase in the numbers of applications to modify covenants in recent years, and with the increasing pressure on land use and availability, that trend is likely to continue.  Although the Courts look like they are more willing to modify or remove covenants, the process is still slow, and as Synlait found out, extremely costly.

Andrew is a Solicitor in our Dispute Resolution Team and can be contacted on 07 958 7447.

Residential Tenancies Amendment Act 2020

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The Residential Tenancies Amendment Act 2020 (RTA) came into force on 11 August 2020 and introduced staggered changes to New Zealand rental laws aimed at better aligning them to the realities of renting in New Zealand.

While the first phase of these changes has been effective since 12 August 2020, the second more substantial set of changes took effect from 11 February 2021.  A final phase of changes will follow in August 2021.

The RTA reforms will substantially change how renting in New Zealand works, and it is crucial that landlords familiarise themselves with the new rules.  Below is a brief summary of some of the most important changes (a full list is available on the Tenancy Services website available here).

Phase One – Changes that have applied from 12 August 2020
  • Rental Increases are now limited to once every 12 months. Previously, rental increases could occur every 6 months.
  • The RTA no longer applies to transitional and emergency housing which is funded by a government department or provided under the Special Needs Grants Programme.
Phase Two – Changes that took effect from 11 February 2021
  • Rental bidding will be prohibited. This means that rental properties cannot be advertised without a price listed, and landlords cannot organise a “rental auction”.
  • Landlords will be prevented from unreasonably withholding consent to minor changes to the rental property e.g. adding fixtures and undergoing minor renovations or alterations.
  • All fixed-term tenancies will automatically convert into a rolling periodic tenancies unless they are terminated with notice within a specific timeframe.
  • Notice periods and termination procedures will change, particularly in relation to periodic tenancies. Landlords will no longer be able to end a periodic tenancy without cause by providing 90 days’ notice.
  • New termination provisions are introduced which limit the situations when a landlord may terminate a tenancy. These include if the tenant is showing ‘anti-social’ behavior, where it would be unreasonable to require continuation of the tenancy, and where the tenant is physically abusive.
  • Penalties for breaching the RTA will significantly increase.
Phase Three – Changes taking effect by 11 August 2021
  • Tenants will be able to withdraw from a lease quickly and without financial penalty if they are experiencing family violence. Other changes in respect of family violence and physical assault will come into force.

If you would like further information about how the RTA changes may affect you, please get in touch with the team at McCaw Lewis.

Dale acknowledges the assistance of Emma Toseland and Amy Bird in preparing this article.

Dale is a Director and leads our Property Team. He can be contacted on 07 958 7428.

Lockdown Land Law: A Moving Target

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Buying and selling property has been challenging across the Covid-19 Alert Levels.  At Level 4, most settlements ground to a halt.  Exceptional settlements were still possible, such as on bare land or where the parties were not required to physically move home.  If physical distancing could not be observed and non-essential workers, such as movers, had to work away from home, the settlement could not take place.

Many purchasers and vendors agreed to defer settlement until the alert level was lowered to Level 2, on the assumption that tight restrictions would likely remain at Level 3.  Instead, when the restriction lifted, guidelines allowed for most property transactions to occur – truly a moving target.  Therefore, where both parties agreed, settlements could take place in Level 3.

The Prime Minister has announced further details about Level 2, and at 11.59pm on Wednesday 13 May we will be moving there.  The good news is that open homes and auctions will be back on the menu at Level 2 with appropriate health measures in place.

The key steps in property transactions can still be completed at Levels 2 and 3 where health precautions are followed.  Below, we address how these key steps can look.

Property transactions at Alert Levels 2 and 3

Keen buyers can organise finance with their bank to buy property.  At Level 3 most banks have a specific day and hours where they are open for meetings with clients with physical distancing in place.  Clients can contact their bank or check their website for those opening hours.  It is unclear at this time whether banks will operate more “normal” hours under Level 2, although it seems likely.

Once we move to Level 2 auctions and open homes will recommence.  Open homes will be conducted involving fewer than 100 people, provided all attendees can always safely keep at least a one metre distance.  Stringent hygiene protocols and contact tracing measures will also need to be observed.  Sale and purchase agreements can be negotiated in person and auctions involving fewer than 100 people can also take place.

At either Levels 2 or 3, houses viewings, whether for a private viewing or a pre-settlement inspection, can be completed.  Parties will need to adhere to physical distancing.  If there is an agent involved in the sale, they will be able to help facilitate these viewings according to health regulations.  Similarly, conditions like building reports, where an inspector needs to look in the property, can occur where physical distancing is adhered to.

The need for repairs may arise while fulfilling these conditions.  For repairs to be carried out tradespeople can operate provided they have a Covid-19 control plan.  These measures will remain in place for Level 2.  If certain repairs cannot be completed due to alert restrictions, we recommend parties consider a reduction in the purchase price for the cost of repairs, allowing the purchaser to complete those works post-settlement.

To complete settlement, clients will have to sign settlement documents, including loan agreements and a formal authority to transfer the property.  We can meet with you, and witness necessary documents, through audio visual channels like Zoom and Facetime.

Passing over the keys has been a core “what if” in lockdown settlements.  We suggest that immediately following settlement, sanitised keys be handed over or made available by the vendor to the purchaser ensuring that there is no physical contact between the parties.  Again, where an agent is involved, they will be able to assist with the process of passing keys from vendor to purchaser.

At the finish line, when the purchaser takes possession they can move into the property.  Under Levels 2 and 3, moving services can operate with appropriate measures in place.  We recommend you contact your preferred moving company ahead of time to ensure they can help you move under the restrictions at the relevant alert level.

Despite the above workability, those selling properties with residential tenants must be wary.  Parliament has introduced measures whereby a tenancy must not be terminated by the landlord during a three month window starting on 25 March 2020 unless specific exceptions apply.  If you are a landlord that wishes to sell a property with vacant possession, please contact us for advice about whether termination would align with the law.

At McCaw Lewis we are keeping our eye on the target as alert levels continue to move.  If you are buying or selling a property, we are happy to assist you.

If you would like further information please contact Dale Thomas on 07 958 7428.

COVID-19 – Can we use electronic signatures to sign documents?

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Electronic signatures have been considered valid by New Zealand law for some time.   Faced with the challenges of the Covid-19 crisis and ongoing restrictions on our ability to travel and meet with others, it is likely we will see widescale adoption of electronic signatures as parties seek to progress matters remotely. However, the use of electronic signatures has not yet completely replaced the practice of signing documents by hand.  This article summarises the law on electronic signatures, and discusses the differences (and advantages) of “digital signatures” versus other forms of electronic signature.

The validity of electronic signatures

So long as certain requirements are met, an electronic signature is just as valid as a written signature under New Zealand law.

Part 4 Subpart 3 of the Contract and Commercial Law Act 2017 (the “Act”) regulates the use of electronic technology for legal purposes.  It aims to promote functional equivalence (meaning the law will not discriminate between paper-based transactions and electronic transactions) and technological neutrality (meaning the Act does not specify or favour any particular technology platform).

For an electronic signature to be valid, the Act requires three core elements: (1) identification; (2) reliability; and (3) consent.  To elaborate further, an electronic signature meets the legal requirement for a signature (including a witness’ signature) if:

  • It adequately identifies the signatory (or witness) and adequately indicates the signatory’s approval of the information to which the signature relates (or that the signature has been witnessed);
  • It is as reliable as is appropriate given the purpose for which, and the circumstances in which, the signature (or witness’ signature) is required; and
  • The person receiving the signed information (or requiring the witnessing) consents to receiving the signature in electronic form.

For the purpose of the Act, an electronic signature will be deemed reliable if:

  • The means of creating the electronic signature is linked to the signatory and to no other person;
  • The means of creating the electronic signature is controlled by none other than the signatory;
  • Any alteration made to the electronic signature after time of signing is detectable; and
  • Where the requirement for a signature is to provide assurance as to the integrity of the information, any alteration made to that information after the time of signing is detectable.
Are there any exceptions?

There are some significant general exceptions to the application of the part of the Act that deals with meeting legal requirements by electronic means.  Some of the key exceptions include:

  • Affidavits, statutory declarations or other documents given on oath or affirmation;
  • Powers of attorney or enduring powers of attorney; and
  • Wills, codicils or other testamentary instruments.

These (and other) important categories of document must still be on paper.

Other documents common in a law office that have always required written signatures include bank documents and authority and instruction (A&I) forms.  While it remains to be seen whether lending institutions will collectively update their current policies regarding written signatures and witnessing in light of the Covid-19 crisis, we have already seen new guidance issued in relation to land transfer documents.    

In its Authority and Identity Requirements for E-Dealing and Electronic Signing of Documents Interim Guideline 2020 published 30 March 2020, Land Information New Zealand (“LINZ”) acknowledged the validity of electronic signatures under New Zealand law and permitted their use with land transfer documents, provided that the electronic signature complies with the requirements of the Act and that the signature is a “digital signature” as opposed to an image of a signature simply inserted onto a document.  Digital signatures are discussed in more detail below.  Practitioners will also have to ensure that an audit record of the digital signing log can be produced, and that the system provides sufficient assurances so that the required certifications can be made.

Digital signature software

The most technologically secure signature (and the form of electronic signature required to comply with the new LINZ guidance) is a digital signature.  A digital signature is a form of encryption technology created and verified by code, and provides a platform to build a secure electronic signature.  Its purpose is to provide verification of the authenticity of a signed record.  Digital signatures will provide a log of the signing activity and, once a signature has been made, that signature and its information, as well as the contents of the document, are locked and unable to be edited or tampered with.

Examples of popular digital signature technology packages include Secured Signing and RightSignature.  This software is not available free to users, and in some cases the cost of obtaining and maintaining a digital signature may not be viable/desirable for lower value and/or lower risk transactions.  However, where a document of significance is to be signed by electronic means, a digital signature offers the highest level of security and reliability, provided the statutory requirements have also been met.

An electronic signature that is not a “digital signature” is an electronic symbol or reference that captures the user’s intent, and is commonly used in email software as a means of signing off.  These simple forms of electronic signature are much less secure than digital signatures and more vulnerable to being challenged on the basis of reliability.

Conclusion

New Zealand law provides a mechanism for the use of electronic signatures on a variety of legal documents.  In most circumstances an electronic signature is a valid way of creating a legal signature where a handwritten written signature would otherwise be used.  For the purposes of security, it is best practice to use encrypted signing software.  There are some significant categories of document where electronic signatures are not yet recognised by the law.  Regardless of the preferred method for signing agreements (whether by hand or electronically), appropriate care should be taken, and advice sought, before assuming legally binding obligations.

If you would like further information please contact Laura Monahan on 07 958 7479.

COVID-19 – What happens to my commercial lease?

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As New Zealand slowly becomes accustomed to our new normal of COVID-19 Level 4 Government restrictions, landlords and tenants are now beginning to wonder what this may mean for their leasing arrangements.

What does my lease say?

Those who have entered into leases using the Auckland District Law Society Sixth Edition standard Deed of Lease (generally, leases entered into since December 2012) will, unless amended via negotiations at the time, have included in their lease standard clause 27.5, which provides that if the tenant cannot “fully conduct” its business from the premises because of an emergency, then a “fair proportion” of the rent and outgoings will cease to be payable from the time the tenant became unable to gain access to the premises to fully conduct its business.

Is this an emergency?

The definition of “emergency” in the standard ADLS lease includes an epidemic.  It has been generally agreed among the legal community that clause 27.5 is triggered for most businesses, with the possible exception of essential services, on the basis that the tenant is unable to fully conduct its business from the premises during the Level 4 lockdown period.

What is a “fair proportion”?

What is less certain is what constitutes a “fair proportion” by which to reduce a tenant’s rent and outgoings – and the opinion will no doubt be different depending on whether you are looking at the issue through the eyes of the tenant or the landlord.

There is no standard answer here.  What is a “fair proportion” in each case will depend on the particular circumstances of the tenancy.  As most lease disputes are resolved via arbitration or some other alternative dispute resolution, there is also no case law on this issue to guide us.

Arguably, this is a valuation issue – and a discussion with your valuer could indeed be helpful.  In our opinion, the interests and rights of both the landlord and the tenant need to be balanced when negotiating any reduction:

  • Presumably the tenant is still storing items in the premises, albeit that it is not fully carrying on its business from the premises. This will be especially relevant if all or part of the tenant’s “business use” stated in the lease is warehousing, storage or similar.
  • The tenant may have a specialist fit-out, and branding on the premises which remains during the lockdown.
  • The tenant has the benefit of being able to immediately commence business from the premises once the lockdown ceases; the landlord cannot re-let the premises.
  • The landlord still needs to pay its mortgage or similar.
  • But importantly, in most situations the tenant will simply be unable to trade.

One thing is clear, whether you are the landlord or the tenant: early discussion around this issue is important.  The team at McCaw Lewis are happy to help with these discussions as needed, and are operating fully from our homes during the lockdown period.

What if my lease does not have a “no access” provision?

Your lease may not include a “no access” provision if it was prepared on an earlier version of the ADLS form (Fifth Edition and earlier) or if it was prepared on the Sixth Edition and the provision removed during negotiations between the parties.

Where a tenant is unable to trade during the COVID-19 Level 4 Government restrictions and, as a result, is struggling with its obligations under the lease, we are encouraging the parties to work together in good faith to find a solution that allows business to resume as normal as soon as the restrictions are lifted.  Solutions might include a reduction of a “fair proportion” of rent, even though the lease does not strictly provide for one, or deferring rent until the restrictions are listed.

Most landlords will not want to see their tenant’s business fail.

If you need assistance with any commercial lease issues, please contact Laura Monahan or Dale Thomas.

Laura is the Managing Associate in our Commercial Team and can be contacted on 07 958 7479.

Dale is the Managing Associate in our Property Team and can be contacted on 07 958 7428.

Te Ture Whenua Māori (Succession, Dispute Resolution and Related Matters) Amendment Bill: Property Amendments

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The Government has recently introduced Te Ture Whenua Māori (Succession, Dispute Resolution and Related Matters) Amendment Bill. The Bill introduces a number of practical and technical amendments to Te Ture Whenua Māori Act 1993 designed to enable Māori land to work better for whānau. The purpose of the Bill is to ensure the intergenerational wellbeing of Māori landowners and to provide for the utilisation of their whenua.

The Bill targets five key areas of the Act – Dispute Resolution, Succession, Court Powers, Trusts and Incorporations, and Property Law. Over this series of articles we take a look at the key areas of amendment and discuss how the amendments will affect owners of Māori land, trusts, and people dealing with Māori land.

Our third article (read first article, read second article) examines the proposed amendments to these rights which are aimed at making the Māori Land Court more “user friendly”.

The Bill introduces key changes to how the Māori Land Court deals with property rights, specifically the way property rights are enforced and the scope of the Court’s jurisdiction. As indicated by the Māori Development Minister, Hon Nanaia Mahuta, the intention of the proposed changes reduces the complexity and compliance Māori landowners encounter when they engage with the Māori Land Court.

Although minor, these changes will provide Māori landowners and trustees with efficiencies when dealing with their whenua.

Māori Customary Land

Māori Customary Land is land that is held in accordance with tikanga Māori. Such land is usually culturally significant and, in most cases, forms  the foundation for the history, knowledge and tikanga of its owners.

The Bill proposes that Māori Customary Land, or an interest in it, cannot be:

  • Alienated;
  • Disposed of by will; or
  • Vested or acquired under any Act.

However, the Bill allows changes such as:

  • Changing Māori Customary Land to Māori Freehold Land;
  • Change or determine owners, or the class of owners, of Māori Customary Land; and
  • Specific changes that are conducted in line with the relevant tikanga.

The Bill affords the Māori Land Court with specific powers to change Crown land to Māori Customary Land where the land was Māori customary land before becoming Crown Land.

We see the main task for the Court in these situations to be to define who the previous owners were and the class of persons the land is to be returned to. This will mean that the land is returned free from any trusts, restrictions, or conditions that may have previously existed over it. The Courts will be required to follow a strict process and ensure there is sufficient support for the determinations to be made.

Considering the significance of Māori Customary Land, we consider the proposed changes beneficial for Māori Customary landowners and to those who seek the return of their customary land. These changes highlight the evolving nature and importance of tikanga Māori and balances this with the necessary protections and controls over Māori Customary Land under the Act.

Landlocked Land

Historically, landlocked land has plagued many Māori landowners with being unable to access their whenua. In many situations, this continues to be an issue for Māori landowners, especially where landlocked land has urupā, wāhi tapu or is simply underutilised.

The Bill allows owners of landlocked land to apply to the Court for reasonable access to that land. The Bill proposes that in considering an application, the Court would have to look at a range of factors like:

  • The relationship of the applicant to the land; and
  • The culture and traditions of the applicant with respect to the land.

These positive proposals are complemented by the proposed Te Puni Kōkiri Whenua Māori Fund which can be accessed by Māori landowners to assist with landlocked land access. The Whenua Māori Fund prioritises utilisation of Māori land and will likely unlock the unrealised potential for growth.

Occupation Orders

Currently Māori landowners are able to apply to the Court for an occupation order which grants people the right to occupy a house or site on Māori freehold land.

Previously, occupation orders could not be made for beneficiaries of a Whānau Trust. The Bill proposes to allow the Court to grant occupation orders where the trustees of the Whānau Trust agree. This change makes the Act more consistent with its own provisions and the preamble, and more amicable to trustees of Whānau Trusts.

Alongside this proposed amendment is the proposal to extend the timeframe that trustees of a Māori Reservation can grant leases and occupation licences on Māori Reservation land. The extension to 14 years or more applies to papakāinga housing, or leases and occupations licenses to be granted for education or health reasons. We see this as a positive step toward better assisting communities with interacting with and living on their whenua.

First Right of Refusal

Currently, if Māori freehold land is to be transferred by sale or gift, it must be offered under a right of first refusal to the “preferred classes of alienees” unless the proposed sale or gift will be to a member of that class of people.

The Bill clarifies the process for a ‘right of first refusal’, primarily how a notice of the sale or gift should be drafted and who it should be sent to. Notice is now required to be sent to the preferred class of alienees whose physical or electronic address are known to the seller. Although this will create additional time and cost implications for sellers, the proposals better align with the retention purpose of the Act.

Technical Amendments

Finally, the Bill provides an array of technical property changes to the Act which generally extend the Māori Land Court’s jurisdiction and powers in the context of:

  • Mortgage provisions under the Property Law Act 2007 in relation to Māori land; and
  • Easement and covenant provision under the Property Law Act 2007 in relation to Māori land.

The Bill also proposes beneficial changes such as:

  • Removing the creation of esplanades and strips when land is partitioned;
  • Removing the ability for a person to claim an interest in Māori land on the basis of adverse possession;
  • Clarifying the recovery of debt in specific situations; and
  • Removing the Court’s ability to order surveys and payment of surveys by Māori landowners.
Summary

Although the full ambit of consequences that, on a practical level, may arise as a result of the Bill are not all identified, the Bill does pose a more streamlined process for utilisation of Māori land by its owners.

If you would like further information please contact Kylee Katipo on 07 958 7424.

Housing Accords and Special Housing Areas Act update

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The recent Enterprise Miramar Peninsula Incorporated v Wellington City Council [2018] NZCA 541 (“the Case”) provides important commentary on the interpretation of section 34 of the Housing Accords and Special Housing Areas Act 2013 (“the Act”) and on apparent bias in relation to local authority decisions.

Section 34 considerations

Section 34 of the Act outlines the factors that must be taken into account when considering an application for a qualifying development resource consent under the Act.  The Act states that the following factors must be given weight in the order listed as follows:

  • The purpose of the Act, which is stated at section 4 as being to “enhance housing affordability by facilitating an increase in land and housing supply in certain regions… identified as having housing supply and affordability issues”;
  • The matters in Part 2 of the Resource Management Act 1991 (“RMA”) which relate to the sustainable use, development, and protection of natural and physical resources;
  • Any relevant proposed plan;
  • Other matters that would arise under sections 104-104F of the RMA or other enactment as applicable;
  • The key urban design qualities expressed by the Ministry for the Environment.
The case

The Court of Appeal found that the Wellington City Council (“the Council”) failed to correctly consider the section 34 matters.  The key issues on appeal were:

  • Error of law, in the Council’s approach that the purpose of the Act trumped other considerations;
  • Error of law, around the adequacy of infrastructure under section 34(2);
  • Apparent bias.
Weight of the purpose of the Act

While the purpose of the Act is to be given the most weight, the Council was found to have used the relative weight given to this factor in order to neutralise the other considerations.  The factors outlined in sections 34(b)-(e) were held to have ‘no more than a minor effect’ in comparison to the purpose, so the Council did not consider the true adverse effects on the application.

This meant that Council had not properly considered all five factors properly.  It had considered one factor in detail (the purpose of the Act), and had used this to give less attention to the other factors.

Decision-makers are required to assess the matters listed under section 34 uninfluenced by the purpose of the Act, before standing back and looking at the overall balance.

In other words, a council should independently assess each matter first and then weigh them in that order to reach a decision.  The matters cannot have been weighed appropriately if section 34(1)(a) was used to neutralise the matters in sections 34(1)(b)-(e).

Failing to sufficiently consider the required factors before weighing themwas a significant error as the correct application of section 34 could have resulted in a different outcome to the application.

Apparent bias

The Court ordered the Council to reconsider the application. The Court did not believe that it was necessary to appoint independent commissioners to conduct the review, but Council was encouraged to consider councillors’ ability to bring an open mind to the decision due to the possibility of apparent bias following the proceedings.

In terms of bias, the Court held that in many local authority regulatory decisions it is inappropriate to require a standard of complete impartiality.  Due to the dual functions of local authorities, there are limits to the application of apparent bias, as councils will often be required to make regulatory decisions about a matter in which a council has an interest.

For this reason, the Court clarified the legal test for local authority bias as being whether the ultimate decision was made by open minds, in which case a predisposition to a particular result will not render the decision invalid.

Conclusion

The Enterprise Miramar case clarifies the way in which section 34 of the Act should be applied, finding that each factor must be assessed individually before being weighed against the purpose of the Act.

Further, the Court clarified the test for apparent bias in local authority decisions, requiring only an open mind to be brought to the matter.

The firm acknowledges the assistance of Kaylee Bird in preparing this article.

If you would like further information please contact Dale Thomas on 07 958 7428.

No more letting fees

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Under the Residential Tenancies Act 1986, letting fees covering the costs incurred by letting agents (usually property managers) have been able to be charged to tenants.  A letting fee is any charge relating to granting, continuing, extending, varying, renewing or assigning or sub-letting under the tenancy agreement.  Under the Residential Tenancies (Prohibiting Letting Fees) Amendment Act 2018 (“the Act”), in force from 12 December 2018, the charging of letting fees will be banned.

The Bill was introduced on 22 March 2018 and received Royal assent on 6 November 2018.  The timeframe between Royal assent and commencement has been shortened from the prior commencement date of 3 months following Royal assent, to coming into force on 12 December 2018.  This is as New Zealand’s tenancy turnover is highest between November and February.  The earlier commencement date helps to maximise the reduction in costs for new tenants.  The Act is not retrospective, and does not apply to any letting fees charged within a tenancy agreement entered into prior to 12 December 2018.

From the commencement date, any charging of letting fees is deemed an “unlawful act” – this includes charging any fees of the kind discussed above, by whatever name called.  Some property managers are introducing new fees to charge to landlords to cover the cost of finding tenants, such as “Tenancy Fees” or “Admin Fees”.  Landlords should be aware that these fees cannot be passed on to the tenant as they are simply letting fees with different names.  Anyone who is found to have unlawfully charged a letting fee could be liable for up to $1,000 in exemplary damages.

This does not have any impact on the ability to charge rent in advance or a bond.  It further does not impact the landlord’s ability to recover reasonable expenses from a tenant where expenses are incurred from the tenant wishing to reassign or sublet.  Letting agents are still able to be used, however the landlord must meet the costs of this themselves instead of passing them on to the tenants.

Dale acknowledges the assistance of Kaylee Bird in preparing this article.

Dale is a Senior Associate in our Property Team and can be contacted on 07 958 7428.

Farm failure and family fallout leads to Supreme Court ruling on prejudiced shareholders provision

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Baker v Hodder [2018] NZSC 78 deals with important company law issues, and at the highest level.  In a sadly familiar set of facts, the case concerned a farming business run on land owned by a family company which was unsuccessful and ultimately became insolvent, forcing the sale of the farm.  It is worth noting as it is the first decision by the Supreme Court on the ‘prejudiced shareholders provision’, a widely relied upon provision in the Companies Act 1993 (“the Companies Act”).

Background

Kadd Farm Limited (the Company) was a family company with its shareholders being Wallace and Ann Hodder (70%) and Duncan and Kathryn Baker (30%).  Kathryn Baker is Wallace and Ann Hodder’s daughter.

The Company owned a farm known as Heron Creek.  The farm was run by the Bakers and the Company leased the farm to Mr Baker’s company, DB Contracting Agriculture Ltd (DB Contracting).  Unfortunately, the Bakers were unsuccessful in their enterprise and DB Contracting defaulted under the lease causing the Company to default under its mortgage.

The farm was ultimately put on the market and offers were received.  The shareholders did not agree on an appropriate counteroffer to those offers.  The Hodders made a counteroffer on behalf of the Company without consultation or agreement by the Bakers.  An agreement for sale and purchase was signed.  As the sale constituted a major transaction for the Company, the agreement was conditional on the necessary approval of at least 75% of the shareholders required by section 129 of the Companies Act (a special resolution).  The Bakers refused to sign a special resolution approving the sale.

High Court decision

The Hodders sought relief under section 174 of the Companies Act alleging that the Bakers’ refusal to sign a special resolution was oppressive and/or unfairly prejudicial to the Hodders and the Company.

The High Court truncated the timetable for the proceedings on the basis that the matter was urgent (though it was acknowledged that there may have been some artificiality to the urgency given that the proposed purchasers were already in possession of the farm).  It held that the refusal to sign constituted prejudicial conduct and ordered the Bakers to sign a special resolution allowing the sale of the farm.  Further to this, the High Court refused to stay its decision to allow the Bakers to appeal it.

The Bakers signed a resolution in compliance with the Court order and Heron Creek was sold.

Court of Appeal decision

The Bakers unsuccessfully appealed to the Court of Appeal.  The Court of Appeal held that the appeal was moot as the farm had already been sold.

Supreme Court

The Bakers sought leave to appeal to the Supreme Court.

Although the Supreme Court accepted that the appeal was moot in the sense that the farm had been sold it decided that the Court of Appeal should have heard the appeal on the basis that:

  • The award of costs may be reversed on appeal;
  • The High Court decision raised important questions about the interaction between sections 129 and 174 of the Companies Act; and
  • The truncation of the process in circumstances where the outcome was final, rather than interlocutory, was unfair.
Unfair process

The Supreme Court held that:

  • the truncation of the process;
  • the High Court’s order requiring the Bakers to sign the special resolution was not a matter that had been the subject of pleading or advance notice; and
  • the final determination made by the High Court might stand in the way of any future proceedings by the Bakers against the Hodders,

all which unfairly affected the Bakers’ presentation of their case.

Prejudiced shareholders provision

Commonly, applications of prejudicial conduct arise in the context of small, family owned companies.  In these companies there is often an understanding that all shareholders will take part in the business and it transpires that either a shareholder is excluded from the management of the company, or its corresponding director fails to pull his or her weight.  Courts have very wide powers to make an order to remedy the prejudicial conduct, though such orders are usually in the form of liquidation or forced share sales.

In the High Court the Hodders argued that the Company’s position and their position as shareholders were unfairly prejudiced by the Bakers’ refusal to sign a special resolution.  The High Court confirmed that they were prejudiced in their capacities as directors and shareholders on the basis that unless the farm was sold, the Company’s debts would increase with no prospect of repayment.  It took full advantage of the wide powers available to it to remedy the prejudicial conduct in ordering the Bakers to sign a special resolution under section 129 of the Companies Act.

The Supreme Court disagreed with the High Court’s decision.  As part of its discussion of the prejudiced shareholders provision, the Supreme Court referred to the Law Commission’s report recommending company law reform (Law Commission Company Law: Reform and Restatement (NZLC R9, 1989) along with the explanatory note to the Companies Bill 1990.  It confirmed that in most circumstances, including voting on major transactions, shareholders can vote according to self-interest and they are not subject to the obligations imposed on directors.  This is a fundamental principle of company law.

The Supreme Court rather sensibly held that the Bakers were merely exercising their rights as shareholders by withholding their approval under section 129.  It confirmed that the Bakers did not owe any statutory duty to the Company or to the Hodders in relation to the sale of the farm (meaning there was no prejudicial conduct in refusing to sign the special resolution).

Relationship between sections 129 and 174

The Supreme Court confirmed that the language in section 174 was not properly suited to the Bakers’ case, where the oppression complained of consisted of a shareholder invoking the right to decline to approve a major transaction under section 129.  However, it noted section 174(3) which allows an order to be made against a person other than the relevant company, including a shareholder, suggesting that section 174 could apply.

Company members must take care when drafting documents such as constitutions or shareholders agreements to ensure that no unintended duties are created which might give rise to an action under section 174 (and conversely any intended duties are accurately recorded).  In some relief, the Supreme Court issued a cautionary note confirming that the power to make an order against a person other than a company under section 174 should be exercised very carefully.

The Court’s decision is sound and ensures the fundamental principles of company law protecting shareholders are maintained.

Conclusion

Ultimately the Bakers were successful in their appeal.  The Supreme Court confirmed that the Court of Appeal should have heard the Bakers’ case and the order made under section 174 was quashed.

Amanda is an Associate in our Commercial Team, specialising in Company Law,  and can be contacted on 07 958 7451.

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